Check a ranking of the best-performing equity indexes this year and the U.S. doesn’t crack the Top 10. You won’t find it in the Top 25, either. Double that, and the S&P 500 is still absent.
The tally needs to unfurl all the way to 66 before the world’s most valuable equity index shows up — leaving it way behind Greece’s Athex and even Israel’s TA-35. It’s one of the worst relative performances since the global financial crisis for the U.S. benchmark.
The underperformance is even more surprising given the S&P 500’s 11% rally to countless records in 2025. But it’s still trailing most developed market benchmarks like Germany’s DAX and Japan’s Nikkei 225, and lags behind gauges in South Korea, Spain and Ghana, when measured in dollars.
That last qualifier is critical, though not determinant. The U.S. currency has fallen 7.3% this year, helping to boost returns on foreign bourses in dollar terms. That’s certainly the thrust behind gains of at least 39% in Colombia and Morocco.
But even in local-currency rankings, the S&P 500 comes in just 57th, hardly befitting of a measure home to the six most valuable companies in the world, along with the likes of Coca-Cola, McDonald’s and Walt Disney.
The underperformance, market participants say, owes just as much to a broader shift in the mindset among foreign investors, who have started targeting domestic champions as President Donald Trump wages a global trade war. Tensions ramped up on Friday after the president renewed threats of tariffs on China. Even in the U.S., they’re being more selective, with a focus on big tech rather than broad-based indexes.
Added to that is a growing sense of concern about political and fiscal stability in the world’s largest economy. Trump’s tax and spending bill is projected to blow out the deficit. The government has been shut down since the start of October, the president is increasingly threatening the central bank’s independence and public investment decisions have become less policy-based.
Together, the moves have shaken confidence in America, weakened the dollar and helped stoke a torrid rally in gold. While long-term Treasury yields haven’t exploded in any similar fashion, they’ve been elevated relative to recent years.
"The deteriorating U.S. fiscal situation and increasing policy uncertainty are eroding investor confidence in the U.S. market, weakening the dollar, and prompting investors to explore opportunities in non-U.S. markets,” said Jasmine Duan, senior investment strategist at RBC Wealth Management Asia.
Of course, strategists have for years been predicting an imminent rotation away from U.S. equities and those calls have fallen flat. The dollar’s slide has eased in recent weeks as political stresses mount around the world, from France to Japan to Argentina.
And while the S&P 500 is lagging well behind the top three — Ghana, Zambia and Greece with gains of at least 61% — its 11% rally this year has created about $6 trillion in market value, equivalent to more than a third of the entire capitalization of the Stoxx 600.
The U.S. is also coming off of back-to-back years with gains north of 20%, easily outstripping the likes of the Euro Stoxx 50 and Nikkei 225. If you take stock of performances since the end of 2022 to 2024, the S&P 500 ranked 10th.
Still, there are evident reasons that global equity markets may continue to outperform. European interest rates are half the level in the U.S., giving corporates access to cheaper financing. Companies trade at valuations about 35% lower than in America.
And so in Germany, Rheinmetall AG has more than tripled to lead the DAX to a 22% gain as the government promises to step up defense spending. European banks, long laggards, have been revitalized. In Spain, Banco Santander SA has almost doubled in value.
South Korea’s Kospi index has risen 50% this year as investors speculate the new president’s push for shareholder-friendly policies will boost returns. The nation’s standing as a sophisticated chipmaker has given it domestic champions in artificial intelligence, with Samsung Electronics and SK Hynix rising after deals to supply chips to OpenAI.
"Asia has been a great platform to bring diversification in our portfolio, and to express our preference for looking for alpha within asset classes,” said Sophie Huynh, portfolio manager and strategist at BNP Paribas Asset Management.
Similarly in Japan, expectations for a pro-stimulus lawmaker to become the next prime minister have pushed stocks to all-time highs. SoftBank Group's 142% surge has powered the Nikkei 225. Defense equipment makers Mitsubishi Heavy Industries and Japan Steel Works also rallied this month on optimism around more government spending.
Global money managers are returning to China after years of aversion, drawn by advances in high-tech industries. Alibaba Group Holding's plans to ramp up AI spending, and Huawei Technologies' aim to challenge Nvidia helped Chinese stocks log their best run of monthly gains since 2018. The Hang Seng Tech Index’s year-to-date advance of 40% is more than double that of the Nasdaq 100.
The S&P 500’s stellar run from its April low has stretched valuations to levels that have raised alarm and prompted investors to diversify exposure. The index trades at 22 times forward earnings, a premium of 46% to the rest of the world. It’s also famously top-heavy, with mega-cap tech and its smaller brethren accounting for more than one-third of the index by weighting. A 53% rally in the two years starting at the end of 2022 had left foreign investors over-exposed to American equities.
"Investors should be rebalancing, taking profits from their U.S. allocation and increasing exposure to Europe, Asia and emerging markets,” said Kristina Hooper, chief market strategist at Man Group, the world’s largest publicly traded hedge fund. "The U.S. will continue to lag other markets.”
For now, buying from foreign investors remains on pace for a record, as fears of a recession recede. Their purchases make sense given the U.S. is home to the key players in the AI frenzy, led by Nvidia.
But many are moving money, according to a Bank of America survey of fund managers. Global investors were a net 14% underweight U.S. stocks in September, while being 15% overweight euro-zone peers and 27% overweight emerging markets. There’s also evidence foreigners are being more selective, and why not? Just six stocks account for over 50% of the S&P 500’s gain this year. In fact, a gauge that strips out market-cap biases is up just 5.6% this year.
"The last two years have only been about the U.S. and nothing else because tech earnings were surging while everything else was down to flat,” said Beata Manthey, head of European and global equity strategy at Citigroup. "This year, the growth differential between the AI trade and the rest of the world has narrowed, and it’s going to narrow even more next year. So there are more themes to choose from.”
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