Investors are facing a significant turning point as the U.S. stock market shows signs of distress, prompting discussions about shifting investments towards international equities. The Trump administration’s approach to tariffs has been shrouded in controversy. Underneath their populist appeal, these policies raise major questions about the growth trajectory of the U.S. economy. The S&P 500 is down around 10% year-to-date, and the Nasdaq Composite has retraced more than 16% in 2023. Consequently, countless financial analysts are trying to persuade investors to change their investment strategies.
As of Thursday morning, the Dow Jones Industrial Average is down nearly 8%. Emerging and developed international markets have weathered this impact with relative strength. This difference in performance has caused financial experts to recommend even more diversification, through moves into international stock funds.
Hartford Funds’ long-term macro view is that the U.S. has recently entered a 13.8-year cycle during which stocks have historically experienced their greatest outperformance. This decades-old trend is now hitting unprecedented headwinds. Data going back to 1975 shows that returns of U.S.-based stocks have been higher than those of stocks based internationally for about eight-year periods. In light of the overselling, experts emphasize that the current climate pushes investors to adopt a more levelheaded approach.
Former Treasury Secretary Janet Yellen once put it best when she said there was a “broader point” about the tariffs. She stated, “This is really creating an environment in which households and businesses feel paralyzed by the uncertainty about what’s going to happen.” Yellen has similarly noted that the tariffs have made a difficult situation even worse on Americans’ confidence in the U.S. financial system.
Barry Glassman is a certified financial planner. He sticks with a two-thirds to one-third ratio of U.S. stocks to foreign stock funds in the portfolios he manages. He was struck, he said, when clients didn’t seem interested in increasing their investments abroad. That trend is reversing as the market conditions are shifting. “Part of our core models for clients have always had international exposure. It’s traditionally part of any risk-adjusted portfolio,” Glassman remarked.
The U.S. dollar is near a one-year low. All three major asset classes—U.S. stocks, bonds, and the dollar—are simultaneously down. Analysts warn that these are unprecedented times. Douglas Boneparth cautioned against trying to time the market, advising that, “Are you chasing or timing? You usually don’t want to do those things.” Rather, he said, it was a reminder to double down on having a diversified portfolio.
Ever-increasing pressure on U.S. markets continues with last week’s introduction of country-specific tariffs by the White House on April 2. Capital Economics analysts noted, “In that respect, ‘Liberation Day’ — which accentuated these moves — only added fuel to a fire that had already been burning.” That sentiment strikes a chord across the investment community—which is rightly spooked by the long-term effects of such policies.
As investment strategies are continually adjusted, you should consider global diversification as a smart, forward-thinking strategy. Experts agree on it. Christine Benz of Morningstar recommends that investors begin by replicating the simplest building block, a global stock fund. One excellent choice for beginners is the Vanguard Total World Stock Index Fund ETF (VT).
Paul Christopher described the current landscape as “a quality market that looks like a bargain,” suggesting that there might be opportunities worth exploring outside of U.S. borders.
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