The post election market rally has quickly dissipated. Since Inauguration Day, U.S. equities have stalled, with the S&P 500 now flat for the year as of Friday morning.
Adding to investor concerns, U.S. stocks have underperformed major European and Asian indices in 2025. Hopes for deregulation and tax cuts under President Donald Trump have been overshadowed by growing uncertainty around tariffs, layoffs, and economic policy shifts. While his administration aims to revitalize the U.S. economy, the investment landscape suggests an international resurgence is underway.
“The narrative of American exceptionalism may have been overplayed,” says Angelo Kourkafas, senior global investment strategist at Edward Jones. He notes that after a strong U.S. stock market performance in 2024, international equities became overly discounted. Now, a correction is in motion.
Recent market movements suggest this trend may only be gaining traction. The S&P 500 dropped 2.5% this week, while the Nasdaq Composite declined 5.2%. The Dow Jones Industrial Average remained relatively stable but still reflects investor unease.
Further evidence of this shift emerged with the unwinding of the artificial intelligence (AI) trade. Nvidia stock fell 8.5% on Thursday despite solid earnings, a sign that market enthusiasm around AI-related stocks may have reached unsustainable levels. Many investors with passive index exposure now find themselves heavily concentrated in tech stocks tied to the AI boom.
“Global diversification is looking more attractive,” says Andreas Utermann, chairman of Vontobel. He highlights that U.S. equities now make up 75% of the MSCI World Index—a historically high level compared to the more typical 50% range. This imbalance suggests investors should consider broadening their portfolios.
Economic concerns are also mounting. Inflation remains persistent, with the personal consumption expenditures (PCE) price index rising 2.5% year over year in January. Additionally, consumer confidence declined in February. Investors will be closely monitoring upcoming manufacturing and employment data for further signals of economic weakness and potential shifts in asset allocation strategies.
Another factor favoring international markets is valuation. The Stoxx Europe 600 index trades at less than 15 times projected 2025 earnings, compared to the S&P 500’s multiple of 22. Fundamental catalysts support this international resurgence. Mike Dickson, head of research at Horizon Investments, points to expectations of a resolution in the Russia-Ukraine conflict and China’s development of DeepSeek, a lower-cost AI technology, as key drivers for non-U.S. markets. “While international allocations may have dampened performance when the U.S. led the market, they now offer a stabilizing effect in a more balanced global environment,” he notes.
International fixed income markets are also showing promise. The iShares International Aggregate Bond ETF and Vanguard Total International Bond ETF have both returned nearly 1% this year, with trailing yields above 4%. While these returns lag the 2.2% gain for the iShares Core U.S. Aggregate Bond ETF, the value proposition remains strong. Rebecca Venter, senior product manager for fixed income at Vanguard, suggests investors should hold roughly 30% of their bond allocations in international securities. “Many pockets of the global bond market present solid fundamentals,” she says, noting that European corporate bonds, like their equity counterparts, offer attractive valuations.
This does not mean investors should abandon U.S. assets entirely. Earnings growth among S&P 500 companies, excluding the Magnificent Seven, has gained momentum. Additionally, a recent decline in bond yields has provided a lift to Treasury returns. However, for investors who assumed U.S. dominance was unshakable, the past few months have been a clear wake-up call.
It may be time to reconsider global opportunities.
