Should Investors Pivot to International Equities Amid U.S. Market Turmoil?

Amid escalating trade tensions and a recent downturn in U.S. markets, investors are grappling with whether to shift from U.S. stocks to international equities. Experts offer divided opinions, with some advocating for global diversification given current volatility, while others caution against abandoning U.S. assets too quickly.

Key Takeaways

• The S&P 500, Dow, and Nasdaq have seen significant declines since President Trump announced tariff plans.

• Some experts, like Christine Benz of Morningstar and Jacob Manoukian of J.P. Morgan Private Bank, suggest increased international diversification.

• Others, such as Paul Christopher of Wells Fargo Investment Institute, believe U.S. markets still offer value.

• Historically, U.S. stocks have outperformed international equities for extended periods, but this trend may be shifting.

• The simultaneous fall of U.S. stocks, bonds, and the dollar is an unusual occurrence.

• Financial advisors recommend careful consideration and rebalancing rather than impulsive moves.

The Shifting Landscape of Global Equities

U.S. stocks have long been a dominant force, with the S&P 500 boasting an average annual return of 11.9% from mid-2008 through 2024, significantly outpacing developed countries. However, 2025 has presented a different narrative. The S&P 500 is down roughly 10% year-to-date, the Nasdaq Composite has pulled back more than 16%, and the Dow Jones Industrial Average has lost nearly 8%. In contrast, the MSCI EAFE index, tracking developed markets outside the U.S. and Canada, is up about 7%.

This reversal has led some to question the long-held notion of "U.S. equity market exceptionalism." The Trump administration's tariff policies and an escalating trade war with China are cited as primary drivers of this uncertainty, impacting not only stocks but also the bond market and the U.S. dollar, which has neared a one-year low.

Expert Opinions on Diversification

Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar, argues that the case for international diversification is stronger than ever given recent developments. Jacob Manoukian, Head of U.S. Investment Strategy at J.P. Morgan Private Bank, echoes this sentiment, calling global diversification a "prudent strategy."

However, not all experts advocate for a wholesale shift. Paul Christopher, Head of Global Investment Strategy at the Wells Fargo Investment Institute, maintains that the United States remains "a quality market that looks like a bargain." He suggests investors should not be too quick to abandon U.S. stocks.

Historical Cycles and Future Outlook

Historical analysis by Hartford Funds indicates that U.S. and international stock returns tend to ebb and flow in cycles, with each showing multi-year periods of strength. Since 1975, U.S. stocks have typically outperformed international stocks for about eight years before ceding the lead. The U.S. is currently 13.8 years into its current cycle of outperformance, suggesting that non-U.S. equities may be overdue to reclaim the top spot.

Advisors like Douglas Boneparth, President of Bone Fide Wealth, emphasize the importance of international exposure as a traditional component of a risk-adjusted portfolio. While these assets may not have performed as well in recent years, they have helped mitigate the impact of recent tariff volatility. However, Boneparth cautions against impulsive decisions, advising investors to "tread carefully" and avoid chasing returns or timing the market.

Barry Glassman, Founder and President of Glassman Wealth Services, notes an unusual surge in client interest in overseas investments. Despite this, he maintains a consistent two-thirds to one-third ratio of U.S. to foreign stock funds in his managed portfolios, emphasizing that strategic allocation is a long-term process rather than a reaction to short-term market fluctuations.

Ultimately, financial advisors recommend using the current market volatility as an opportunity to review and rebalance portfolios, ensuring proper allocation and potentially buying the dip in strategically chosen assets.