The S&P 500, recognized as a critical benchmark for the U.S. stock market, has seen only a modest gain of less than 1% year-to-date. In stark contrast, the MSCI ACWI ex U.S. Index, which serves as a gauge for the global stock market excluding U.S. equities, has delivered a robust 10% return in the same timeframe. This disparity represents the widest margin in relative performance at this point in any year since 1995, as noted by Kevin Gordon, the head of macro research and strategy at Charles Schwab.
Investors have increasingly watched global markets outperforming the U.S. stock market, particularly during the second term of former President Trump. Concerns surrounding his trade policies have raised doubts about their impact on the U.S. economy. This skepticism has only intensified following the recent Supreme Court ruling that overturned many of the tariffs instituted during his administration. Analysts believe that this trend of global stocks outperforming their U.S. counterparts may persist, particularly in emerging markets.
One key factor behind this global success is the more attractive valuation of international stocks. The forward price-to-earnings multiple of the MSCI ACWI ex U.S. Index is approximately 32% lower than that of the S&P 500. Historically, U.S. stocks have commanded a premium over their international peers; however, the current premium is nearly double the long-term average, according to JPMorgan Chase.
Additionally, the depreciation of the U.S. dollar has benefitted foreign investments, with the U.S. Dollar Index dropping 10% under Trump’s leadership. Factors such as sweeping tariffs, rising federal debt, and aggressive critiques of the Federal Reserve have all contributed to this trend, which typically devalues a currency as investors look to more stable foreign markets.
Since Trump resumed office in January 2025, the MSCI ACWI ex U.S. Index has risen 40%, contrasted with a 15% increase in the S&P 500. This remarkable 25-percentage point difference marks an unprecedented phase over recent history.
In light of these developments, analysts from Goldman Sachs, led by Peter Oppenheimer, forecast that the S&P 500 will achieve an annual compounded growth rate of 6.5% over the next decade. However, they project even more promising growth for other international markets, particularly emerging markets. For investors seeking exposure to impactful emerging market equities, index funds such as the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) are popular vehicles.
Both funds are heavily invested in countries like China, Taiwan, India, and Brazil, but differ significantly in their composition. The iShares fund includes substantial South Korean stock holdings, in contrast to Vanguard’s exclusion of South Korea from its emerging market classification. Furthermore, while the iShares fund has a higher expense ratio of 0.72%, the Vanguard fund is more affordable at just 0.06%.
In recent performance, the iShares fund has yielded a return of 42%, benefiting from significant investments in major South Korean memory chip manufacturers, including Samsung and SK Hynix, which have thrived amidst the growing demand driven by the AI boom. Nevertheless, over the past five years, both funds have largely returned similar results, with Vanguard’s lower costs balancing the iShares fund’s premium performance.
While global investments may be appealing, many experts suggest retaining a significant portion of investment portfolios in U.S. equities. The U.S. remains a leader in technological innovation, which has historically fueled economic growth over the long term.
Amidst these evaluations of stock performance, some investors are exploring alternatives to the S&P 500. The Motley Fool’s Stock Advisor has recently highlighted ten stocks poised for substantial growth, distinct from those within the S&P 500. Historical performance showcases that timely investments in recommended stocks like Netflix and Nvidia yielded extraordinary returns since their initial recommendations.
As investors assess their strategies, it is crucial to consider the ongoing fluctuations in global markets and economic indicators, alongside emerging opportunities that could reshape their portfolios.
