U.S. Stocks Have Dominated for 15 Years. This Vanguard ETF Could Be the Better Bet for the Next 10.

Vanguard’s latest capital markets forecast suggests developed international stocks could outperform U.S. equities over the next decade: 4.5%–6.5% projected annual returns vs. 4.2%–6.2% for U.S. stocks. The article highlights valuation support as the S&P 500 trades at ~20x next 12-month earnings versus ~15x for the Vanguard Total International Stock ETF (VXUS), plus a potential tailwind from Vanguard modeling a weaker U.S. dollar. Overall, the piece argues investors may rebalance toward VXUS as international valuations and earnings growth prospects improve, but the expected return gap is relatively modest.

Analysis

This is not an immediate macro shock; it is a slow-burn relative-value setup. The only way VXUS materially outperforms is if the valuation discount narrows because earnings revisions outside the U.S. stop lagging and the dollar weakens. That makes the likely winners European and Japanese financials, industrials, and exporters; the main loser is the marginal flow into U.S. mega-cap growth ETFs, where multiple support becomes more fragile if capital rotates.

The market may be underestimating how much of U.S. outperformance has been a valuation story rather than a pure fundamentals story. VXUS does not need the S&P 500 to decline to win; it only needs slower U.S. multiple expansion and incremental improvement in ex-U.S. EPS revisions. The biggest risk to the thesis is that U.S. AI-led earnings keep compounding and the Fed stays relatively tighter than overseas, which would preserve the dollar and keep the valuation gap intact.

Time horizon matters: the first catalyst window is 1-3 months via dollar moves, central-bank divergence, and earnings guidance from Europe/Japan. Over 6-18 months, the thesis is falsified by renewed U.S. EPS acceleration or a sharp DXY rally; absent that, ex-U.S. can quietly outperform with lower volatility. This is more of an allocation drift trade than a high-conviction event trade, and it should be sized accordingly.

Key Decisions for Investors

• Initiate a starter long VXUS / short SPY relative-value position over 6-12 months; target 5-8% outperformance for VXUS on a weaker-dollar, valuation-convergence scenario, and cut if DXY makes a sustained new high or U.S. earnings revisions reaccelerate versus ex-U.S.
• Scale into VXUS on U.S. dollar strength or after any short-term U.S. equity pullback; the setup improves when the market is paying peak premiums for U.S. growth and the rotation is least crowded.
• If you want more cyclical beta, pair long VXUS with a smaller short in QQQ rather than SPY; this isolates the valuation/multiple-compression risk most directly tied to U.S. mega-cap tech leadership.
• Watch for a false signal: if eurozone/Japan earnings guidance does not improve over the next 1-2 reporting cycles, treat the thesis as a watchlist item rather than a trade.