Global equities have staged a remarkable comeback in 2025, outpacing U.S. stocks for the first time in over a decade. The Morningstar Global Markets ex-US Index recorded a significant increase of approximately 32%, nearly doubling the 17% return of the U.S. market benchmark. This shift raises questions about a potential rotation in investment portfolios, as international stocks gain renewed interest among investors.
ETFs Capitalizing on International Gains
Exchange-Traded Funds (ETFs) tracking international markets have emerged as clear beneficiaries of this trend. The SPDR Portfolio Developed World ex-US ETF (NYSE:SPDW), which comprises over 2,300 developed-market stocks outside of the United States, surged by more than 30% over the past year. This ETF’s holdings include prominent global companies such as Samsung Electronics, ASML Holding, and Roche, enhancing its appeal within the narrative of international recovery while maintaining low fees.
The surge in these ETFs can be attributed to several factors influencing the shift in equity performance. A notable contributor has been the dynamics of currency exchange. The U.S. dollar experienced its sharpest half-year decline since the early 1990s, benefiting dollar-based investors holding assets in foreign markets. Concurrently, international markets enjoyed a boost from improving economic conditions across both developed and emerging regions.
Economic Drivers Behind the Shift
European markets have played a pivotal role in this rally. Spain’s IBEX 35 index skyrocketed by around 50% last year, while Germany’s DAX index rose approximately 23%. Emerging markets also contributed to this momentum, with the MSCI Emerging Markets Index returning about 34%. Countries such as South Korea have particularly thrived due to their significant involvement in the AI hardware supply chain. Meanwhile, Brazil and Mexico have made gains driven by shifting global trade dynamics.
Despite the encouraging signs, analysts caution against jumping to conclusions regarding the longevity of this trend. Some strategists believe that the current shift may signal a durable change rather than a fleeting moment. Predictions suggest continued weakness in the U.S. dollar, and many international equities still trade at substantial valuation discounts compared to their U.S. counterparts. A report from JPMorgan noted, “Opportunity still exists in developed ex-U.S. financials given still deep valuation discounts.”
Higher dividend yields offered by international stocks further bolster the case for diversification. Nevertheless, declaring the end of U.S. market dominance may be premature. Major American technology companies continue to hold a dominant position in the global market, and various risks—including geopolitical tensions and currency fluctuations—could quickly alter investor sentiment.
For the time being, ETFs aimed at providing international exposure are regaining traction among investors reassessing their geographic allocations. This shift suggests that while U.S. market supremacy may not be entirely over, it is certainly facing significant competition as global equities regain their footing.
