COLLEGE PLANNING | ESTATE PLANNING | INSURANCE | INVESTING | PORTFOLIO SPOTLIGHT | REAL ESTATE | RETIREMENT | TAX PLANNING
A New Era For Global Equities?
Has a major rotation away from U. S. dominance begun?
By Larry Swedroe
OVER THE PAST 17 YEARS, U. S. INVEStors have found international diversification unrewarding. From 2008 through 2024, the S & P 500 delivered an annualized return of 10.7 %, far outpacing the MSCI EAFE Index’ s 3.3 % and the MSCI Emerging Markets Index’ s 1.9 %. This outperformance was driven largely by U. S. stock valuations that were rising as those international peers wavered: the 10-year cyclically adjusted price earnings ratio for the S & P 500 climbed from 26.3 to 37, while the EAFE index’ s fell from 25 to 18.5, and the ratio for the emerging markets index dropped from 33.3 to 15.9.
The U. S. equity market’ s dominance has been underpinned by a combination of factors, including the economy’ s robust culture of innovation, flexible labor markets, higher productivity, strong consumer demand, a favorable regulatory environment, lower corporate taxes, strong intellectual property protections, and open trade policies. The rise of mega-cap technology companies— the so-called“ Magnificent 7”— has also played a disproportionate role in boosting U. S. returns. However, this concentration has left the market vulnerable to shifts in sentiment, especially as valuations reach historically high levels.
2025: A Turning Point?
In 2025, the narrative has shifted. The uncertainty about U. S. trade and tax policy has resulted in reduced consumer and business confidence, elevating the risks of a recession. This, in turn, has undermined confidence in continued U. S. exceptionalism.
What’ s more, the U. S. dollar has weakened significantly— the U. S. Dollar Index( a measure of the dollar against a basket of other currencies) fell from 108.49 at the end of 2024 to 99.06 by late April 2025. The dollar’ s slide reflects mounting concerns about aggressive tariff policies, geopolitical tensions and threats to Federal Reserve independence, all of which have fueled talk of“ de-dollarization” as global central banks reduce their dollar holdings in favor of gold and other currencies. A weaker dollar amplifies inflation, raises capital costs for U. S. firms, and reduces the relative attractiveness of U. S. equities for foreign investors.
Meanwhile, Europe is taking decisive steps to stimulate its economies. Germany, for instance, has announced one trillion euros in fiscal stimulus— focused on infrastructure and defense— in response to the Ukraine conflict and shifting U. S. geopolitical commitments. The EU is also relaxing fiscal rules to allow greater defense spending and considering repurposing unused Covid-19 recovery funds and liquidating frozen Russian assets to further boost economic activity.
These policy moves have begun to change market dynamics. Year-to-date through April May 9, Vanguard’ s S & P 500 ETF( VOO) has lost 3.4 %, while the firm’ s Developed Markets Index
36 | FINANCIAL ADVISOR MAGAZINE | JUNE 2025 WWW. FA-MAG. COM