The Russell 2000 Index, a benchmark for small-cap stocks, has officially entered a bear market, marking a decline of over 20% from its peak on November 25th. The index fell by 6% on Thursday, bringing its total loss to approximately 22%. Companies like Victoria's Secret and Urban Outfitters, which source products internationally, have been notably affected. This downturn comes amidst a broader market rout following the implementation of aggressive tariffs by the Trump administration. Small-cap stocks, previously seen as potential beneficiaries of Trump's policies such as deregulation and lower tax rates, are now facing significant challenges due to economic softening and increased costs from tariffs. The Russell 2000 had an 8.6% advance post-election, compared to the S&P 500's 4.7% weekly gain. Analysts suggest that small caps are particularly vulnerable due to their smaller size and less financial flexibility compared to large-cap stocks. The economic impact of the tariffs could lead to a recession, according to JPMorgan, further pressuring small-cap performance. Historically, small caps are down 13% in the first half of an economic recession and 26% in an average bear market. Despite the current turmoil, some experts believe that small caps could recover if the Federal Reserve intervenes with interest rate cuts. The market is currently anticipating a 62.5% chance of four quarter-percentage-point cuts by the end of 2025, with more than 95% odds of the next cut being at the central bank's June meeting. This could provide relief to small-cap stocks. Analysts also mention potential support from tax cut extensions and increased mergers and acquisitions, which could lead to an 'oversold bounce'. The S&P 500, currently 11% off its February 19 high, is not expected to enter a bear market.