How Much Cheaper Are International Stocks Than U.S. Stocks?

Core Viewpoint - International stocks are currently undervalued compared to U.S. stocks, with a price-to-earnings (P/E) ratio that is 40% lower than that of U.S. stocks [1][2]. Valuation Comparison - The average forward P/E ratio for U.S. stocks is approximately 28, while for non-U.S. international stocks, it is around 19 [2]. - U.S. stocks have seen a significant increase in valuations since 2015, primarily driven by the rise of major tech stocks [2]. Performance Trends - In 2025, non-U.S. developed market stocks returned 35.2%, and emerging market stocks returned 25.6%, significantly outperforming the U.S. stock market, which rose 17.7% [3][4]. - In 2026, international stocks continue to outperform, with the Vanguard FTSE Developed Markets ETF (VEA) up 8.7% year to date and the Vanguard Emerging Markets Stock Index Fund ETF (VWO) up 7%, while the S&P 500 index remains flat [5]. Future Outlook - European stocks are expected to have further upside potential due to strong global economic growth and increased fiscal and defense spending [5]. - Emerging markets, particularly in China, South Korea, India, and Brazil, are projected to see rising earnings, with Goldman Sachs forecasting a 16% return for EM stocks this year [6]. - Despite the potential for a rebound in U.S. stocks due to possible interest rate cuts by the Federal Reserve, they remain more expensive than international stocks, making international investments attractive [7].