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U.S. Stocks in Reverse: What Happens When Global Markets Soar Ahead

HomeU.S. Stocks in Reverse: What Happens When Global Markets Soar Ahead

U.S. Stocks in Reverse: What Happens When Global Markets Soar Ahead

U.S. Stocks in Reverse: What Happens When Global Markets Soar Ahead

US Stocks Lag Behind International Peers in 2025

The performance of US stocks has been underwhelming so far in 2025, with the S&P 500 Index (SPX) struggling to keep pace with its international counterparts. To put this into perspective, we can compare the SPX's year-to-date performance to that of the MSCI World ACWI ex-USA Index, which tracks large- and mid-cap stocks across developed and emerging markets outside the US.

According to a recent chart, the SPX has been relatively flat in 2025, while the ACWI ex-USA Index has seen significant gains. This is unusual, as data from mid-1994 shows that a $10,000 investment in the SPX would have grown to over $130,000 by now, whereas the same amount invested in the ACWI ex-USA Index would be worth around $26,000.

What Happens When International Stocks Outperform US Stocks?

Historically, when international stocks outperform US stocks through May, it has been a bad omen for future performance. In fact, since 1994, this has happened only eight times in the last 30 years. During these periods, the SPX averaged a loss of 2.92% for the rest of the year, with just three positive returns.

In contrast, when the SPX beats global stocks through May, it has averaged a return of 8.9% for the rest of the year, with 82% of the returns positive. This suggests that international stocks may not be as strong as they seem at present.

A Look at Historical Data

To better understand what happens when international stocks outperform US stocks through May, let's take a closer look at historical data. The ACWI ex-USA Index has averaged a loss of over 4% from June to December in years it beat the SPX through May, with half of the returns positive.

However, this is not always the case. In other years, the ACWI ex-USA Index has averaged a gain of 5.8%, with 64% of the returns positive. This suggests that there may be some underlying factors at play that are contributing to the underperformance of US stocks.

Relative Strength Analysis

Another way to analyze this data is by looking at the six-month relative strength (RS) of the ACWI ex-USA Index compared to the SPX. The recent RS reading has reached 1.20, which is generally rare for global stocks to outperform by that much.

To put this into perspective, there have been only 10 prior instances where the RS has reached 1.20. In each of these cases, the SPX has outperformed going forward, averaging a return of 4.95% over the next three months, with 80% of the returns positive.

Over the next year, the SPX has averaged a gain of 14.5%, with 90% of the returns positive. This suggests that international stocks may not be as strong as they seem at present.

Conclusion

In conclusion, if you're looking to make a bearish case for US stocks, you can point to historical data showing that when global stocks lead over the first five months of the year, stocks tend to underperform for the rest of the year. On the other hand, if you're making a bullish case, you can look at data showing that stocks have outperformed when global stocks beat US stocks in the six months prior.

Ultimately, only time will tell what the future holds for US stocks and their international peers. However, by examining historical trends and patterns, we can gain valuable insights into potential outcomes and make more informed investment decisions.