Persistently high interest rates have significantly impacted small-cap stocks, with the Russell 2000 index down 8% in 2025 compared to the S&P 500's 4% decline. Smaller companies face challenges with higher borrowing costs, which affect their overall balance sheets. However, history indicates that these stocks often outperform larger firms when conditions improve. With potential interest rate cuts anticipated by mid-2025, the stage may be set for a resurgence in small-cap stocks. For example, ACM Research shows strong growth driven by China's chip industry needs, hinting at the opportunities in this sector.
"Persistently high interest rates continue to slam small-caps harder than the big dogs, with the Russell 2000 down 8% in 2025, compared to a near-4% decline by the S&P 500."
"The higher borrowing costs have a bigger impact on small-cap balance sheets, as these companies have greater difficulty accessing financing than their larger counterparts."
"ACM Research, a specialized semiconductor manufacturer, has outperformed the Russell 2000 in 2025 with stock values doubling and a strong revenue growth driven by AI chip demand."
"As inflation cools, whispers of potential interest rate cuts by mid-2025 suggest a coming breakout for small-cap stocks, setting the stage for a comeback."
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