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A Long-Awaited Reversal

U.S. equities trailed the rest of the world in 2022, and near-term tailwinds could continue to favor international markets.

Key Insights

  • After nearly a decade of outperformance, U.S. equities trailed the rest of the world in 2022, and many wonder if this shift in performance will continue in 2023.
  • In our view, improved economic outlooks in China and Europe, coupled with a weaker U.S. dollar, may favor international markets in the near term.


After more than a decade of U.S. equity returns outpacing those for the rest of the world, 2022 brought a long-awaited reversal. During the nine years between 2013 and 2021, U.S. equities outpaced the rest of the world by 170%, cumulatively, as measured by the MSCI indices. However, that difference narrowed significantly in 2022, and now stands at only 115%.

This pivot has many investors asking what has driven the reversal, and whether we should expect more of the same in 2023.

Chinese Economy Poised to Accelerate

The most notable change has come from China. While China continues to face a challenging health care situation due to the spread of COVID-19, the recent relaxation of COVID-driven restrictions means economic activity is poised to increase considerably in 2023. Additionally, economic activity is likely to enjoy a further boost from the increased use of credit over the past year—which typically has a strong lagged effect on the economy.

Energy Crisis Averted?

Another notable driver of this change is that the outlook for European economic growth has been greatly improved by an unusually warm winter. Due to the impacts of the war in Ukraine and related gas pipeline disruptions, widespread power shortages were expected to significantly curtail European activity this winter. However, the relatively warm winter weather and an increase in imported liquified natural gas from abroad allowed storage levels to rebound from dangerously low levels in April to nearly full levels by year-end. This sharp improvement has caused energy prices to fall significantly and means that industrial activity in most of Europe has remained unaffected by energy supply concerns.

Still, it is important to note that an energy crisis may not be fully averted, as the outlook remains somewhat uncertain due to the ongoing war, and the 2023-2024 winter may ultimately bring more challenging weather conditions. Nonetheless, the relief from energy concerns combined with the expected boost in demand from China means the near-term outlook has improved considerably.

Weakening U.S. Dollar

Lastly, the U.S. dollar has begun to fade after strengthening sharply in 2021 and most of 2022. And this trend may hold over the near term as the two most potent drivers of currency strength—interest rate differentials and economic growth differentials—appear likely to favor a further weakening of the dollar.

Interest rate differentials are poised to narrow because the U.S. Federal Reserve is likely to shift to a more dovish stance sooner than other major central banks. Meanwhile, economic growth differentials may narrow further due to the improved outlooks for China and Europe.


In conclusion, 2022 brought a notable shift in performance trends between U.S. equities and those in the rest of the world—and the drivers of these trends may remain in place over the near term. As a result, T. Rowe Price’s Asset Allocation Committee is maintaining an overweight position in non-U.S. equities relative to U.S. equities.



This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

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