It’s been a banner year for international stocks compared to the U.S. The iShares MSCI All Country World Index ex U.S. ETF (ACWX) has rallied more than 14% in 2025, while the S & P 500 is marginally higher year to date. ACWX also hit a closing record high on Tuesday, while the U.S. large-cap benchmark is still 3.8% below its all-time high set in February. This outperformance by the rest of the world is uncommon to say the least. DataTrek Research co-founder Nicholas Colas noted that international stocks are outpacing the S & P 500 by more than three standard deviations over the past 100 days. That’s only the third time that’s happened since 2010, he said. These periods have historically been followed by a swift comeback in the S & P 500 relative to the All Country World Index. But Colas thinks this time could be different. ACWX .SPX YTD mountain ACWX vs SPX year to date “We must consider the possibility that there is a regime shift underway in currency and/or equity markets,” Colas wrote. “Perhaps capital will keep flowing out of the dollar and U.S. stocks for both diversification and fundamental reasons.” The dollar index, which measures the greenback’s performance against six leading currencies, has tumbled 8% in 2025. That loss is driven in part by concerns around evolving U.S. trade policies. President Donald Trump in April unveiled a raft of steep tariffs on imported goods. Since then, many of those levies have been temporarily paused or reduced. A lower dollar tends to benefit international markets outside the U.S., making it cheaper for consumers and companies overseas to buy dollar-denominated goods and assets, be they energy or gold or anything else. Stronger overseas currencies also translate into more dollars when non-U.S. returns are measured here. That tailwind has powered 2025 thus far: iShares MSCI Emerging Markets ETF (EEM): up 10% year to date iShares MSCI Japan ETF (EWJ): up 11.7% in 2025 iShares MSCI China ETF (MCHI): up 15.3% this year “The safest path is to continue to index weight rest of world stocks (roughly a 36% allocation),” Colas added. “While we are still long-term bullish on U.S. equities, investors who benchmark against global equities or those worried about missing out on non-U.S. gains might be well served by owning rest of world stocks for the next few months.” Bank of America also pointed out that the technical backdrop for international looks promising. Strategist Paul Ciana noted that ACWX’s 50-day moving average is rising and that its 14-week RSI is above 65. “For those reasons, this is a technically constructive picture. Fibonacci measures suggest the breakout can trend higher,” he said.
The rest of the world is trouncing the U.S. stock market. Why that could continue
May 28, 2025
