International stocks pummelled the S&P 500 with 32% returns in 2025. What to know before adding them to your portfolio
For the first time since 2022, international stocks blew past the U.S. market.
In 2025, the MSCI EAFE Index, which tracks stocks in developed markets outside the U.S. and Canada, returned roughly 32%, while the MSCI Emerging Markets Index climbed about 34%. Both easily topped the S&P 500, which represents the top 500 U.S. companies, as it finished the year with gains of nearly 18%.
After years of U.S. domination, especially in big tech, this deep shift may have investors wondering if it’s time to diversify beyond America?
“Nearly every investor that we speak to could probably benefit from adding some international allocations,” Kristy Akullian, chief of iShares investment strategy for the Americas at BlackRock, told CNBC (1).
A few big forces lined up in favor of foreign stocks last year.
Economic growth outside the U.S. shot up, especially in parts of Asia and Europe. Emerging economies like China and India expanded faster than the U.S., and Europe benefited from fiscal stimulus and increased defense spending.
For one, the artificial intelligence (AI) boom spread far and wide beyond Silicon Valley. Chipmakers and tech firms in Asia saw rising demand as AI investment went up worldwide, reports CNN (2). Asian markets rode that momentum as key links in the AI supply chain.
Another factor was that the U.S. dollar index fell over 9% in 2025, its worst year in nearly a decade. When the dollar declines, returns from foreign investments translate into more dollars when converted back, giving international stocks an extra boost.
“A lot of things went right for international stocks in 2025,” Michael Reynolds, vice president of investment strategy at wealth management firm Glenmede, told CNN.
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American investors focused on the S&P 500 are heavily concentrated in tech companies tied to AI, with over one-third of the index weighted toward tech stocks, increasing exposure risk. Meanwhile, international stocks offer exposure to different economies, sectors and currencies, and this diversity can help smooth returns over time.
