For the past decade, U.S. stocks have been the top performers. But history shows that international stocks—both in developed markets (like Europe and Japan) and emerging markets (like China and India)—have had their own winning streaks. The question is: Could international stocks take the lead again?
Instead of trying to guess the perfect time to invest internationally, a better approach is to keep a steady mix of U.S. and international stocks based on historical correlations. Tools like the Portfolio Optimizer and Model Match can help advisors build portfolios that combine international exposure with other investment strategies, creating a more balanced and historically tested mix.
1. The U.S. Dollar May Be Peaking
A weaker U.S. dollar makes international stocks more valuable for American investors.
The dollar has been strong for years, but many experts believe it may start weakening.
If the Federal Reserve lowers interest rates, the dollar could drop, making international investments more attractive.
2. Global Growth May Be Catching Up
The U.S. economy has been growing, but other countries may start gaining ground.
Japan’s economy is showing signs of strength after years of slow growth.
Emerging markets like India and Mexico are expanding faster than the U.S.
If global economies pick up while U.S. growth slows, international markets could perform better.
3. U.S. Stocks Are Expensive
Right now, U.S. stocks cost more than international stocks when compared to their earnings.
The S&P 500 trades at about 20 times earnings, while European stocks trade at 13 times earnings and emerging markets at 11 times earnings.
In the past, when U.S. stocks became this expensive, international markets often outperformed.
4. Different Markets Lead at Different Times
The U.S. stock market is full of big tech companies like Apple and Microsoft, but other markets have different strengths.
Europe and Japan are strong in industrials and finance.
Emerging markets have growing tech, consumer, and energy companies.
Japan’s corporate reforms are attracting new investors.
India and Mexico are benefiting from new manufacturing growth as companies look for alternatives to China.
How Advisors Can Use Portfolio Tools to Build Smarter Allocations
Instead of trying to time when international stocks will take off, a smarter approach is to maintain a well-diversified portfolio that includes international exposure.
The Portfolio Optimizer can help advisors find the best mix of international and domestic investments based on historical returns and correlations.
The Model Match tool helps find models that are low-correlated to the model of your choice.
For advisors who are heavily invested in U.S. stocks, this may be a good time to reassess global allocations. International stocks have played an important role in strong, diversified portfolios—and with the right tools, advisors can integrate them effectively for long-term success.
To find iQUANT international stock models, utilize the Model Finder or Find Your Strategy tools.