The Unexpected Rise of International Stocks: A Hopeful Outlook for Investors

In a landscape heavily influenced by artificial intelligence, international stocks have emerged as unexpected winners over the past year. In a notable shift, foreign stock markets have outperformed their U.S. counterparts for the first time in 16 years, signaling a potential turning point for global investors.

Impressive Gains Across the Board

The Vanguard Total International Stock (VXUS) has been a standout performer, boasting an impressive gain of more than 32% over the 12-month period ending December 2025. This remarkable performance significantly eclipses the iShares Core S&P 500 ETF (IVV), which managed an 18% return in the same timeframe. Moreover, emerging markets have experienced even steeper climbs, with the iShares Core MSCI Emerging Markets ETF (IEMG) rising nearly 33%.

Favorable Economic Conditions and Lower Interest Rates

A weakening dollar contributed to these positive trends, as its 9.4% depreciation against a basket of foreign currencies in 2025 made overseas earnings more valuable when converted back to U.S. dollars. Concurrently, lower interest rates in the U.S. nudged investment capital abroad and improved economic conditions in foreign markets provided a conducive environment for growth.

Exceptional Performance in Specific Regions

Developed markets have witnessed outstanding returns, particularly in Spain and Austria, which recorded gains of 82% and 78%, respectively, in 2025. Meanwhile, South Korea and Greece led emerging markets with astonishing returns of 100% and 83%. Overall, European markets delivered more than 35% returns, fueled by increased spending on defense and security following heightened geopolitical tensions.

Looking Ahead: Sustained Momentum?

The positive momentum appears poised to continue, with many global strategists projecting further gains. BofA Global Research anticipates that if the dollar stabilizes at its current lower levels, European and Chinese stocks may benefit significantly. Analysts predict that the dollar index could end 2026 near $95, creating a potentially favorable investment climate for foreign equities.

This recent surge in international stocks reflects a broader "economic rebalancing" that could redefine investment strategies and open up new opportunities for savvy investors looking to diversify their portfolios. As we move forward, the ability to adapt to these changes could be key in navigating the evolving landscape of global finance.