Good Morning & Happy Snow.
To say it’s been an interesting January in the markets is an understatement. We opened the year with the worst week in the history of the bond market. The good news is the bond market has calmed down since then and has been mostly flat. However, thru last Tuesday, January 2022 was on pace to be the worst start to a New Year in the history of the US Stock market. Friday’s 500+ point rally will likely prevent this month stealing the crown from January of 2009, the worst ever.
Small Cap stocks have been hit especially hard in this ‘correction’. In under three months, at Friday’s lows, the Russell 2000 was down over 22% from the Nov. 8th highs. Many smaller US Growth stocks have been decimated in this decline. Has this happened before? Of course.
Since 1980 the Russell 2000 has fallen over 20% (from a 52-week high) in under 3 months seven times, including this year. The average Russell 2000 forward returns, from the lows, one year later? +33.3%. And that includes April of 2001 when the index was barely positive 12 months after a low (+.2%). Does that mean small caps HAVE to rebound over the next 12 months? Of course not. But history tends to rhyme in the financial markets. We’re looking forward to seeing where the rest of 2022 takes us. We’re optimistic.
Speaking of optimism, we received the following email from a fairly new client last Monday with the Market down roughly 1100 points:
“Crazy day, but I’ve seen this many times before during my 77 years. Yes, there is fear of war in Ukraine, inflation driven in part by greed, the lingering impact of the pandemic on employment and logistics, paralysis in Washington, and the near panic of an ignorant media. BUT, solid companies are solid. There is a lot of cash waiting on the sidelines. Demand for infrastructure, goods and services is strong. And the pandemic will pass.”
Sometimes it’s just as easy to see the bright side. We concur with the thoughts above and believe this ‘interest rate’ driven, sharp pullback is an opportunity.
In closing, we’ve been asked A LOT lately about Bonds….and Bitcoin. Over the next week or so we’ll share our thoughts on both.
Thank you and have a great week.
Your LJI Team