Small-cap stocks face a looming reckoning as the Federal Reserve's upcoming policy meeting threatens to reverse the Russell 2000's recent market-leading performance.
Hut 8 has experienced an 82% rally this year, largely due to its expansion into data center campuses optimized for AI chips. Despite this growth, the stock faces a potential stall as rising interest rates threaten the valuation of small-cap growth companies.
The company signed billions of dollars worth of leases for data center campuses optimized for high-performance AI chips.
The Russell 2000 index has outperformed major benchmarks with a 20.2% gain in 2026, driven by domestic focus and favorable trade policies. However, the Vanguard Russell 2000 ETF (VTWO) faces a potential correction as the Federal Reserve weighs an interest rate hike that could disproportionately impact small-cap firms carrying floating-rate debt.
Small-cap companies in the Russell 2000 are significantly more reliant on floating-rate debt than large-cap companies, meaning higher interest rates directly increase their borrowing costs and squeeze earnings.