Hiltzik: U.S Stocks Rose in 2025, but Thanks to Trump, Foreign Stocks Did Much Better

Why It Matters

The performance gap signals that investors are seeking better risk‑adjusted returns outside the U.S., challenging the narrative that domestic policy alone fuels market gains. It also forces portfolio managers to reassess geographic exposure amid policy‑driven uncertainty.

Key Takeaways

• MSCI ex‑USA index up 32% vs S&P 500 17.9%
• U.S. ranked 21st among 23 developed markets in 2025
• High U.S. P/E multiples limited domestic valuation appeal
• Trump’s tariffs and dollar policy spooked investors abroad
• AI bubble concerns shifted capital to non‑U.S. equities

Pulse Analysis

The 2025 market data reveal a pronounced tilt toward international equities, driven by a confluence of macro‑economic and policy factors. While the S&P 500 delivered a respectable near‑18% return, the MSCI World ex‑USA index’s 32% surge reflects investors’ appetite for regions where valuations remain attractive and growth prospects are less tethered to U.S. monetary policy. Countries such as Austria and Spain posted outsized gains, highlighting the benefits of diversified exposure beyond the traditional U.S. tech heavyweights.

Valuation disparities played a pivotal role in the reallocation. The S&P 500 traded at roughly 23 times forward earnings, well above its historical 18‑times average, prompting yield‑seeking investors to scout for cheaper alternatives. Simultaneously, concerns over an AI‑driven bubble in high‑flying U.S. tech stocks intensified risk aversion, steering capital toward sectors and markets with more modest price multiples and clearer earnings trajectories. This valuation gap, combined with heightened geopolitical risk from unpredictable tariff regimes, amplified the allure of non‑U.S. equities.

Policy actions under President Trump further complicated the domestic investment landscape. The re‑imposition of 10‑15% tariffs and a deliberate weakening of the dollar eroded confidence in the stability of U.S. markets, especially for foreign investors whose returns are sensitive to currency fluctuations. As a result, fund managers are increasingly incorporating global assets to hedge against policy‑driven volatility. Looking ahead, the persistence of these trends will depend on the trajectory of U.S. fiscal policy, the resolution of trade disputes, and the performance of emerging market growth engines, making a balanced, geographically diversified portfolio a prudent strategy for 2026 and beyond.