There's Still No Place Like Home

Core Insights - The article discusses the performance of US equities compared to international markets, highlighting that US stocks have significantly outperformed international stocks over the past decade, primarily due to superior earnings growth [1][3][10] - Despite international equities showing some signs of recovery, the article suggests that the current economic environment still favors US stocks, and a shift to overweight international equities is not yet justified [20][21] Group 1: Market Performance - Emerging Markets (EM) and Developed International (EAFE) indices have outperformed US markets year-to-date, a rare occurrence in the last decade [1] - As of August 2025, developed international equities are at their long-term trend of 4.4%, which is 2.1% lower per annum than US counterparts [1][2] - US stocks are currently 47% above their long-term trendline, indicating a compelling relative valuation argument for international equities [1][3] Group 2: Economic Environment - A sustainable level of economic growth and inflation, such as 2-3% inflation growth rates, is seen as favorable for equity returns [4] - The article emphasizes that the macroeconomic environment, including interest rates and inflation, plays a crucial role in determining market performance [6][10] Group 3: Earnings Growth - The outperformance of US equities is attributed to stronger earnings growth compared to international stocks [3][10] - The article suggests that international stocks may not be as undervalued as they appear, and earnings trends need to be closely monitored [3][5] Group 4: Valuation Perspectives - Valuation is viewed as a long-term sentiment gauge of a market's earnings power and profitability, rather than a catalyst for outsized returns [5] - The article argues that the US's valuation gap compared to international peers is justified due to stronger profit trends [3][5] Group 5: Future Themes - Three potential themes could shift returns in favor of international markets: the AI race, the impact of US trade policies, and European re-armament [12][16][18] - The article notes that the AI investment landscape is currently dominated by the US and China, which could influence global economic dynamics [12][14] - The potential for a positive cycle of stimulus in Europe due to increased defense spending is highlighted, although it requires favorable policy developments [18][19]