Weiss Ratings analysis shows small-cap materials and industrials lead sell-off while grocers hold up

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Small-cap sell-off analysis

Highlights

Small-cap stocks outside the S&P 500 fall 3.5% over six weeks, sharply underperforming the average S&P 500 gain of 1.2%, as higher rates and yields pressure smaller companies.
The materials sector outside the S&P 500 drops 13.2%, its third straight loss, with gold and silver miners plunging up to 35% on rate-driven underperformance.
Consumer staples edge down only 0.1%, boosted by grocers and club stores rising up to 17%, while volatility in healthcare and information technology widens the gap between large and small caps.

Sector losses deepen as rates pressure smaller companies

As reported by Weiss Ratings, companies outside the S&P 500 lose 3.5% on an equal-weighted basis over the six-week period, while the average S&P 500 stock gains 1.2% and the index itself slips 0.6% under pressure from a handful of large technology names.

The analysis links the sharper decline in small-cap stocks to the Federal Reserve's Sept. 16 decision to raise interest rates, followed by the 10-year Treasury yield moving above 5% for the first time since 2007. Oil climbing above $100 a barrel, a hot inflation reading in mid-October and concerns over how AI spending would be financed add to the pressure, with smaller companies described as less resilient to that mix of macro headwinds.

Materials posts the weakest performance among the 11 sectors outside the index, down 13.2%, its third straight losing window and the worst reading since Weiss Ratings began tracking the data at the start of the year. The report says higher rates and yields hurt precious metals because they offer no income, pushing gold and silver miners down by as much as 35%, far worse than the underlying metals and steeper than the 14% decline for the S&P 500's only gold miner.

Industrials ranks as the second-worst performer, falling 6.6% in a fourth straight losing window. Companies involved in building and powering data centers drop by as much as 38% as doubts spread about AI financing, while elevated fuel costs continue to weigh on the wider sector.

Defensive areas hold firmer as market gaps widen

Consumer staples proves the most stable area, edging down just 0.1% and ranking as the best-performing sector outside the index. Grocers and club stores rise by as much as 17% as investors move into defensive shares, although cannabis grower Glass House Brands, which Weiss rates at D or Sell, plunges 73% after a judge pauses the easing of federal cannabis rules.

Financials falls 1.4%, the second-least severe decline among smaller-company sectors, supported in part by stronger Brazilian stocks and solid trading volumes that help some brokerages and trading platforms. Even so, digital-asset companies, online brokers and consumer lenders drop by as much as 40% as the broader macro backdrop weighs on risk-sensitive names.

Weiss Ratings also tracks momentum between review windows, showing consumer staples improve by 7.3 points and jump from ninth place to first. Information technology records the sharpest deterioration, down 4.9 points from first to fourth, as bitcoin miners that shift toward AI data centers fall by as much as 53% on repriced debt costs, partly offset by gains of as much as 65% for cybersecurity and software companies.

The widest gap between S&P 500 stocks and companies outside the index appears in healthcare, where the large-cap group rises 9.6% and smaller names fall 4.5%. The report says investors rotate into defensive drugmakers and tool companies within the index, while smaller biotechs sink by as much as 50% on disappointing trial results, higher rates and slower takeover activity.

In our earlier article on surging long-term Treasury yields and the mounting U.S. deficit burden, we explained how yields above 5% are tightening financing conditions across the economy, lifting mortgage rates and increasing federal interest costs. We also noted that heavy Treasury issuance, geopolitical risk, and large funding needs tied to AI infrastructure are intensifying competition for capital—keeping borrowing costs elevated and adding pressure to rate-sensitive parts of the market.

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