What Happens When U.S. Stocks Lag Global Markets

Rocky White

Wed, Jun 4, 2025, 5:00 AM 3 min read

So far in 2025, U.S. stocks are lagging the rest of the world. You can tell by comparing the performance of the S&P 500 Index (SPX) to the MSCI World ACWI ex-USA Index, the latter of which tracks large- and mid-cap stocks across developed and emerging markets outside the U.S.

In the chart below, you can see the SPX is about breakeven year to date, while the ACWI ex-USA Index is up over 12%. That’s unusual. Since mid-1994 (as far back as we have data on the ACWI ex-USA Index), a $10,000 investment in the SPX would have grown to more than $130,000. The same amount in the ACWI ex-USA Index would be worth only about $26,000. This week, I’m digging into what usually happens when international stocks outperform U.S. stocks, and what that might mean going forward.

The SPX has trailed global stocks through May only eight times in the last 30 years. This has been a bad omen for stocks going forward. In those eight years, the SPX averaged a loss of 2.92% for the rest of the year, with just three positive returns. In the 22 years that the SPX beat global stocks through May, it averaged a return of 8.9% for the rest of the year, with 82% of the returns positive.

International stocks haven’t fared any better when they lead the SPX through May. The ACWI ex-USA Index has averaged a loss of over 4% from June through December in years it beat the SPX through May, with half of the returns positive. Compare that to other years, when it averaged a gain of 5.8%, with 64% of the returns positive.

Here’s an additional way I looked at this data. I recorded the six-month relative strength of the ACWI ex-USA Index to the SPX. The relative strength recently reached 1.20, and it’s generally rare for global stocks to outperform by that much.

There have been 10 prior instances of relative strength (RS) reaching that level. The table below shows how the SPX performed going forward. The second table shows typical returns since 2002, which was the year of the first signal, for comparison.

The SPX outperforms after these occurrences, averaging a return of 4.95% over the next three months, with 80% of the returns positive. Over the next year, the index averaged a gain of 14.5%, with 90% of returns positive.

In conclusion, if you want to make a bearish case, look at the first study above which shows stocks tend to underperform for the rest of the year when global stocks lead over the first five months of the year. If you’re making a bullish case, however, look at the second study which shows stocks have outperformed when global stocks beat U.S. stocks in the six months prior.