Investors are pulling billions of dollars from small-cap stocks as rising Treasury yields put renewed pressure on companies more exposed to borrowing costs. The iShares Russell 2000 ETF (NYSE:IWM) recorded $3.3 billion in outflows last week, according to a post on X by The Kobeissi Letter, marking its second-largest weekly withdrawal of 2026 and third-largest in nine years.

The exodus comes as small caps have sharply lagged their large-cap counterparts. The S&P 500 has outperformed the Russell 2000 for five consecutive weeks, according to Kobeissi. If the trend continues for another week, it would become the longest stretch of S&P 500 outperformance over small caps in eight years.

The Russell 2000 has also weakened significantly since mid-August, falling 7.3% and reaching its lowest level since June 10, Kobeissi said.

Small-cap stocks are seeing massive outflows:

The Russell 2000 ETF, $IWM, posted -$3.3 billion in outflows last week, its 2nd-largest weekly outflow this year.

This also marks its 3rd-largest weekly withdrawal in 9 years.

This comes as the S&P 500 has outperformed the Russell… pic.twitter.com/cEafgwdPgJ

— The Kobeissi Letter (@KobeissiLetter) September 24, 2026

The pressure is particularly notable because IWM remains a substantial vehicle for small-cap exposure. The ETF held about $77.6 billion in net assets as of Sep. 23, with nearly 2,000 holdings tracking the Russell 2000.

The rate backdrop has become increasingly challenging. The 10-year Treasury yield climbed to 5.17% on Thursday, its highest level since July 2007. Independent Treasury data also show the 10-year yield reached nearly 5% earlier this month.

Higher yields can weigh disproportionately on smaller companies because they tend to face higher financing costs and have less balance-sheet capacity than mega-cap companies. MarketWatch recently noted that the Russell 2000 has been particularly sensitive to the rise in borrowing costs, while the S&P 500 has held up better.

The X post also highlighted another sign of the divergence: the Russell 2000-to-Nasdaq-100 ratio has fallen to 0.09, its lowest level on record, underscoring how sharply small caps have trailed growth-heavy large caps.

For ETF investors, the latest IWM outflows show that the small-cap weakness is no longer confined to index performance. Capital flows are increasingly reflecting the same preference for large-cap exposure as Treasury yields climb.

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