Market history has a way of reminding investors that leadership rotates, often when investors least expect it. For much of the last decade, U.S. stocks outpaced most global markets, reinforcing a perception that domestic stocks were the only place investors needed to be. 2025 proved otherwise.

As the chart below illustrates, international stocks delivered outstanding results in 2025, returning 32.4% for the year and comfortably outperforming the S&P 500’s 17.9% gain. It marked the first year of international outperformance since 2022 and served as a reminder that extended periods of relative underperformance do not mean an asset class has lost its relevance.

Source: Avantis Investors

While performance often captures headlines, it was not the only reason we believed in international stocks entering last year. International equities play an important role in a well-diversified equity allocation because they provide exposure to different economies, policy environments, and currencies. These differences can help smooth results and lessen reliance on any single market to drive results.

Beyond diversification, valuation provided an additional reason to favor international stocks as we entered 2025. As shown in the charts below, non-U.S. markets have been trading at a meaningful discount to U.S. stocks across several valuation measures. Lower starting valuations have historically been associated with higher expected long-term returns, even though the short-term path can be uneven. From our perspective, combining the diversification benefits of international stocks with more attractive relative valuations represents a compelling opportunity.

Source: Morningstar direct as of 12/31/2025. International stocks are represented by the MSCI EAFE Index. Relative valuation metrics are based on a composite of P/E, P/B, P/CF, & P/S. The composite is calculated as a simple average of each ratio over the Russell 3000.

Source: Morningstar direct as of 12/31/2025. U.S. stocks are represented by the S&P 500 Index. Relative valuation metrics are based on a composite of P/E, P/B, P/CF, & P/S. The composite is calculated as a simple average of each ratio over the Russell 3000.

Importantly, that valuation gap has not fully closed. Despite a strong year of relative performance, stock valuations outside the U.S. remain more attractive than those at home. While this does not guarantee continued outperformance in any given year, it provides a fundamental foundation for why international stocks remain an important component of long-term portfolios.

The bottom line: diversification matters, and valuation matters. International stocks proved that in 2025, and the setup for 2026 looks just as compelling.

Week in Review

• Gold and silver prices plunged 11% and 31% respectively, on Friday, January 30th, marking the largest single-day decline in more than forty years. The sharp selloff followed a historic rally that saw both metals reach all-time highs just one day earlier. The selloff was initially triggered by reports of Kevin Warsh’s potential nomination as Fed Chair, as markets interpreted his inflation-hawk reputation as supportive of tighter policy and a stronger dollar.
• The January jobs report, originally scheduled for release on Friday, February 6th, has been delayed due to a partial government shutdown, marking the second such delay in the past five months. Unlike the prior shutdown, this one is partial, as Congress has already enacted funding for several federal departments. The Department of Labor, however, has not yet received funding, raising the risk of additional delays to upcoming employment data.
• According to FactSet, 33% of the S&P 500 reported Q4 results as of January 30^th. The earnings growth rate, blended between companies that have already reported with the estimates for those that have yet to report, now stands at 11.9%, which would mark the fifth-straight quarter of double-digit earnings growth reported by the index. FactSet also reported the blended net profit margin for the S&P 500 of 13.2%, which could mark the highest net profit margin reported by the index since FactSet began tracking net profit margin in 2009.
  

Hot Reads

Markets 

• Fed Holds Rates Steady for First Time Since July (WSJ)
• Trump Picks Kevin Warsh as Fed Chair (WSJ)
• An Investor’s Guide to the Boom (and Bust) in Gold and Silver (WSJ)
  

Investing 

• This Simple Metric Could Predict Future Stock Market Returns (Larry Swedroe)
• When All Bets Are Off, All Bets Are On (Jason Zweig)
• Is Diversification Finally Working Again (Ben Carlson)

 Other 

• Moltbook: Where AI Bots Socialize – CNBC (YouTube)
• What’s the Best Way to Give a Presentation - TED-Ed (YouTube)
• Lean Into Imposter Syndrome, Don’t Give In to It – HBR (YouTube)
  

Markets at a Glance

Fund Returns

Sector Returns

Factor Returns

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Economic Calendar

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION