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The Great Rotation of 2026: Why Small-Caps, Value Stocks, and International Markets Are Taking the Lead 📈
ETF Recommendations For Taking Advantage of this Rotation 🔄
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The Great Rotation of 2026: Why Small-Caps, Value Stocks, and International Markets Are Taking the Lead
As we continue to navigate the early months of 2026, a significant shift has been happening in the financial markets.
This period is marked by what analysts are calling “The Great Rotation”, where small-cap stocks, value-oriented investments and international markets are starting to emerge as leaders.
This transition is moving us away from the dominance of mega-cap technology stocks, offering new opportunities for investors like you and I.
Let’s take a deep dive, focusing on key data, underlying drivers of this rotation and practical strategies you can use to make the most of the opportunity.
The performance of the stock market in early 2026 highlight a clear rotation.
The Russell 2000 index, which tracks small-cap companies, is up ~4.3% year to date and ~14.5% over the last 6 months.
On the other hand, indices that are heavily weighted towards technology, such as the Nasdaq, have had a slower start to the year, down ~2.7% year to date and up only ~4.2% over the last 6 months.
As far as international markets go, the MSCI Emerging Markets index, taking $EEM ( ▼ 1.11% ) as an example, is up ~8.2% year to date and ~22% over the last 6 months. These movements are supported by a weakening U.S. dollar, which enhances the appeal of foreign assets.
Why the shift?
There are several factors to consider here.
Declining borrowing costs resulting from monetary policy are beneficial for smaller companies that rely on debt financing for their business expansion. These types of companies, which operate in cyclical sectors like industrials, financials and consumer goods, perform much better in improving economic conditions.
Broader productivity improvements, including those from AI applications are also contributing to this environment.
High valuations in mega-cap tech stocks are raising concerns about overconcentration, with investors starting to seek diversification to mitigate risks associated with a narrower market focus.
If you’re looking to participate in this market rotation, ETFs (exchange-traded funds) provide accessible options.
iShares Russell 2000 ETF $IWM ( ▼ 1.56% ) offers you exposure to smaller-cap stocks, providing you with the exposure without the need to pick individual stocks.
Vanguard Value ETF $VTV ( ▼ 0.79% ) targets undervalued companies in already established sectors, also giving you the exposure to these companies without having to pick from the pile.
Finally, if we shift our focus to international equities, Vanguard FTSE Emerging Markets ETF $VWO ( ▼ 0.8% ) and iShares MSCI EAFE ETF $EFA ( ▼ 0.41% ) both provide diversified exposure to growing regions, helping you to balance your portfolio against U.S. specific risk.
If you want to learn more about how to use these ETFs as a risk management tool in 2026, along with detailed analyses and recommendations, consider upgrade to The Profit Zone Premium. When you upgrade, you get immediate access to our 5 Stock Premium Portfolio, which crushed the S&P 500 in 2025 and is poised to do so again in 2026. Click here.
It’s Not All Sunshine and Rainbows: The Risks
I would never recommend ETFs or stocks without highlighting the potential risks involved, especially when investing in this type of environment.
Small-cap stocks can be more volatile and sensitive to economic downturns.
Value investments may underperform growth is sectors start to regain momentum.
And international markets face challenges of their own, such as geopolitical tensions and currency fluctuations.
If you’re considering investing in any of the funds mentioned above, you should assess your own risk tolerance, maintain clear cut diversification rules and allocate your capital accordingly.
P.S. when you upgrade to The Profit Zone Premium, you can ask me any questions you may have about diversification as well.
The Great Rotation of 2026 highlights the value of adaptability in investing.
By understanding these trends, you can position your portfolio for potential wealth building opportunities in a evolving landscape.
It’s always better to be proactive than reactive, because those that react often end up getting crushed.
Stay dominant.
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