Why your emerging market fund is lagging behind the S&P 500 today

If you own a broad emerging market fund in your Schwab or Fidelity account, you are likely wondering why your international holdings continue to drift lower while the S&P 500 marches to fresh highs. The disconnect is not just a matter of tech-heavy U.S. indexes outperforming. Instead, it is being driven by a series of high-stakes political and structural shifts in major developing economies that are forcing global portfolio managers to reassess where they allocate capital.

The epicenter of this shift is Brazil, where a dramatic legislative vote and an escalating presidential election cycle are directly impacting some of the largest companies held by international investors. On Wednesday, October 14, 2026, the Brazilian Senate voted 75-to-1 to approve a historic constitutional amendment that abolishes the country's traditional six-day workweek. The reform, heavily backed by President Luiz Inácio Lula da Silva, will gradually reduce the maximum weekly working hours from 44 to 40. While celebrated by labor advocates, business groups warn the change will significantly increase operating and labor costs for major retail, hospitality, and service giants operating in Latin America's largest economy.

The timing of the labor vote is no coincidence, as the country heads into a highly polarized presidential runoff on October 25, 2026. Lula, who finished second in the first round of voting behind conservative Senator Flávio Bolsonaro (the son of former President Jair Bolsonaro), is using the labor reform to win over working-class voters. The political tension has even spilled over to U.S. tech giants. On Wednesday, October 14, 2026, Lula's campaign announced it is filing a formal complaint with the Organization of American States (OAS), accusing Meta Platforms of election meddling by allegedly restricting the reach of the president's social media posts to benefit his rival. Meta has denied the allegations, calling them "simply false."

Despite these political headwinds, certain sectors in Brazil are showing remarkable operational resilience. On October 15, 2026, analysts at XP Investimentos updated their outlook for Caixa Seguridade, the mortgage and insurance arm of Brazil's state-owned housing bank. XP noted that the company's robust mortgage-linked insurance business is shielding its bottom line even as high domestic interest rates—currently leaving a tight 9.75% global yield gap relative to international benchmarks—weigh on broader corporate expansion.

At the same time, global payment giants are successfully carving out new digital infrastructure in the region. The Administrative Council for Economic Defense (CADE), Brazil’s antitrust watchdog, recently granted regulatory approval to a stablecoin joint venture led by Visa and Mastercard. Operating under the Open Standard LLC umbrella alongside Coinbase and Stripe, the venture launched a dollar-pegged stablecoin, Open USD (OUSD). This approval allows traditional payment networks to bypass local banking friction in one of the world's most active digital transaction markets.

For retail investors, the lesson of Brazil today is that broad-brush emerging market indexing may no longer be the safest way to capture overseas growth. While political and labor reforms create headwinds for index-heavy retail and tech names, financial infrastructure and resource-focused companies continue to operate under distinct structural dynamics.

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If you hold the Vanguard FTSE Emerging Markets ETF or the iShares MSCI Emerging Markets ETF, you have indirect exposure to the regulatory and political shifts reshaping Brazil's corporate landscape. For direct equity listings, Sigma Lithium Corporation is a Canadian-incorporated developer of the Grota do Cirilo green lithium project in Brazil. The company is listed directly on the Nasdaq.