The S&P 500 has outperformed both international peers and smaller US companies for years. In 2025, however, international markets reversed this trend, beating US stocks by roughly 15% (+32% MSCI All Country World Index ex-US versus +17% MSCI USA).
UBS expects international and smaller-cap stocks to outperform US large-caps going forward owing to several headwinds:
- Valuations: US large-cap stocks are historically expensive, especially compared to other markets.
- Profitability: Sustaining high US profit margins will be challenging amid rising rates, taxes, and regulation.
- Growth: Global economies are growing faster than the US, whose share of the global stock market is already 63%.
- Currency: A weakening, overvalued US dollar (~20% above fair value) can boost international returns.
- Interest rates: Low rates previously favored US growth stocks; normalized rates may benefit value-oriented international markets.
Some of these factors emerged in 2025, while others are still developing.
To help address the question “Why not just own the S&P 500?,” this presentation will review historical index performance, UBS’s Capital Market Assumptions, and the stock market's fundamentals to highlight the pros and cons of focusing on this popular index at the expense of building a more diversified allocation.
Click the Download button to access this educational overview of asset allocation concepts.
