Will international stocks ever again outperform the U.S. market? It’s worth asking given non-U.S. stocks’ disappointing results in 2021 — the fourth year in a row in which they lagged their U.S. counterparts.
The fate of the U.S. dollar Perhaps the strongest single factor in explaining the relative performance of U.S. and non-U.S. stocks is the value of the U.S. dollar relative to foreign currencies. A weaker dollar helps the dollar-denominated performance of non-U.S. stocks, while just the opposite is the case when the dollar is stronger.
Value versus growth There’s another factor that currently is influencing the relative performance of U.S. and non-U.S. stocks: where the markets stand in the pendulum swing between value and growth. Though over the past century value has outperformed growth, on average, the past decade has been a major exception to that pattern. U.S. equities have enormously benefited from this exception. Only if you think this exception will continue would you want to reduce your holdings of non-U.S. stocks.
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