International Stocks Crushed the S&P 500 in 2025, Delivering a Staggering 33% Return to U.S. Investors

Forget the home team advantage. Last year's real gains were made overseas.

The Global Rout

While stateside investors were content with the S&P 500's respectable 18% climb, a look beyond domestic borders reveals a different story entirely. International equities didn't just outperform—they lapped the competition, handing U.S. portfolios a windfall that dwarfed the benchmark.

Chasing Alpha Abroad

The strategy wasn't complicated: go where the growth is. Markets that many allocators treat as an afterthought became the main event, driven by divergent monetary policies, earlier recovery cycles, and pure, unadulterated value. It was a classic case of geographic diversification actually working—for once.

So much for the efficient market hypothesis when your broker's default setting is 'U.S. Large Cap.' The 2025 rally proved that the best opportunities often lie where the Wall Street analyst coverage is thinnest. Maybe it's time to ask why the 'international' sleeve of your portfolio is still just a rounding error.

Foreign markets beat U.S. without currency help

Currency moves don’t tell the whole story, though. Goldman Sachs analysts had pushed clients toward global diversification in 2025. They broke down major market performance using four measures: earnings growth, valuations, dividends, and currency shifts.

Almost every major index they studied beat the S&P 500 through mid-December, even without currency gains. France’s CAC 40 was the exception.

Japan’s MSCI index returned around 25% in 2025 despite the yen staying flat against the dollar. South Korea’s benchmark soared about 100% in dollar terms. Spain’s index climbed more than 60% in euros alone.

Valuations drove a lot of this, Goldman Sachs found. Investors paid more for each unit of earnings in these markets.

Take the price-earnings-growth ratio. The gap between U.S. and international PEG ratios narrowed by almost a third through mid-December 2025, according to Goldman Sachs. American stocks still traded at a premium. By mid-December, that premium stood at more than double the average since 2005.

Some analysts expect the gap to keep closing. Yardeni Research recently said it “no longer makes much sense” to recommend clients “overweight” U.S. stocks. The firm had given that advice since 2010. International stocks look cheaper based on forward price-to-earnings ratios. Plus, corporate earnings globally have stayed solid.

“It’s a big world with many countries having large populations that aspire to a better standard of living. Globalization isn’t dead,” Yardeni Research wrote.

Tech stocks still dominate overseas indexes

Banks and financial companies make up the biggest chunk of the MSCI all-country ex-U.S. benchmark. But here’s something interesting – the top five individual stocks are all tech companies. Taiwan Semiconductor Manufacturing, the Netherlands’ ASML, China’s Alibaba and Tencent, and Korea’s Samsung Electronics.

Does this mean international stocks don’t really diversify away from America’s tech-heavy market? Peter Oppenheimer, Goldman’s chief global equity strategist and head of macro research in Europe, says not necessarily. Tech stocks started moving more independently in 2025, he noted. Picking winners got riskier because you’re more likely to pick a loser.

“What you should be doing is seeking more diversification within tech,” Oppenheimer says.

Nobody can predict what 2026 will bring. Maybe the dollar strengthens. Foreign earnings could stumble. U.S. valuations might shift. But the odds of everything moving together are slim. That’s the whole point of spreading bets globally – the advantages come from different directions.

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