Market Rotation: Value and International ETFs Gain Momentum in 2026

The 2026 equity market is witnessing a pronounced rotation as investors pivot away from the growth-heavy technology sector. This shift has propelled value, dividend-paying, and small-cap stocks to outperform the S&P 500 by significant margins, suggesting a period of catching up for previously neglected sectors. After years of dominance by mega-cap tech, the current environment favors defensive positioning and structural value. This trend is particularly evident in funds focusing on energy, consumer staples, and strategic international markets that offer a hedge against a risk-off environment. The Schwab U.S. Dividend Equity ETF has seen a resurgence following a period of underperformance from 2023 to 2025. A recent portfolio reconstitution has left the fund with a 40% allocation to energy and consumer staples, positioning it to potentially outperform the broader index if economic concerns persist. In the energy sector, the State Street SPDR S&P Oil & Gas Exploration & Production ETF is benefiting from structural tailwinds. With crude oil prices exceeding $110 due to conflict in Iran, the portfolio maintains a modest forward price-to-earnings (P/E) ratio of 11, supported by a long-term U.S. energy infrastructure capex cycle. Internationally, the iShares MSCI South Korea ETF has surged approximately 180% since the beginning of 2025. Driven by Samsung and SK Hynix—which comprise 43% of the fund—the ETF offers an alternative AI play with a valuation of 17 times earnings, avoiding the premium pricing associated with the 'Magnificent Seven' companies.