International stock markets are having the best start of the year so far this century, as the U.S. trade war rattles the global trade landscape
Through Monday's closing quotes, the outperformance of foreign indexes was evident in year-to-date results:
- The S&P 500 down 3.5%, the Nasdaq down 7.8%.
- The STOXX Europe 600 Index up 8.5%.
- London's FTSE 100 up 6.2%.
- Germany's DAX up 16.3%.
- The Paris CAC 40 up 9.4%.
- The Hong Kong Hang Seng up 23.3%
- The Shanghai Composite up 2.3%
Some smaller European bourses are doing even better. In Poland, which is next door to Ukraine, the WIG index is up 23.2% year to date. The Italian FTSE MIB is up more than 14%. In Spain, the Madrid exchange's IBEX 35 climbed nearly 14%.
Even Mexico and Canada, which are being directly hit with U.S. tariffs, are outperforming Wall Street. Mexico's Indice de Precios y Cotizaciones has climbed 6%. Canada's S&P/TSX Composite has managed a 0.2% gain.
Brazil, rich with natural resources, has seen its Bovespa index climb 8.8% this year.
With investors souring on the U.S. stock market, international funds that eschew Wall Street are outperforming, too. IShares Core MSCI Total International ETF broke out past a 71.74 buy point Monday and is up nearly 9% this year. IShares MSCI ACWI Ex-U.S. broke out in February past 55.80 and has climbed nearly 10% in 2025.
This is an unusual lagging period for the U.S. stock market. Over any trailing 100-day period since 2010, the S&P 500 has beaten rest-of-the-world stocks with a win rate of 78% and average outperformance of 3.6 percentage points, according to DataTrek Research.
Trade War Drives World Stock Markets
The MSCI EAFE Index, which represents large and midcap stocks across 21 developed markets including the U.S., is up 10.5% year to date. It is its best start to the year in at least 25 years. The tracking iShares MSCI AEFE ETF is 2% above the 82.63 buy point of a Feb. 26 breakout.
President Donald Trump's policies seem to be driving pro-growth policy shifts in Europe and Asia, Jeffrey Kleintop, managing director and chief global investment strategist at Charles Schwab, wrote in a report Monday.
Trade tariffs, which have come and shifted at a swift pace, have unsettled the U.S. stock market.
"The longer the tariff turmoil and related uncertainty about trade policy lasts, the more likely economic and earnings growth may take a hit," he added. "We can see this in the relative performance of the economic surprise indexes this year with U.S. data missing economists' expectations while European economic data is exceeding expectations."
The European Commission reacted to tariff threats on European autos by proposing easing emissions rules. And as Trump backs away from supporting Europe's defense, Germany is poised to boost spending on defense and infrastructure investments, Kleintop said. He noted that the MSCI EMU Aerospace and Defense Index is up nearly 40% this year.
Indeed, on Tuesday German lawmakers passed a major fiscal package designed to boost defense spending and spur the country's economy out of its doldrums.
China Stocks Rise On Stimulus
China stocks are so far weathering U.S. tariffs quite well. U.S.-traded ETFs such as iShares MSCI China broke out of cup-with-handle bases earlier this month.
Beijing this month set in motion stimulus measures to cushion the impact of tariffs. Kleintop also sees Chinese rulers turning more business-friendly. "China is seeking to drive its tech innovation, most recently signaled by the success of the DeepSeek Artificial Intelligence (A.I.) model, in response to tighter export controls of key hardware by the Trump administration."
China is also polishing its guns, having approved a 7.2% increase in military spending this year.
On Tuesday, Fitch Ratings cut its U.S. 2025 growth forecast to 1.7% from its 2.1% projection in December, and the 2026 U.S. forecast to 1.5% from 1.7%. The firm cited the global trade war, which Fitch believes will reduce U.S. and world growth, lift U.S. inflation and delay Fed rate cuts.
"Fiscal easing in China and Germany will cushion the impact of higher U.S. import tariffs, but growth in the eurozone this year will still be a lot weaker than forecast" in December, Fitch said. The firm also cut its 2025 economic forecasts for Mexico and Canada, expecting both to go into recession.
See Which Stocks Are In The Leaderboard Model Portfolio
While China and Europe roll out stimulus, the opposite is happening in the U.S., says Nicholas Colas, cofounder of DataTrek Research.
"All this stands in somewhat stark contrast to U.S. economic policy at the moment, where fiscal policy is modestly restrictive and trade/tariff concerns are creating uncertainty in capital markets and boardrooms."
However, he adds, "As unwelcomed as recent policy volatility might be, American companies have consistently adapted to far larger shocks over the years."
His suggestion: "We believe the most prudent approach now for investors who benchmark to global equity indices is to simply equal weight rest of world stocks."
ETFs To Watch In Global Stock Markets
Some ETFs that track international indexes are in bullish chart patterns.
The iShares MSCI Hong Kong ETF is forming a cup-with-handle base with an 18.48 buy point.
IShares MSCI Japan ETF is forming a double-bottom base with a 71.66 buy point.
Thinly traded iShares MSCI Netherlands is in a cup with handle with a 49.43 entry; iShares MSCI United Kingdom is 3% above a 36.95 handle entry.
IShare MSCI Singapore is just above the 23.25 buy point of a flat base.
