Why the report rally for small-cap shares may run into a giant downside in 2026

Wall Street has finally turned bullish on small-caps stocks — with the Russell 2000 index

recapturing record territory last week, helped along by optimism over the Federal Reserve’s interest-rate policy.

Yet recent increases in Treasury yields and a cooling outlook for the Fed’s monetary policy next year have been quietly tightening the screws on this popular corner of the equity market, where many companies in the group remain unprofitable.