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 been under sustained pressure, with the Russell 2000 recently logging one of its worst losing streaks in years. That weakness has left the index trading at a notable discount to large-cap peers, which is why some strategists see the upcoming September consumer-price index report as a potential turning point for the asset class.

Stuart Kaiser of Citigroup points to the CPI release as a key catalyst, recommending call options on the iShares Russell 2000 ETF ahead of the print. His rationale rests on small caps' sensitivity to interest rates: because smaller companies tend to carry more floating-rate debt and generate a larger share of earnings domestically, they are more exposed to shifts in the rate outlook than mega-cap technology names.

For investors, the takeaway is that the CPI report carries outsized significance for this segment of the market. A cooler inflation reading could ease rate concerns and support a rebound, while a hotter print may prolong the slump.