AIVC - Weekly Market Pulse: The Weak Dollar Effect

2025-03-31 01:05:00 ET

Summary

• Is it finally time for international stocks to shine? That question has been asked and answered negatively for 10 of the last 12 years if you compare the S&P 500 to the EAFE international stock index.
• Earnings growth has been better in the US. Earnings for European companies actually contracted from 2009-2019 by about a quarter, while US earnings grew by 40%.
• From February 2012 to September 2022, the US Dollar index rose 46%. While it has backed off some, it is still up 33% since early 2012.
• Earnings growth for Europe has picked up since the pandemic, and the difference has now narrowed to almost nothing.

Is it finally time for international stocks to shine? That question has been asked and answered negatively for 10 of the last 12 years if you compare the S&P 500 to the EAFE international stock index. The total return changes some, but the results are similar if you compare the US to European stocks.

This period of US outperformance is extraordinary, and it has led to a dramatic overweighting of US shares versus the rest of the world. US stocks represent nearly 50% of total world market cap and 65% of the MSCI World Index, while the US economy represents roughly 25% of global GDP. There have been good reasons for the US outperformance since the financial crisis of 2008, but the advantages aren’t as great as one might think from stock market performance....

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