Beneath the Surface: A Broader View of Markets

Most investors track the S&P 500 or the Dow the way they track the weather. It gives a general read on conditions. But the market is not one thing. It's thousands of companies, each responding differently to the same headlines. Right now, those headlines include stubborn inflation, an active war in Europe, and a technology race around artificial intelligence that is reshaping entire industries. Against that backdrop, different corners of the market are behaving very differently. Understanding those differences is not just academic. It is what separates a diversified portfolio built for your goals from one that is simply riding whatever is popular today.

Different parts of the market respond to conditions in their own ways

Two shifts have been quietly happening beneath the headline numbers this year, and both are worth understanding.

First, value stocks have been outperforming growth stocks.¹ Value stocks are shares in companies whose prices look low relative to what they actually earn or own. Growth stocks carry higher prices because investors expect big future earnings. Many of today's growth stocks are in technology and artificial intelligence. With interest rates still near multi-decade highs, growth stocks face a real headwind: the further out those future earnings are, the less they are worth today when rates are elevated.² Energy companies, often classified as value, have added to that gap as oil prices have stayed high.

Second, smaller companies have been outperforming large ones this year.³ That reverses a trend that lasted more than a decade. Many smaller businesses are directly supplying the picks-and-shovels infrastructure for the AI build-out. That has translated into real revenue and real earnings growth, not just enthusiasm.

Stock prices relative to value matter for long-term returns

Price matters. Not the dollar amount of a share, but how much you are paying relative to what a company actually produces. This is what valuation measures, and it matters because overpaying for an asset is the most reliable way to earn below-average returns over time. Right now, the largest growth stocks, particularly in technology and AI, are priced near historically elevated levels.⁴ Value stocks and smaller companies look considerably more reasonable by comparison.

This does not mean growth stocks are headed for a collapse or that value will outperform forever. What it means is that the recent shift in market leadership has a rational explanation. Investors who chased the AI hype at peak valuations paid up. Investors who stayed balanced across styles and company sizes did not have to. That is the point of diversification: you do not have to guess what comes next if you already own a range of it.

Investing globally adds another layer of balance

The same logic applies globally. Not every market moves with ours. Emerging market stocks, which are shares in companies based in developing economies, have had a strong year as earnings expectations improved and prices remained far more attractive than U.S. equivalents.⁵ Developed markets outside the U.S. are in a similar position: cheaper on nearly every valuation measure. Add in geopolitical stress and currency risk, and yes, international investing is more complicated. But that complexity is also what creates differentiation. A portfolio that only owns U.S. large-cap growth stocks is not diversified. It is a concentrated bet, even if it did not feel that way during the last decade.

The market has posted real gains this year, but the gains have not been distributed evenly. Small companies, value stocks, and international markets have quietly held their own, often at more reasonable prices. That is not an argument to abandon what has worked. It is a reminder that no single corner of the market dominates forever, and that a portfolio built around your actual goals, not last year's winners, is still the most reliable path forward.

References

1. S&P 500 Index as of September 11, 2026

2. Clearnomics research and the Russell 3000 Value and Growth indexes, as of September 11, 2026

3. Clearnomics research, LSEG and FTSE Russell, as of September 11, 2026

4. Clearnomics research and the Russell 2000 Index, as of September 11, 2026

5. Clearnomics research, LSEG and FTSE Russell, as of September 11, 2026

6. Clearnomics research and the MSCI Emerging Markets Index, as of September 11, 2026

Index Descriptions

S&P 500

The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Russell 3000

The Russell 3000 Index is a stock market index that tracks the performance of the 3,000 largest companies listed on the U.S. stock exchange.

Russell 2000

The Russell 2000 Index is a capitalization-weighted index designed to measure the performance of the small-cap segment of the U.S. equity universe. It includes approximately 2,000 of the smallest securities in the Russell 3000 Index.

MSCI Emerging Markets Index

The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.

MSCI EAFE Index

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

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