Can Fed Chair Kevin Warsh Ease the Squeeze? Small-Cap Debt Costs Hit 6-Year High

U.S. small-cap companies are carrying their heaviest interest burden in at least six years as investors assess the outlook for interest rates under Federal Reserve Chair Kevin Warsh.

Small Caps Feeling the Pressure Interest expense currently accounts for 31% of EBITDA for Russell 2000 companies, more than double since 2020, according to data shared by market commentator The Kobeissi Letter.

By comparison, interest expense represents 6.7% of EBITDA for S&P 500 companies, down from 9.5% six years ago.

Nearly 40% of companies in the Russell 2000 also remain unprofitable, the data showed.

US small-cap companies are facing a massive interest burden: Interest expense now accounts for 31% of EBITDA in Russell 2000 firms, the highest in at least 6 years.

This percentage has more than doubled since 2020.

By comparison, S&P 500 companies now carry interest expense… pic.twitter.com/IhemjqbsOO — The Kobeissi Letter (@KobeissiLetter) July 7, 2026 Read Also: Chris Christie Accuses Trump Of 'Putin-Esque' Corruption, Says President And Family Believe They Have 'License To Take Whatever They Can Take' ETFs in focus Among the largest exchange-traded funds tracking U.S. small-cap stocks are the iShares Russell 2000 ETF (NYSE: IWM ), the iShares Core S&P Small-Cap ETF (NYSE: IJR ), the Vanguard Small-Cap ETF (NYSE: VB ).

The iShares Russell 2000 ETF, the largest fund tracking the Russell 2000 Index, holds roughly 2,000 small-cap companies, including Fabrinet (NYSE: FN ), Credo Technology Group Holding Ltd (NASDAQ: CRDO ) and Bloom Energy Corp (NYSE: BE ).

The fund manages about $81.7 billion in assets, charges a 0.19% expense ratio and has returned 20.15% year-to-date and 36.03% over the past year.

The iShares Core S&P Small-Cap ETF tracks the S&P SmallCap 600 Index and has approximately $110.1 billion in assets under management.

It charges an expense ratio of 0.06% and has gained 20.96% this year and 32.07% over the past 12 months.

The Vanguard Small-Cap ETF, which tracks the CRSP US Small Cap Index, manages about $184.2 billion in assets and carries a low expense ratio at 0.03%.

The fund has returned 15.34% year-to-date and 25.36% over the past year.

INDEX 6 MONTHS 1 YEAR 5 YEARS Russell 2000 Index Up 16.86% Up 19.99% Up 35.92% S&P 500 Up 8.91% Up 9.90% Up 20.99% Nasdaq Up 10.76% Up 12.42% Up 27.97% Floating-Rate Debt Leaves Small Caps More Exposed According to The Kobeissi Letter, roughly 30% of debt held by Russell 2000 companies is tied to floating interest rates, compared with about 7% for S&P 500 companies, leaving smaller firms more exposed to changes in borrowing costs.

Under Fed Chair Warsh, markets have shifted from anticipating interest-rate cuts to pricing a higher-for-longer policy stance, alongside a more data-dependent Fed communication strategy.

Price Action: The iShares Russell 2000 ETF closed 0.44% higher on Monday at $298.90 and gained a further 0.06% in extended trading. edge rankings indicate the IWM has a Momentum score in the 78th percentile and a positive price trend across the short, medium and long term.

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Bears Think in Six' Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published editors.

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