Emerging markets and small caps are quietly stealing the show in 2026.
If someone asked you how the stock market has been doing so far in 2026, you’d probably mention that tech stocks had a rough first quarter—and that they’ve been bouncing back. That’s the story most people have been following. But here’s a number that might stop you in your tracks: emerging market stocks have outperformed the S&P 500 by roughly 9 percentage points year-to-date through April in 2026.
That’s not a rounding error. That’s a trend worth paying attention to.
So, Why Are Emerging Markets Outperforming the S&P 500 in 2026?
The real story of 2026—at least through the first few months—is an Emerging Markets and U.S. Small Cap rally. The MSCI Emerging Markets Index is up over 14% YTD, while the Russell 2500 (which captures all the U.S. stocks not in the S&P 500) is up over 13%. The S&P 500, by comparison, is up just under 6%.
The one-year numbers tell a similar story. Emerging markets are up nearly 48% over the past twelve months. The Russell 2500 is up 40%. The S&P 500? A solid 31%—but clearly not the top performer.
| Index | 1 Mo | 3 Mo | YTD* | 1-Year | |
|---|---|---|---|---|---|
| 100% Fixed Income | Bloomberg U.S. Aggregate (Total) | 0.23 | 0.09 | 0.28 | 4.24 |
| 100% Global Equity | MSCI All Cap World Index IMI (Net) | 10.12 | 3.70 | 7.09 | 31.62 |
| Cash | S&P U.S. Treasury Bill 0-3 Mo (Total) | 0.30 | 0.89 | 1.19 | 4.08 |
| Municipal Bonds | Bloomberg Municipal 1-15 Bond (Total) | 0.80 | -0.53 | 0.53 | 5.98 |
| Domestic Large Cap Equity | S&P 500 (Total) | 10.49 | 4.19 | 5.70 | 31.05 |
| Domestic Mid/Small Cap Equity | Russell 2500 (Total) | 11.15 | 8.03 | 13.41 | 40.10 |
| International Developed Market Equity | MSCI EAFE (Gross) | 7.56 | 1.08 | 6.36 | 25.22 |
| International Emerging Market Equity | MSCI Emerging Markets (Gross) | 14.73 | 5.28 | 14.61 | 47.51 |
*As of 4.30.2026. For illustrative purposes only. Past performance is not indicative of future results. The indices referenced are unmanaged and cannot be invested in directly. International investing involves additional risks including currency fluctuations, political instability, and different accounting standards. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Small cap stocks may be subject to higher degrees of risk than large cap stocks. BIP Wealth, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. More information on these specific indices is included below.
Why This Matters—And Why It’s Not That Surprising
Those of us who’ve been doing this job for a while will remember when emerging markets and small caps were considered the most exciting corners of the stock market. That narrative faded during the long dominance of U.S. large cap growth stocks—particularly the mega-cap tech names that drove most of the S&P 500’s returns over the past decade.
But here’s the thing: valuation matters over time. Emerging market and small cap stocks are still significantly cheaper than U.S. large caps when measured by price-to-earnings ratios (P/E). That valuation gap is one reason there’s a rational case to be made that this trend has room to continue.
This doesn’t mean the S&P 500 is broken or that U.S. large caps are going away. It means that a well-diversified portfolio—one that includes exposure to international and smaller-company stocks—may look a lot smarter right now than it did a few years ago when U.S. large caps were winning everything.
What Does This Mean for Your Portfolio?
If your investments carry heavy U.S. large cap concentration—which, for many investors, is the default—this is a good moment to revisit your global diversification strategy. Not because the S&P 500 is doing poorly, but because other parts of the market are doing better, and for reasons that could persist.
At BIP Wealth, we build portfolios with global diversification in mind precisely because we don’t know which corner of the market will lead in any given year. This kind of year is a strong case for portfolio diversification beyond U.S. large caps and a good reminder of why that approach matters.
International diversification, small cap exposure, emerging market allocations—these aren’t “alternative” in the sense of exotic. They’re part of a thoughtful, long-term portfolio construction strategy.
A Trend Worth Taking Seriously
The biggest market story of 2026 isn’t the tech rebound. Emerging markets are outperforming the S&P 500 by nearly 9 percentage points year-to-date, and U.S. small cap stocks aren’t far behind. Cheaper price-to-earnings valuations and improving fundamentals suggest this may not just be a blip; and for investors with a well-diversified global portfolio, that’s meaningful.
If you’re curious how your current allocation stacks up, reach out to us to connect with a BIP Personal Wealth advisor.
The Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark selected as the best available proxy for a high quality, diversified fixed income portfolio suitable for a U.S. investor. It is comprised of the Bloomberg U.S. Government/Credit Bond Index, the Mortgage-Backed Securities Indices, and the AssetBacked Securities Index. It is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, with maturities of at least one year, and an outstanding par value of at least $100 million. The “Total Return” version of the index is reported here, which means that dividends are included and reinvested.
The MSCI ACWI IMI Index is a free float-adjusted market capitalization weighted global index selected as the best available proxy for a diversified stock portfolio consistent with modern portfolio theory. Approximately 60% of the index is comprised of the U.S. stock market and 40% is comprised of international stock markets, including both developed and emerging countries. The “Net Total Return” version of the index is reported here, which means the index reinvests dividends after the deduction of withholding taxes, using a tax rate applicable to non‐resident institutional investors who do not benefit from double taxation treaties.
The S&P U.S. Treasury Bill 0-3-Month Index is designed to measure the performance of U.S. Treasury bills maturing in 0 to 3 months.
The Bloomberg Municipal 1-15 Year Index is a broad-based benchmark that covers the U.S. dollar denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, insured bonds, and pre- refunded bonds. The “Total Return” version of the index is reported herein, which means that interest is included and reinvested.
The S&P 500 Index is a market capitalization weighted index that consists of 500 widely traded stocks chosen for market size, liquidity, and industry group representation. The “Total Return” version of the index is reported herein, which means that dividends are included and reinvested
The Russell 2500 Index is a free float-adjusted market capitalization weighted index intended to represent the smallest 2500 of the top 3000 U.S. companies. The “Total Return” version of the index is reported herein, which means that dividends are included and reinvested.
The MSCI EAFE Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of international developed markets, excluding the U.S. and Canada. EAFE refers to Europe, Australasia, and the Far East and includes 21 individual countries that collectively represent many of the major markets of the world. The “Gross Return” version of the index is reported herein, which means that dividends are included and reinvested and there is no withholding tax applied to reduce returns.The MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of international emerging markets. It includes 21 individual countries that collectively represent many of the developing markets of the world. The “Gross Return” version of the index is reported herein, which means that dividends are included and reinvested and there is no withholding tax applied to reduce returns.
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