International investors may be witnessing a significant shift in market dynamics as 2025 marks a notable change from a decade of U.S. market dominance. Strengthened by robust earnings growth and favorable policy reforms, international equities across Europe, Japan, and emerging markets have outperformed their U.S. counterparts, suggesting a possible turn toward global diversification.
Historically, market leadership cycles have varied from one decade to another, with periods of U.S. outperformance often giving way to emerging markets and other sectors. Notably, in 2025, international stocks surpassed U.S. equities by approximately 17 percentage points, indicative of improving corporate fundamentals and narrowing growth differentials between these markets.
Despite the U.S. equity market’s central role since the global financial crisis, where it benefitted from strong dollar performance and technological advancements, recent trends show that reliance on U.S. assets may be shifting. U.S. stocks currently trade at over 22 times anticipated earnings, compared to around 13 times for emerging markets and 15 times for other international equities. This valuation gap raises questions regarding sustainability, particularly as earnings growth projections show international markets poised for more substantial growth than the U.S.
As concerns about the long-standing dominance of U.S. equities grow, the discourse around “American exceptionalism” is being reevaluated. With many emerging markets introducing structural reforms and corporate governance initiatives, they are increasingly seen as attractive investment opportunities. The prospect of a prolonged transition away from U.S. market leadership appears to be on the horizon, as conditions may align favorably for international stocks moving forward.
Why this story matters
- It signals a potential shift in investment strategy for global investors, moving from U.S.-centric portfolios to more diversified international investments.
Key takeaway
- Valuations and growth prospects for international equities are improving, suggesting a more balanced investment scenario.
Opposing viewpoint
- Some analysts argue that U.S. equities will maintain their prior strength due to unparalleled innovation and the continued dominance of technology sectors.
