Introduction
For the first time in nearly four years, the Russell 2000 index closed at a record high, capturing attention across Wall Street. The recent small-cap rally has sparked discussion about how these companies may benefit from changing economic conditions, particularly following the Federal Reserve’s recent interest rate cuts. While large-cap benchmarks also moved higher, it was small-cap stocks that led the charge, highlighting potential opportunities for investors seeking diversified exposure.¹
Why Small-Cap Stocks Are Back in Focus
Small-cap equities often move differently than their larger peers, in part because they are more sensitive to shifts in monetary policy and broader economic conditions. When the Federal Reserve lowered its policy rate by 25 basis points, to a range of 4% to 4.25%, investors responded quickly. Historically, rate cuts can ease financial conditions for smaller companies, many of which are more dependent on borrowing to fund operations or expansion.²
Beyond the impact of rates, valuations also play a role. Even after the recent rally, small-cap stocks remain attractively priced compared with large-cap names. This relative affordability has been cited by portfolio managers as one reason small-caps could hold ongoing appeal.³
Market Trends Shaping the Small-Cap Landscape
Several key trends are influencing the small-cap space:
- Economic Sensitivity: Small-cap companies often have greater exposure to the U.S. economy, meaning their potential performance can benefit when domestic growth strengthens.
- Investor Sentiment: After nearly 1,000 trading days without a new record, renewed momentum may spark increased investor interest in this segment of the market.
- Diversification Potential: Adding small-cap exposure to a portfolio can provide different sector weightings and company dynamics compared to large-cap holdings.
These trends do not guarantee outcomes, but they suggest areas of potential opportunity that may be attractive for long-term investors willing to navigate volatility.
The Role of Patience and Discipline in Small-Cap Investing
Investing in small-cap stocks often requires patience. Markets tend to overreact to short-term events, leading to exaggerated price swings. These movements can present potential opportunities for disciplined investors who can distinguish between temporary market noise and durable business fundamentals.
At Ironwood Investment Management, LLC, the philosophy of identifying high-quality small-cap companies, what the firm refers to as “Ironwood-Quality” or High I-Q, emphasizes attributes like strong management teams, solid financial positions, and competitive business models. Importantly, Ironwood’s Small Cap Core disciplined approach has been recognized. The Small Cap Core Strategy recently earned two PSN awards*, reflecting industry acknowledgment of its expertise in navigating complex environments. This disciplined process is designed to balance risk with potential opportunity, rather than chase short-term market trends.
Why Work with Ironwood Investment Management, LLC on Small-Cap Strategies
The recent small-cap rally underscores how dynamic this market segment can be. Partnering with an experienced firm can help investors evaluate these opportunities with care. Ironwood Investment Management, LLC brings decades of experience in small- and micro-cap equity research and portfolio management. The firm’s focus on High I-Q companies, combined with a patient and research-driven approach, aims to uncover potential opportunities that align with clients’ objectives.
Working with Ironwood means:
- Access to a dedicated team of professionals with expertise in small-cap equity strategies.
- A disciplined approach rooted in fundamental research and long-term vision.
- Alignment of values, as Ironwood is an employee-owned firm committed to client-focused outcomes.
Looking Ahead: Exploring Small-Cap Opportunities with Ironwood
The return of the small-cap rally highlights the importance of monitoring shifting market dynamics and remaining open to segments that may offer renewed potential. For investors considering small-cap allocations, working with a partner who combines experience, research depth, and discipline can provide valuable perspective.
Ironwood Investment Management, LLC invites you to learn more about its small-cap strategies and how they may fit within a diversified investment approach. Contact the team today to explore how Ironwood can support your long-term objectives.
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Website: https://ironwoodinvestmentmanagement.com
Footnotes
¹ Russell 2000 record close following Fed rate cut, September 2025 market data.
² Federal Reserve policy rate change to 4%–4.25%, September 2025.
³ Comparative valuation commentary on small-cap vs. large-cap stocks, September 2025.
People Also Ask
What is driving the current small-cap rally?
The small-cap rally is influenced by Federal Reserve interest rate cuts, attractive valuations compared to large-cap stocks, and renewed investor sentiment.
Why are small-cap stocks sensitive to interest rate changes?
Small-cap companies often rely more on borrowing, so lower interest rates can reduce financing costs and support potential growth.
Are small-cap stocks riskier than large-cap stocks?
