One of the key themes emerging in 2025 is the strong performance of international stocks relative to their U.S. counterparts. As of April 25th, the MSCI ACWI ex U.S. index is up 7.5%, while the S&P 500 is down -5.7%—a 13.2% gap. Most of that outperformance is driven by developed international markets (+10.1%), which are outperforming emerging markets (+2.9%) by more than 7%.
This kind of divergence has sparked a flurry of headlines questioning the idea of "American Exceptionalism"—the belief that U.S. stocks are destined to outperform the rest of the world. It's no surprise that the financial media has jumped on this narrative. After all, this level of international outperformance is rare. In fact, it has only happened four times in the last 56 years: 1972–1974 (OPEC oil embargo and Watergate), 1976–1978 (stagflation and rising rates), 1987 (Black Monday), and now in 2025 (global tariffs and a weakening U.S. dollar).
Recent developments—rising interest rates, falling stock prices, and a softer dollar—have added fuel to the narrative. But while it's an attention-grabbing headline, we think the "end of American Exceptionalism" is a bit overblown.
Yes, it's important for a diversified portfolio to include international exposure. But a complete overhaul of an investor's asset allocation probably isn't necessary. Once the trade tensions cool off (when that happens is anyone's guess), fundamentals and long-term growth themes will take center stage again.
U.S. markets still offer significant exposure to high-margin businesses and sectors that are likely to drive long-term growth, such as artificial intelligence and healthcare. While that doesn't guarantee outperformance, it certainly stacks the odds in favor of U.S. equities over the long run. However, international stocks shouldn't be overlooked. Increased fiscal spending in the Eurozone, more attractive valuations, and shifting global investor sentiment could drive further growth in international markets.
When investors are caught off-guard by major policy shifts, volatility usually follows—and more often than not, it's to the downside. That's exactly what we saw around Liberation Day. Since then, however, interest rates have settled, the U.S. dollar has steadied, and equities have staged a short-term rebound. While the late-April bounce doesn't guarantee that we've seen the bottom for stocks in 2025, a more market-friendly tone from the administration certainly doesn't hurt.
If nothing else, this moment serves as another reminder that trying to predict the future—or making investment decisions based on fear—is rarely a winning strategy.