Senator's Small-Cap Bet Ahead of Rate Hike Sparks Warning Signs

Senator John Boozman has adjusted his investment portfolio ahead of a potential Federal Reserve rate hike, which could have far-reaching consequences for small-cap stocks.

The Arkansas Republican's recent trades show he has swapped out some large-cap ETFs and sold positions in Johnson & Johnson (NYSE:JNJ) and Constellation Energy (NYSE:CEG), two companies that make up a significant portion of the S&P 500.

Boozman also made new purchases, including buying stock in Otis Worldwide (NYSE:OTIS). However, what stands out from his recent trades is the addition of small-cap ETFs to his portfolio. He bought $1,000 to $15,000 worth of each of two small-cap stock ETFs: Avantis US Small Cap Value ETF (NYSE:AVUV) and iShares Core S&P Small-Cap ETF (NYSE:IJR).

The timing of Boozman's trades is particularly noteworthy given the Federal Reserve's expected rate hike on Wednesday. Historically, higher interest rates have been detrimental to small-cap stocks as these companies rely heavily on borrowing to fund their growth.