Small-cap stocks can be more volatile due to lower liquidity and greater sensitivity to economic changes, though they may also offer diversification potential.
How does Ironwood Investment Management, LLC approach small-cap investing?
Ironwood focuses on High I-Q companies with strong management, solid financials, and sustainable business models, using a disciplined, research-driven process.
Important Disclosures & Disclaimers
* Awarded August 19, 2025. PSN is not a client, and no compensation was paid or received in exchange for the ranking. Register for free to view the full PSN Top Guns recipient list and award methodology: PSN Top Guns: https://psn.fi.informais.com/.
**August 31, 2025, Ironwood’s SCC performance compared to the S&P 500:

Performance Statistics – as of Q2 2025

This blog post is for informational purposes only and should not be construed as investment advice, a recommendation to buy or sell any security, or an offer of investment advisory services. All investments involve risk, including potential loss of principal. Past performance does not guarantee future results. Small-cap investments may be subject to higher volatility and additional risks compared to large-cap investments. Please consult with qualified financial professionals before making investment decisions. Ironwood Investment Management, LLC is a registered investment adviser. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.
Ironwood Investment Management®, LLC (Ironwood) is an independently managed investment advisory firm providing investment advisory services to institutional clients, mutual funds, and high-net-worth clients.
The firm is a registered investment adviser with the Securities and Exchange Commission. SEC Registration does not imply a certain level of skill or training.
Accounts in the Small Cap Core composite include separately managed, fully discretionary, fee-paying portfolios. Portfolios are invested in undervalued securities, the majority of which will have market capitalizations under $2.5 billion at cost, including securities with growth and/or value characteristics. Securities are considered undervalued when management believes the current share price does not accurately reflect the long-term economic value of the underlying company.
Ironwood Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Ironwood Investment Management, LLC has been independently verified for the periods January 1, 1999, through December 31, 2021. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis.
The Small Cap Core composite has had a performance examination for the periods July 1, 2002, to December 31, 2021. The verification and performance examination reports are available upon request. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
The creation date of the composite: July 2002. Performance inception date of the composite: January 1, 1999. Prior to July 2002, portfolios were included in the composite when at least 75% of the portfolio was invested in equity securities and when at least 75% of the portfolio was invested according to the investment style of the composite. Subsequent to July 2002, portfolios are included in the composite after the first full month of being fully invested.
Returns are presented gross and net of management fees and include the reinvestment of all income. Net returns are calculated based on the highest fee of 1.00%. Investment management fees are 1.00% on the first $25 million, 0.90% on the next $25 million, 0.80% on the next $50 million, and 0.75% over $100 million on an annual basis, and a client’s return will be reduced by these and other related expenses. The actual fee charged to an individual portfolio may vary by size and type of portfolio and may be negotiated. Actual investment advisory fees incurred by clients may vary.
The Russell 2000 Index consists of the 2000 smallest stocks in the Russell 3000 Index, representing approximately 8% of the U.S. equity market capitalization. The indices have been reconstituted annually since 1989. Ironwood returns and Index performance reflect reinvested interest income and dividends in U.S. dollars.
A list of composite descriptions and a list of limited distribution pooled fund descriptions are available upon request. Past performance is not indicative of future results. Policies for valuing investments, calculating performance, and preparing GIPS Reports are available upon request. Prior to May 2006, the Firm was known as Ironwood Capital Management, LLC.
Past Performance is Not Indicative of Future Results
The performance data provided in this blog reflects past performance, which may not be representative of future results. Investing in small cap stocks and other securities involves substantial risk, including the potential loss of principal. There is no guarantee that any investment strategy will be successful.
Forward-Looking Statements
This blog contains forward-looking statements, including expectations or forecasts about the performance of the market and specific securities. These statements are based on Ironwood Investment Management, LLC’s current beliefs and expectations but are subject to change without notice. Actual results may differ materially from those expressed or implied due to various risks and uncertainties, including market conditions, economic factors, and changes in government policy.
No Offer or Solicitation
This blog is for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities or investments. It is not intended to provide investment advice or to serve as a recommendation regarding any investment strategy. No client-adviser relationship is formed by reading this blog.
Conflicts of Interest
Ironwood Investment Management, LLC may hold positions in or recommend securities discussed in this blog. Clients should carefully review any investment strategy before committing to ensure it aligns with their investment objectives and risk tolerance.
Regulatory Disclosure
Ironwood Investment Management, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.