April 2, 2025: International Stocks Come to Life

The first quarter of 2025 delivered a dramatic turnaround for international stocks. To be sure, this year’s outperformance of international stocks is to a large degree a simple reversal of last year’s underperformance. As many noted at the year’s outset, large cap U.S. stocks were “priced for perfection.” To put this in perspective, the S&P 500®’s forward price-to-earnings multiple was 22 on January 1—a hefty premium to its 20-year average multiple of 15.

The elevated prices of U.S. large-cap stocks resulted from a remarkable two-year run for the S&P 500®. That rally gained steam following the fall elections, the results of which investors interpreted as favorable for U.S. corporate earnings and stock prices.

Optimism over U.S. corporate earnings has begun to fade, however, as a potentially large expansion of tariffs on imports has raised concerns over a slowdown in consumer demand and an erosion of corporate profit margins. Meanwhile, in Europe, the growth outlook has improved as countries such as Germany declare their intent to borrow and invest in infrastructure and defense industries, thus stimulating their economy and investor appetite for their stocks.

Weekly Market Update: April 2, 2025