“I’ve been everywhere, man,
I’ve been everywhere, man…
Of travel I’ve had my share, man,
I’ve been everywhere.”
(From “I’ve Been Everywhere”, by Johnny Cash, 1996)
By Scott Welch, CIMA®, CEPA®, Chief Investment Officer & Partner
Reviewed by Carter Mecham, CMA®, IACCP®
All anyone wants to talk about today is AI stocks, the Fed, inflation, the economy, tariffs, and the labor market. And that’s fine – these are important things that are happening right now and will have significant effects on the US economy and investment markets.
But rather than get caught in that fast-moving riptide of media and analyst focus, we’re going to write about something that is currently getting less attention with US investors: non-US markets.
The Outperformance of US Markets
First, let’s acknowledge reality. There are good reasons US advisors and investors often overlook non-US markets. From a behavioral perspective, one of our favorite adages is “No US advisor ever got fired for over-allocating to the US.”
This is the behavioral habit known as “home country bias,” where most investors prefer to invest in their own countries because they believe they know that market better than “foreign” markets.
But all those different investors in all those different countries can’t all be right because different markets perform better or worse than others over different periods of time.
There are other reasons for US investors to currently be largely ignoring non-US markets – just look at the numbers. The outperformance of the US markets over the past ten years has been staggering.
Source: Ycharts, 10-year data through November 3, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Are Non-US Markets Posed for a Comeback?
But here is something else to notice – if and when the non-US markets do outperform (often accompanied by a declining dollar), it tends to be a multi-year phenomenon.
Source: JP Morgan “Guide to the Markets,” as of September 30, 2025. You cannot invest in an index and past performance is no guarantee of future results.
We certainly have seen a decline in the dollar over the past twelve months.
Source: Ycharts, 12-month date through November 3, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Will the dollar decline continue? Perhaps not, and it has shown signs of regaining strength over the past month or so. But should the Fed continue to pursue a rate-cutting regime, that by itself would not suggest significant strengthening going forward.
The dollar has declined roughly 8-10% so far this year, providing a nice tailwind for US investors on their non-US investments. But take a look at the YTD performances of US versus non-US investments – there is something going on besides just a weakening dollar.
Source: Ycharts, YTD data through November 3, 2025. You cannot invest in an index and past performance is no guarantee of future results.
There are a variety of factors contributing to this outperformance: a commitment to increased defense spending in Europe, easing inflation in many non-US countries, chip and other technology developments in Asia, continued fiscal and monetary stimulus in China, and a general (for now) easing of trade concerns.
We can see this if we look at the performances of the primary countries that make up the MSCI EAFE (developed international) and MSCI EM indices, respectively.
EAFE:
EM:
Source for both charts: Ycharts, YTD data through November 3, 2025. You cannot invest in an index and past performance is no guarantee of future results.
With respect to EM performances, most of Korea’s returns have come in the past month as US trade deals with Japan and China relieved a great deal of investor anxiety. Conversely, India has been hurt by high US tariffs imposed on it because it is (was) importing Russian oil – perhaps a temporary phenomenon.
Do Non-US Investment Opportunities still Exist?
It is normal for non-US countries to trade at discounted valuations relative to the US, but what we see now are differentials as wide as they have ever been.
Source for both charts: Yardeni Research, as of November 3, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Source: WisdomTree, as of October 31, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Source: Morgan Stanley / Eaton Vance “The Beat,” October 2025. You cannot invest in an index and past performance is no guarantee of future results.
We note that current valuations in the US are skewed dramatically upward by the mega-cap tech stocks. Without them, the US still looks expensive but not unreasonably so.
Source: Yardeni Research, as of November 4, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Of course, the ability of equity markets to maintain rallying prices and higher than normal valuations is completely reliant on generating continued earnings growth.
When looking outside the US, there seems to be general optimism that earnings growth will continue over the next several years.
Source: JP Morgan “Guide to the Markets,” as of September 30, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Source: Morgan Stanley / Eaton Vance “The Beat,” October 2025. You cannot invest in an index and past performance is no guarantee of future results.
Source: State Street Investment Management, as of September 30, 2025. You cannot invest in an index and past performance is no guarantee of future results.
Summary and Interpretation
As strategic investors, we believe in global diversification and, so far in 2025, that diversification has paid off. Non-US investments have dramatically outperformed the US, even with the phenomenal performances of the US mega-cap tech stocks.
US investors and the financial media are consumed and obsessed with all things Artificial Intelligence (AI), and justifiably so. We are on the cusp of a quantum leap forward in technological advancement and increased productivity.
But it is a great big world out there, and other markets and other companies have significant growth potential as well.
Given what we believe to be somewhat “frothy” valuations in the mega-cap tech stocks, we believe it is prudent to consider other, more reasonably valued allocations. We don’t advocate for abandoning the mega-cap techs but simply spreading the chips around in anticipation of what we believe will be the inevitable falling back to earth of at least some of those stocks as investors shake out which they believe will be the winners and losers.
We believe looking outside the US is a good place to start.
As always, we welcome your questions and feedback.