📡 International Signals

The US vs. international equity rotation is one of the longest-duration cycles in markets — often lasting 5-10 years in each direction. Unlike sector rotations that can flip in months, geographic allocation shifts are driven by structural forces: currency regimes, valuation mean reversion, and relative economic growth. The good news? These cycles are readable if you know what to watch.

This page consolidates the key relative charts and trading signals for timing US vs. international allocation.

The international equity hierarchy

International equities aren’t monolithic — they span a spectrum from stable developed markets to volatile emerging economies:

Understanding this hierarchy is key: developed and emerging markets often move differently, and dollar exposure can dominate returns for US-based investors.

The primary driver: the US dollar

For US-based investors, international equity returns have two components:

1. Local market returns (how the stocks perform in their home currency)
2. Currency translation (how the foreign currency moves vs. USD)

When the dollar weakens, US investors get a double benefit: local returns plus currency gains. When the dollar strengthens, they face a double headwind.

DXY — The Dollar Index

The DXY (US Dollar Index) measures the dollar against a basket of major currencies (euro, yen, pound, etc.). It’s the single most important chart for international equity allocation:

Historical context: The DXY cycle typically lasts 7-10 years. Major dollar peaks occurred in 1985, 2001, and 2022. Major dollar troughs occurred in 1992, 2008, and potentially forming now.

Dollar cycle phases

Essential relative charts

EFA/SPY — Developed Markets vs. US

The key ratio for developed market allocation. EFA (EAFE — Europe, Australasia, Far East) vs. SPY shows whether developed international markets are leading or lagging:

When to use: Primary allocation signal between US and developed international. Check weekly.

EEM/SPY — Emerging Markets vs. US

Shows risk appetite for emerging markets relative to US equities:

When to use: Risk appetite signal. EM is higher beta — when EEM/SPY rises, global risk appetite is strong.

VEU/SPY — Total International vs. US

The broadest international vs. US comparison (VEU = FTSE All-World ex-US):

When to use: Long-term allocation signal. Less volatile than EEM/SPY, captures the overall trend.

EFA/EEM — Developed vs. Emerging

Shows preference within international allocations:

When to use: Tactical allocation within international. When risk appetite is high, EM typically leads.

Cross-asset signals

EMB/TLT — Emerging Market Bonds vs. Treasuries

Emerging market bonds (EMB) vs. US Treasuries (TLT) shows credit risk appetite for EM:

When to use: Leading indicator for EM equities. Credit often moves before stocks.

Copper/Gold — Growth vs. Fear

The copper/gold ratio captures global growth expectations:

When to use: Macro confirmation. Rising copper/gold supports EM and commodity-linked international markets.

Valuation signals

The CAPE spread — US vs. International

The Shiller CAPE (Cyclically Adjusted Price-to-Earnings) ratio provides a long-term valuation lens:

The spread matters: When US CAPE exceeds international CAPE by 15+ points, mean reversion historically follows within 1-5 years. This has happened before major international outperformance cycles (2000-2007, potentially 2025+).

Current context: As of mid-2025, US CAPE ~34 vs. developed international ~19 — a 15-point spread at historically extreme levels.

Cycle phase identification

Beginning of international cycle

Signals present:

• DXY making lower highs after extended uptrend
• EFA/SPY bottoming, attempting to break downtrend
• CAPE spread at extremes (US expensive, international cheap)
• Analyst sentiment still favoring US
• “American exceptionalism” narrative dominant

Action: Begin accumulating international exposure. Dollar weakness accelerates the move.

Middle of international cycle

Signals present:

• DXY in clear downtrend
• EFA/SPY in uptrend, making higher highs
• EEM/SPY joining the move
• Media coverage of international outperformance
• Analysts upgrading international allocations

Action: Hold positions. Add on pullbacks to rising moving averages.

End of international cycle

Signals present:

• Universal bullish consensus on international
• DXY bottoming, attempting to break uptrend
• EFA/SPY and EEM/SPY making lower highs
• Valuation gap has closed significantly
• Fed policy shifting hawkish (dollar supportive)

Action: Tighten stops. Reduce international allocation. Prepare for US leadership.

Fundamental data to monitor

Monthly data

Quarterly data

The international dashboard

Use this as a quick reference for reading international signals:

Bullish signals (Overweight international)

Bearish signals (Underweight international)

Neutral/Transitional

Actionable strategies

Strategy 1: Dollar Cycle Rotation

Setup: DXY breaks below major support after extended uptrend

Entry: Buy VEU or VXUS on DXY breakdown confirmation (weekly close below support)

Management:

• Add on pullbacks while DXY makes lower highs
• Monitor EFA/SPY for confirmation of international strength

Exit: DXY breaks above declining resistance, EFA/SPY breaks below rising support

Strategy 2: Developed vs. Emerging Rotation

Setup: EFA/EEM at extreme (either direction)

Entry:

• EFA/EEM at highs → Overweight EEM
• EFA/EEM at lows → Overweight EFA

Management: Hold for mean reversion (typically 6-18 months)

Exit: Ratio returns to middle of range

Strategy 3: Valuation Mean Reversion

Setup: CAPE spread (US minus international) exceeds 15 points

Entry: Begin systematic allocation to international (monthly purchases)

Management:

• Patient — valuation mean reversion takes 2-5 years
• Dollar trend can accelerate or delay

Exit: CAPE spread normalizes (<10 points) or international valuations become extended

Strategy 4: EM Credit Leading Signal

Setup: EMB/TLT breaks out from consolidation

Entry: Buy EEM on EMB/TLT breakout (credit leads equities)

Management:

• Hold while EMB/TLT trends higher
• Watch for divergences (EMB rolling over while EEM holds)

Exit: EMB/TLT breaks down, or EEM fails to follow credit strength

Quick reference table

Related signals across asset classes

International signals interact with other market indicators:

Deep dive: ETF fundamentals

Each international segment has unique characteristics worth understanding:

Sources