Tech is getting all the headlines this week — and rightfully so — but other parts of the stock market are faring even worse. The Russell 2000 , which tracks the performance of small-cap stocks, fell into correction territory on Wednesday, ending the day down 11% from an Aug. 14 record close. For the week, the benchmark is down 2.8%, slightly underperforming the Nasdaq Composite's 2.5% decline. Several factors are going against small caps right now. First, inflation shows no signs of slowing. The consumer and producer price index reports released this week came in hotter than expected. And while Treasury yields have pulled back sharply this week, investors are increasingly betting the Federal Reserve will have to raise rates at least once more before year-end . Second, sentiment among small businesses has deteriorated. The NFIB Small Business Optimism index fell to 97.9 in September from 98.7 in August . .RUT YTD bar Russell 2000 in correction territory To be sure, strategists at BCA Research noted Wednesday that smaller firms are "not yet feeling the bite from higher rates." "Among single most important problems reported by small business owners, the quality / availability of labor and inflation remain the top 2 concerns, both of which increased in September," they wrote to clients. "Despite a significant rise in bond yields, there is no appreciable increase in the number of small businesses reporting financial conditions or interest rates as their number one problem." That said, they noted that the "impact of rising rates showed up with a lag in 2021 and 2022, and small businesses may only be starting to feel the impact of rising yields." The outlook for stocks in general seems shakier as well. Earlier this week, legendary investor Paul Tudor Jones noted that next year "is going to be really, really challenging for the stock market." "You've probably got the most negative flow picture for the U.S. stock market that we've had, say, since 2002," he told CNBC's "Squawk Box" on Tuesday .
