BlockBeats reported on July 27 that Citi’s strategy team warned small-cap stocks could become one of the hardest-hit areas in a market correction as expectations for Federal Reserve rate hikes continue to rise.
According to Citi, investors are moving away from relying on forward guidance and are focusing more closely on economic data as the policy style of new Federal Reserve Chair Kevin Warsh is viewed as hawkish. The market is now pricing in more than a 30% chance of a rate hike this week.
Citi says the Russell 2000 may face more pressure than large-cap tech
Stuart Kaiser, Citi’s head of U.S. equity trading strategy, said that even if the Fed leaves rates unchanged this week, the probability of a September hike is still as high as 70%.
Citi advised investors to hedge risk by buying put options on the iShares Russell 2000 ETF (IWM). The bank said small caps are more sensitive to interest rates, economic growth, and credit conditions, which could leave the Russell 2000 under heavier pressure than large technology stocks if the Fed signals a hawkish stance.
Goldman Sachs data points to stronger healthcare positioning
At the same time, Goldman Sachs data showed hedge funds are adding exposure to the healthcare sector, and related funds have delivered strong performance in the recent period.
From August 2025 to April 2026, specialized healthcare hedge funds posted average returns of nearly 40%, clearly above those of general equity funds.
The report said capital inflows into the sector have been supported by AI-driven drug discovery, rising healthcare M&A activity, and improved efficiency in U.S. Food and Drug Administration approvals.
Markets are also watching the Fed meeting and Big Tech earnings
Citi said this week’s attention remains fixed on the Fed’s policy meeting and earnings reports from major technology companies. The bank added that the bar for corporate results is extremely high, and even companies that beat earnings expectations could still see their shares fall on profit-taking after the news.