International Stocks Shine as Dollar Weakens: A Positive Shift for Investors

In a remarkable turn of events amidst a landscape dominated by artificial intelligence, international stocks have emerged as unexpected winners over the past year. The weakening dollar and falling interest rates have provided a much-needed tailwind, helping international markets outpace their U.S. counterparts for the first time in over a decade.

Impressive Gains Across Global Markets

Recent data highlights that foreign shares have significantly surged, with the Vanguard Total International Stock (VXUS) ETF gaining over 32% over the 12-month period ending in December 2025. This marks a stark contrast to the 18% return from the iShares Core S&P 500 ETF (IVV). Emerging markets have shown even more robust performance, with the iShares Core MSCI Emerging Markets ETF (IEMG) climbing nearly 33% during the same timeframe.

The Favorable Economic Context

The 9.4% decline in the dollar's value in 2025 relative to foreign currencies has rendered overseas revenue more lucrative when converted back to dollars. Additionally, lower interest rates in the U.S. have nudged investment capital abroad, while improving economic conditions internationally have bolstered both consumer and business spending, particularly in defense and security sectors within European nations.

Strategic Insights and Future Prospects

According to strategists at BofA Global Research, this "economic rebalancing" trend is expected to continue, presenting an excellent opportunity for investors. They predict that as the dollar stabilizes or potentially weakens further, European and Chinese stocks may see continued positive momentum. Notably, countries like Spain and Austria posted returns of 82% and 78%, respectively, with emerging markets such as South Korea and Greece witnessing gains of 100% and 83%.

Overall, the current market dynamics present an encouraging picture for international investments, inviting savvy investors to consider opportunities beyond U.S. shores.