Small-cap stocks, as measured by the IWM ETF, sold off sharply amid a broad market downturn driven by rising geopolitical risk. Over the weekend, the U.S. military conducted strikes on Iranian military assets, prompting retaliatory actions and sparking fears of a wider conflict in the Middle East. This surge in geopolitical tension has led to a spike in oil prices and a flight to safety, disproportionately impacting more volatile asset classes like small caps. Concerns over potentially higher interest rates following hawkish commentary from the Federal Reserve have also created headwinds for rate-sensitive small-cap companies.