Yardeni Research says equities outside the United States could begin to outperform U.S. stocks if two conditions are met: a U.S.-Iran peace settlement and continued declines in oil prices. The firm reiterated its "Go Global" investment approach that it originally recommended in December, arguing that market leadership may shift back toward the rest of the world under those circumstances.
In its note, Yardeni pointed out that the All Country World ex-U.S. MSCI index has already outpaced the U.S. MSCI over the past year and into the early part of this year, marking the first time such outperformance has occurred since the 2000s. Yardeni said that while the United States reasserted market leadership following the outbreak of the most recent Middle East war - a dynamic it links to U.S. energy independence - the balance could change again "on expectations that the end of the war is in sight." The firm wrote that "the rest of the world might soon start outperforming the US again on expectations that the end of the war is in sight."
Yardeni highlighted performance within emerging markets as especially notable. South Korea and Taiwan have posted very strong year-to-date gains, up 87.2% and 52.4% respectively, gains the firm attributes in part to the AI-driven demand lift for semiconductor earnings. Yardeni also noted that the Emerging Markets ex-China ETF is up 31.5% year-to-date versus a 9.3% gain for the S&P 500 ETF.
Valuation differences form another pillar of Yardeni's case. The firm cited a forward price-to-earnings ratio of 21.3 for the U.S. compared with 13.7 for the rest of the world, a gap it views as supportive of international upside if macro conditions turn favorable outside the U.S.
Europe is singled out as a particularly attractive recovery trade in Yardeni's view. The firm said Germany could be "the most direct beneficiary of lower energy prices once the war is over," pointing to its position as the most energy-intensive economy in Europe. Yardeni concluded by reaffirming its Go Global recommendation, noting that falling oil prices "would clearly benefit the rest of the world more than the US."
Implications for markets and sectors
- Emerging markets and semiconductor-linked equities are highlighted as recent outperformers, reflecting strong year-to-date returns.
- Energy and European industrial sectors could be materially affected by changes in oil prices, with Germany singled out for potential benefit.
- Valuation differentials between U.S. and non-U.S. equities underpin Yardeni s global stance.