Why Have International Stocks Underperformed Over the Last Several Years?
At Cool Wealth Management in Phoenix, Arizona, many business owners and investors ask us why international stocks have underperformed compared to U.S. equities over the past several years. This is a valid concern, especially for those seeking portfolio diversification. While international investing remains an important part of a balanced strategy, understanding the reasons behind this underperformance can help you make smarter, more informed decisions going forward.
Here are the key factors driving this trend:
1. Stronger U.S. Economic Recovery
Following the global financial crisis and more recently the COVID-19 pandemic, the United States bounced back faster than most developed and emerging economies. Massive stimulus efforts, technological leadership, and a relatively strong consumer economy helped fuel this recovery. U.S. companies — especially in tech and healthcare — adapted quickly and saw profits return faster than their international peers.
2. U.S. Dollar Strength
The strength of the U.S. dollar has a major impact on international returns for American investors. When the dollar is strong, returns from foreign stocks (when converted back into dollars) are worth less. Over the last several years, the dollar has held up against most global currencies, further weighing down international equity performance in U.S.-based portfolios.
3. Geopolitical Uncertainty
Geopolitical risks like trade tensions, Brexit, war in Ukraine, and unrest in parts of Asia and Latin America have added volatility to international markets. Investors often respond to uncertainty by moving capital to perceived safe havens — most commonly, the U.S. stock market.
4. Slower Growth in Emerging Markets
Emerging markets were once viewed as high-growth opportunities. But in recent years, many of these economies have faced headwinds:
Political instability
Slower-than-expected economic growth
Supply chain disruptions
Over-reliance on commodity exports
These challenges have held back the performance of companies in regions like Latin America, Southeast Asia, and Eastern Europe.
5. Different Sector Composition
U.S. stock markets are heavily weighted toward high-growth sectors like technology, healthcare, and consumer discretionary — sectors that have thrived in recent years. By contrast, many international markets (especially Europe) are more concentrated in slower-growth sectors like financials, energy, and industrials. This sector difference has made a significant impact on performance.
Should You Still Own International Stocks?
Despite recent underperformance, international investing still plays a valuable role in long-term portfolios. Here's why:
Diversification: Markets go through cycles. U.S. stocks won’t always lead.
Valuation: Many international markets are trading at more attractive valuations.
Currency Trends: A weaker U.S. dollar in the future could boost foreign returns.
The key is to invest with intention — not based on past performance alone.
What We Recommend
At Cool Wealth Management, we help business owners create investment strategies that are aligned with their goals, timelines, and tax strategies. International investing is just one piece of the puzzle. We look at how every asset class fits into your broader plan.
If you're a business owner looking to get more out of your investment strategy, let’s talk. Whether you're in Phoenix or anywhere in the country, we’ll help you build a plan that’s diversified, tax-efficient, and forward-thinking.
