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International equities are having a moment—and it’s been 16 years in the making. The iShares MSCI ACWI ex US ETF (ACWX) is outpacing the S&P 500 (SPX) by 10.8% so far this year. Assuming current numbers hold, ACWX’s double-digit excess over SPX is the strongest showing for international stocks through Q3 since 2009, meaning someone born during the last period of outperformance could be learning to drive today.

While the overall strength in international equities has been impressive, the underlying drivers have been even more encouraging. The rise in international stocks has been bolstered by developed and emerging markets alike, with the iShares MSCI EAFE ETF (EFA) and the iShares MSCI Emerging Markets ETF (EEM) each gaining more than 20% YTD. Given the hot streak through the first three quarters, should we expect the performance to carry over into the next quarter and beyond?

There have been four other instances in which both EFA and EEM have gained more than 15% through Q3. In each case, both funds posted gains the following quarter, with EFA averaging a 4.9% return while EEM surged ahead with a 15% average return. One-year returns were more modest, averaging just a few percentage points higher, but were still positive overall. Granted, it’s a very limited sample, but it does support the notion of continued strength, particularly within emerging markets.

The breadth of strength in international equities has been strong this year, but we’ve recently seen emerging stocks move ahead of their developed counterparts. After going toe-to-toe for much of the year, EEM has bested EFA by more than 5% over the last month. This shift has boosted emerging markets' relative strength, with EEM reclaiming near-term leadership over EFA on their RS chart. Following the fund in an RS column of Xs has historically been a positive signal, outperforming both EEM and EFA over time, demonstrating the relationship’s value. EEM also holds a fund score of 5.51 with a sharply positive score direction of 3.60. Meanwhile, EFA holds a respectable fund score of 4.03 and a negative score direction of -0.51, both of which lag EEM. In fact, the ~1.5 difference in fund score between the two is at its widest margin since October of last year, with a full point of the widening taking place in September alone. Given the shift, emerging markets could be taking the wheel of international leadership from developed markets. That said, investors should stay buckled in for the months ahead, as the group sits in overbought territory and has been prone to sharp movement this year.

Domestic equities continue to sit first in our DALI asset class ranks, but international equities remain close behind for now. Given the rise of international markets, foreign equities warrant a place in many portfolios, with emerging markets deserving extra attention for now.

Investors have a longstanding love-hate relationship with the month of October. Some of the more notorious market meltdowns have occurred, or at least escalated, in October; including 1978 (-9%), 1987 (-22%), and 2008 (-17%). And several of the largest one-day market declines, including Black Monday (1987) and Black Tuesday (1929), happened in October. Still, the S&P 500 (SPX) has had more double-digit gains in October than it has double-digit losses since 1950. In fact, October is often referred to as the "bear killer," as its end ushers in the beginning of the seasonally strong six months of the year. Highlighting the feast-or-famine outcomes October has become known for, amid the 2022 bear market, the S&P bottomed in October and rallied to finish the month with an 8% gain. The next year, the S&P finished the month down more than 3%, before reversing sharply in early November to finish the fourth quarter with a double-digit gain.

October has offered some of the more meaningful buying opportunities since Global Financial Crisis, including 2011 and 2015, when the S&P 500 rallied over 8% during the month. However, we don’t have to look back too far to see the negative side of the love-hate relationship with October. In 2018, the S&P 500 recorded its worst October since 2008, falling nearly 7%, the beginning of a 15% fourth quarter slide. Historically speaking, October has been positive more often than not, as the S&P 500 has logged gains in 59% of the Octobers between 1950 and 2024. The average return for the month during that period is +0.85%.

The histogram below is another visual that helps us wrap our hands around October's past behavior. It categorizes each October's return into a performance bracket, allowing us not only to see that there have been more up Octobers than down Octobers, but also the magnitude of returns. If we look at the extremes, notice that only five Octobers since 1950 have experienced a decline of more than -5%. The most common experience in October has been a gain in the range of 2.5% - 5%.

Finally, the graphic below illustrates the average daily returns of the S&P 500 Index in October going back to 1950, as well as the frequency of positive daily returns for each trading day. Historically, the month has both started and ended well, with the last four trading days of the month producing gains more times than not. The days in between have tended to produce a very different experience, with more substantial moves in both directions.

As we close out the third quarter, the S&P is up more than 10% for the year, possibly on track to notch its third consecutive year with a 20%+ gain for the first time since the late 1990s. Whether it reaches that milestone may hinge on whether this October is one to love or hate.

Daily Option Ideas for September 25, 2025