Rising interest rates are "strangling" small-cap stocks, and the Russell 2000's outperformance over the S&P 500 has shrunk to just 2 percentage points. Is capital about to return to concentrated AI trades?

Most of this year, U.S. small-cap stocks had been an important destination for investors looking to diversify away from the concentrated AI trade. But now, rising interest rates are putting a question mark over that strategy.