The S&P 500 has significantly underperformed international stock markets, trailing by 9 percentage points year-to-date and 25 percentage points since January 2025. This marks the widest performance gap between U.S. and global equities since 1995, reflecting a notable shift in investor allocation patterns across major markets.
Several factors have contributed to the divergence. International stocks have benefited from lower valuations relative to U.S. counterparts, currency headwinds affecting dollar-denominated returns, and market concerns regarding the potential economic impact of proposed trade policies. Emerging markets have particularly attracted investor interest amid the relative weakness of U.S. equities.
Looking ahead, Goldman Sachs projects the S&P 500 will deliver annualized returns of 6.5% over the next decade, while emerging markets are forecast to outperform substantially. The current market dynamics underscore growing investor consideration of geographic diversification as valuations and policy uncertainties continue to shape capital allocation decisions.