European and other major world stock markets are breaking the uptrends they had traced for the past few months and now face important tests of support.
Exchange-traded funds that track Germany, France and other countries fell for a second straight week. After nine weeks of nearly uninterrupted gains, shares have pulled back to test their 10-week or 50-day moving averages.
The iShares MSCI Germany ETF, iShares MSCI France, iShares MCSI United Kingdom, iShares MSCI Italy have fallen to or below the 10-week moving average for the first time since April. Losses last week ranged from 2% to 4%.
And iShares MSCI EAFE, a broader European index, fell 3.3% last week and dipped 1% below the 10-week line.
IBD's ETF Market Strategy (current exposure level)
A break below the 10-week moving averages would indicate that more selling lies ahead. But a rebound from the line could put indexes back on their longer-term uptrends. Thus, this week's price action could be pivotal.
The ETF tracking Austria also fell to the 10-week line, while the Sweden and Switzerland iShares funds are both below their 10-week lines. IShares MSCI China ETF is just above its 10-week line. But in a bearish sign, its relative strength line has been trending lower since March.
The iShares MSCI Chile ETF has one of the weakest charts, after shares broke below the 50-day moving average last Monday and are on pace for a seven-day losing streak. Shares are more than 5% below the 50-day average in what should be considered a sell signal.
Mexico's IPSA index is 4% below its late-May peak and testing support levels.
IShares MSCI Poland ETF has dipped just below its 10-week line and still leads world ETFs with a 42% increase so far this year. The iShares MSCI Spain ETF is 3% off is high and above the 10-week average. The fund has a year-to-date gain of 37.5%.
While world ETFs are pulling back, their year-to-date gains remain impressive and continue to outpace the U.S. stock market. Gains for most still exceed 15%.
World Stocks In 2025
Many world ETFs were off to a strong 2025, until President Donald Trump announced sweeping tariffs on most imports in early April. Those ETFs and world indexes sold off on the news, but rebounded after Trump suspended tariffs while negotiations went on.
Now, Israel's attack on Iran, which began with nuclear and military targets on June 13, and Iran's retaliation, have added risk to world stocks. U.S. involvement in the conflict over the weekend amplified fears of a broader regional conflict, and stirred fears that U.S. oil prices — up more than 10% since the first attacks on Tehran — could spike above $100.
Michael Field, Morningstar's chief equity strategist for Europe, says the drop in European stocks began before the Israel-Iran escalation, and only got worse when both countries started launching missiles at and dropping bombs on one another.
"Ultimately, we are in something of a lull period for equity markets. In-between earnings season, and with no significant updates to the trade war, with the EU deadline fast approaching," Field told IBD. "This has meant that investors are looking at the limited news flow on other matters, which has been marginally negative, and has thus influenced sentiment."
But this month's losses in European stocks are only around 2%-3%. That's a minor correction in the context of the sizable rally they've had before this pullback, Field noted.
World Stocks Outperform U.S.
This has been a good year to invest more in foreign stocks than U.S. equities. Year to date, the iShares MSCI ACWI Ex-U.S. ETF, which holds 1,729 stocks from developed and emerging countries except the U.S., is up 12.9%. By comparison, the S&P 500 is up 2% and iShares MSCI ACWI, which tracks 2,257 global stocks, is up 5.7%.
Since the April 7 market low, however, those three indexes have moved up nearly in unison, each about 18% higher.
Nicholas Colas, cofounder of research firm DataTrek, said in a June 12 note that U.S. and rest-of-the-world indexes could continue to track each other as the U.S. tries to work out agreements with trade partners.
"If these go smoothly, U.S. and ROW (rest of world) stocks will both continue to rally. If they stumble, global stocks will likely fall," Colas noted. "The bottom line is that there is not much benefit to international diversification at present aside from ROW stocks still recovering from prior-year underperformance."
