On Our Radar: Stagflation, Gold, and Foreign Stocks

So far, the US stock market has been less volatile in May than it was in April. If you’re one of the many people who find market volatility to be unnerving, this is probably a relief. But for investors who are following the headlines closely, there’s still a lot of information to sift through — especially related to stagflation, gold, and foreign stocks. 

In this post, we’ll take a closer look at recent developments related to all three, explain what they mean for you, and show how other Wealthfront clients are responding. 

Market trends & client response

Stagflation remains top of mind

Despite the market rebound in mid-May following the pause on tariffs, headlines are still warning about potential “stagflation” (a combination of stagnating economic growth and high inflation, hence the name). Some Wealthfront clients might also be wary of the short-term economic outlook. In a recent survey, only 42% of clients said they were “somewhat or very optimistic” about the US stock market over the next six months. Still, deposits into Automated Investing Accounts (which are built for a range of economic scenarios) have stayed positive over the last month, showing clients are continuing to invest with a long-term perspective.

How should you invest if you’re worried about stagflation? The short answer is that we generally don’t think it makes sense to alter your long-term plans based on short-term market shifts. As our Chief Investment Officer Burt Malkiel wrote in a recent blog post, “investors should not panic and make any alterations to a well thought-out investment plan.” Now is a reasonable time to make sure you have an adequate emergency fund, though. 

Interest in gold remains high

In April, gold hit an all time high of $3,500 per ounce. And since the start of the year, the number of clients adding gold ETFs to their portfolios has increased by more than 40% (though clients continue to put the vast majority of their assets in our recommended investment portfolios). 

What’s driving this? Some investors see gold as a hedge against inflation and dollar fluctuations, and a way to diversify beyond stocks and bonds. However, investors should be aware of the drawbacks: Gold is taxed at a higher rate than other investments. Its long-term gains are taxed at the same rate as collectibles (28%), which is higher than the highest long-term capital gains rate (20%). Gold can also be more volatile than other asset classes.

For clients who do want to invest in gold, we think it can be fine as part of a diversified portfolio that also includes a mix of cash, equities, and bonds that’s appropriate for your risk tolerance.

Foreign stocks are still outperforming US stocks

For much of the last decade, US stocks have outperformed their foreign counterparts. But in 2025, that hasn’t been the case so far. A report from Morningstar shows that foreign large-blend funds have returned 12.6% so far this year, compared to just 0.6% for US large-blend funds. Our clients expect this to continue: In April, 46% of clients surveyed said they expect markets outside the US to outperform the US stock market over the next six months. Among Gen Z clients, that number is even higher: 54% believe foreign stocks will outperform US stocks, and that share has risen steadily over the last few months. Accordingly, there’s been a sharp increase in the number of clients adding VGK (a European stock index fund) to their portfolios since the start of the year.

This doesn’t mean we think you should sell out of your US stock positions. Instead, this shift is a good reminder of the importance of global diversification and investing in a portfolio designed for all market conditions. Even if one asset class “beats” another one for a prolonged period of time, there’s no guarantee that trend will continue.

We hope this information helps cut through the noise so you can feel confident about your approach to investing.