Mired in their worst losing streak in years, small caps could be the best way for investors to play crucial CPI data

Small-cap stocks have struggled through their longest losing streak in years, leaving the Russell 2000 notably behind large-cap benchmarks. That underperformance sets up a potentially significant reaction to Wednesday's September consumer-price index report, a key input for Federal Reserve policy expectations.

Stuart Kaiser of Citigroup suggests the small-cap index could be an effective way to express a view on the inflation data, recommending call options on the iShares Russell 2000 ETF ahead of the release. The logic rests on small caps' sensitivity to interest rates and domestic economic conditions: because smaller companies tend to carry more floating-rate debt and derive more revenue at home, shifts in rate expectations can move them more sharply than larger peers.

For investors, the takeaway is that CPI day may matter more for small caps than for the broader market. What to watch: whether inflation comes in above or below consensus, how rate-cut expectations adjust, and whether the Russell 2000 can break its losing run. Options pricing also implies elevated implied volatility around the event, a reminder that sharper moves can cut both ways.