International Stocks vs. Investing at Home

Chart of the Week: International Stocks vs. Investing at Home

The odds have been stacked against international stocks for quite some time. With war breaking out in Europe, rising global inflation, zero-COVID lockdowns leading to protests in China, and a rallying dollar, well, that might not seem like a recipe for investing success.

And yet, foreign stocks outperformed U.S. stocks in 2022. The MSCI EAFE index of developed foreign stocks declined 14.5% last year while the S&P 500 was down 18.1%.

A beat of 3.7% isn’t anything to get excited about unless you can extend the victory, but a win is still a win.

With U.S. stocks outperforming international stocks in 11 out of the prior 14 calendar years heading into 2022, many investors had simply given up on owning them. “Why bother?” seemed to be the prevailing wisdom. When sentiment is that low, it doesn’t take much for performance to surprise the naysayers.

No one knows for certain whether we’ll look back at 2022 as the year the tide turned decidedly in favor of foreign stocks. But you only have to look back to the mid-2000s to see that international stocks can go on extended runs of outperformance compared to U.S. stocks.

International stocks outperform
Note: Chart shows the difference in returns between the S&P 500 index and the MSCI EAFE index by calendar year from 1981 through 2022. Sources: Morningstar, Adviser.

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