MW Why U.S. stocks are a better bet than international - despite lagging lately

By Christine Idzelis

Some international equities indexes have recently outperformed S&P 500. But will it last?

International stocks have been beating U.S. equities lately amid worries about tariffs under President Donald Trump, but that may not last considering the expected corporate-earnings trend.

While there may be more "upside" for stocks in China and Europe to outperform for now, overweighting the U.S. in a global equities portfolio still makes sense, Yardeni Research said in a note dated Feb. 17. "The forward earnings of the US MSCI stock price index continues to outpace that of the All Country World ex-US MSCI stock price index," Yardeni said.

The firm pointed to the chart below, which tracks the ratio of forward earnings per share for U.S. stocks to the rest of the world.

"The trend is our friend, and suggests that Stay Home is the way to go for long-term investors," wrote Yardeni. That's even if "a Go Global investment strategy has outperformed the Stay Home alternative so far this year."

Investors are watching to see how Trump's tariff agenda will play out in the U.S. economy, with concerns around the potential to hurt growth and increase prices domestically.

After the White House recently imposed tariffs on aluminum and steel, investors are now anticipating that it will impose reciprocal tariffs on countries that charge levies on U.S. goods.

"So far, Trump's tariff turmoil seems to be weighing more on the U.S., Canada, Mexico, and many other emerging markets than on China and most European countries," said Yardeni. "That could change once reciprocal tariffs are actually imposed by the U.S. in early April, unless Trump changes his mind, again."

The S&P 500 index SPX was trading about flat around midday at around 6,115, according to FactSet data, at last check. That's just below the index's record closing high of 6,118.71 on Jan. 23.

Shares of the iShares MSCI ACW ex U.S. ETF ACWX, an exchange-traded fund that holds stocks globally while excluding the U.S., has gained almost 8% so far this year based on Tuesday midday trading levels, according to FactSet data. That exceeds the S&P 500's gain of 4% year to date as of midday Tuesday.

Germany ETF on track for record high

Among single-country equities funds targeting Europe, the iShares MSCI Germany ETF EWG was rising a sharp 1.2% midday Tuesday, putting it on track to potentially close at its first record since 2007, according to Dow Jones Market Data. The German equities fund has surged almost 16% so far in 2025 based on Tuesday midday trading levels.

In emerging markets, the iShares MSCI China ETF MCHI, which tracks an index of Chinese equities, has soared 15.3% year to date, FactSet data show at last check.

Meanwhile, the bull market for U.S. stocks has persisted in 2025, with investors worried about stretched valuations in the U.S. stock market. Goldman Sachs Group's wealth-management business cautioned in January that "valuations alone are not a good signal for exiting the market."

Goldman's investment strategy group expects the S&P 500 will end this year between 6,200 and 6,300.

The U.S. stock market was trading mostly modestly down around midday Tuesday, with the Dow Jones Industrial Average DJIA dipping 0.2%, the S&P 500 about flat and the technology-heavy Nasdaq Composite COMP falling 0.2%, according to FactSet data, at last check.

"We continue to like U.S. stocks," with a focus on financials, industrials and healthcare, DataTrek Research co-founder Nicholas Colas said in a note emailed on Feb. 14.

"Outside the U.S., Europe got so oversold late last year that it is worth a look as a trade through the back half" of the first quarter, Colas said.

"Chinese stocks are getting a lot of attention now that DeepSeek has shown the country's ability to create truly novel and disruptive technology," he said, "but that slice of the global equity market is only for those with extremely high risk tolerances."

-Christine Idzelis

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February 18, 2025 13:00 ET (18:00 GMT)

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