Foreign Stocks Still Lead Global Markets In 2025 Going Into Q4

Global markets in 2025 have exhibited broad-based gains across all asset allocations, with foreign equities in developed markets ex-US (VEA) leading with a robust 26.4% year-to-date return. US real estate investment trusts (VNQ) were the relative laggard, posting a 5.2% total return. This widespread market strength persists despite the Fed's preferred inflation measure, the personal consumption expenditures price index, rising to 2.7% year-on-year in August, its highest level since April 2024.

Analysis

Global markets have exhibited broad and significant strength through the first three quarters of 2025, a trend that has rewarded nearly every asset allocation strategy. The rally's leadership is distinctly international, with foreign equities in developed markets ex-US (VEA) posting a robust 26.4% year-to-date gain. In stark contrast, U.S. real estate investment trusts (VNQ) have lagged considerably, delivering a comparatively modest 5.2% total return. This wide performance dispersion occurs against a potentially challenging macroeconomic backdrop, as the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose to 2.7% year-on-year in August—its highest level since April 2024. The underperformance of a rate-sensitive sector like REITs, even while posting absolute gains, may be an early signal of market apprehension regarding the sustainability of the current rally should the Fed adopt a more hawkish stance in response to persistent inflation.

Key Decisions for Investors

• Given the substantial 26.4% year-to-date gain in ex-US developed market equities (VEA), investors should evaluate valuations and consider whether to rebalance portfolios after a period of significant outperformance.
• The relative weakness in US REITs (VNQ) coupled with the PCE inflation rate hitting 2.7% warrants increased scrutiny of rate-sensitive assets, as they may face significant headwinds from potential monetary policy tightening.
• While broad diversification has been highly effective in 2025, the re-emergence of inflation as a primary risk factor suggests it is prudent to monitor upcoming Fed communications and economic data for any shift that could disrupt the prevailing market environment.