Small Caps Under Pressure: Understanding The Volatility Behind The Fall

Small-cap stocks have been among the worst performers in 2025, falling nearly 20–23%, even as headline indices hover near record highs. This sharp correction has left many retail portfolios under pressure. Market experts stress that this is not unusual for the small-cap space, which is inherently volatile. Historical data shows that small-cap indices frequently decline 20–25% from their peaks and can take several years to recover. While the segment offers strong alpha-generation potential for skilled fund managers with deep research capabilities, it may not suit investors seeking stability. Due to its high volatility, small caps require patience, discipline and proper asset allocation. Investors are advised to avoid timing cycles and understand that short-term pain is often part of long-term small-cap investing.