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U.S. Stocks Are Losing Steam—Is the Global Market Ready to Take Over?

For the better part of the last decade, U.S. stocks were the obvious go-to for investors. The S&P 500 kept outperforming pretty much every other market, thanks to tech giants, easy money from low interest rates, and a flood of investment cash. But if you’ve been watching the charts in 2024, you’ve probably noticed the story is changing. More portfolio managers I know are quietly shifting their focus to opportunities outside the U.S.

By mid-2024, the S&P 500’s gains started looking… well, kind of average compared to some international markets. Europe’s STOXX 600, Japan’s Nikkei, and even emerging markets like India have been putting up some pretty impressive returns. For years, the idea of “going global” was met with skepticism—clients usually want to stick with familiar American companies. But diversification isn’t just a trendy word thrown around in fund brochures; it’s a smart way to manage risk and tap into new growth.

Why Now?

The U.S. tech giants—the “Magnificent Seven” (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla)—have carried the market on their backs since 2020. They’re huge players, profitable, and woven into our daily lives. But even the best stories hit bumps. Apple’s challenges in China, regulatory pressure on Google, Nvidia’s sky-high valuation making investors cautious, and Tesla’s ups and downs have all dented the shine on U.S. stocks.

Meanwhile, other parts of the world are stepping up. Japan’s Nikkei is hitting highs not seen since the ‘80s, helped by economic reforms, a weaker yen, and companies finally turning solid profits. Europe, often written off as slow-growth, is suddenly attractive with cheaper valuations and a bounce-back in cyclical stocks. I’ve noticed investors quietly boosting their stakes in markets like France, Germany, and the Nordics.

Emerging markets, once considered too volatile, are looking more stable. India’s market, driven by a young population and tech innovation, is delivering double-digit returns. Latin America, usually a wild ride, is pulling in investors thanks to commodity demand and better governance.

The Dollar’s Double-Edged Sword

A strong U.S. dollar used to be seen as a plus for American stocks. But here’s the catch: a booming dollar can make U.S. exports more expensive and shrink profits earned overseas once converted back to dollars. This year, companies like Coca-Cola and Procter & Gamble have felt the pinch, which has even rattled seasoned analysts.

On the flip side, a strong dollar makes international stocks cheaper for U.S. investors. If the Federal Reserve eases up on interest rates—as many expect—the dollar may weaken. That could give a nice boost to foreign investments when you convert returns back into dollars.

Valuations: A Tale of Price Tags

Here’s where things get interesting. The S&P 500 is trading at a hefty price-to-earnings (P/E) ratio, mostly because of those big tech names. Meanwhile, Europe and Japan look like bargains by comparison. Some investment pros are calling this a rare, once-in-a-decade chance to pick up value stocks.

Of course, “cheap” doesn’t mean “guaranteed to go up.” Stocks can stay undervalued for years. But when you combine lower prices with improving company fundamentals, the risk-reward picture gets pretty attractive. In short: the U.S. market looks priced for perfection; the rest of the world doesn’t.

What Could Trip Us Up?

Let’s be real—investing internationally isn’t a silver bullet. Currency swings can turn gains into losses. For example, some investors who bought European stocks in 2022 made money on paper but lost out if they didn’t hedge against the euro falling against the dollar.

Political risks can pop up out of nowhere. Emerging markets have a reputation for sudden policy changes. Even developed countries can surprise you—remember Brexit or Japan’s decades-long stagnation? Modeling these risks is tough because political events can shake markets overnight.

How to Tap Into This Global Shift

If you’re used to sticking only with U.S. stocks, going global might feel uncomfortable. But you don’t have to dive in all at once. Even adding 10–20% international exposure can help smooth out portfolio ups and downs and potentially boost returns over time. I’ve seen this firsthand with clients, especially in years when U.S. stocks stumble.

ETFs make global investing super accessible. There are broad funds for Europe, Asia, and emerging markets, plus more focused options if you want to get specific about countries or sectors. Some investors like active managers for international picks, arguing that local expertise helps navigate less transparent markets.

Worried about currency swings? Hedged ETFs can help, but they come with extra costs and aren’t foolproof. Personally, I lean toward partial hedging—full hedges can backfire if the dollar surprises you.

Things to Keep in Mind

This isn’t a one-size-fits-all deal. If your financial needs are tied to spending in dollars—like retirees pulling from U.S. assets—you’ll want to keep an eye on currency risk. Taxes on foreign dividends can also get complicated depending on your situation and international treaties.

Also, global investing doesn’t always beat sticking with the U.S. There were long stretches, like the 2010s, where the U.S. market was clearly the winner. No one knows if 2024’s trend will last. The U.S. could easily bounce back if tech companies regain momentum or if global growth slows.

Wrapping It Up

The investing landscape is shifting. U.S. stocks aren’t the only game anymore, and global diversification makes more sense than ever. I’ve seen too many investors miss out because they couldn’t look beyond familiar American names. Casting your net wider—even a little—can better position you for the next big market moves.

But don’t expect it to be easy. International investing comes with its own challenges, costs, and risks. Many teams wrestle with how to implement it well, and there’s no magic formula. Still, ignoring the world outside the U.S. feels riskier than ever. This global shift might already be rolling—time to take notice.

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