What an interesting year 2023 has been so far in the markets, and that's with just a little more than a quarter of the year under our belts.
Large-cap stocks are leading the way, with the Russell 1000 Index up about 7.15%, while smaller names are not faring so well. Year to date, the Russell 2000 Index is about as flat as flat can be (up 0.02%), while the smallest of the small as measured by the Russell Microcap Index are down 5.61%.
Unlike 2022, however, growth is trouncing value so far this year. Within large-caps, the Russell 1000 Growth Index (up 13.64%) is outperforming the Russell 1000 Value Index (up 1.08%) by 1,256 basis points. Growth's year-to-date advantage is more muted in the small-cap world, with Russell 2000 Growth (up 3.24%) besting Russell 1000 Value (down 3.26%) by 650 basis points and Russell Microcap Growth (down 1.76%) outdistancing Russell Microcap Value (down 8.13%) by 637 basis points.
As the margins show, large growth has been the big winner so far, while small value stocks -- and the smaller they are, the worse the performance has been -- are getting trounced. Look at the performance spread between large growth and microcap value -- a hefty 2,177 basis points.
The question is whether that performance discrepancy can continue through 2023. While it certainly could, I'm not sure that it will.
I believe microcap value is suffering now due to investors shunning smaller, more speculative names. That's what you might expect to see when there's significant turmoil in the markets, no clear direction and economic uncertainty. It may be a bit more pronounced due to last year's re-valuation of both growth and value, and perhaps there is a bit of reversion to the mean, too.
There's still a long way to go in 2023 and the overall direction that the markets will take is unclear. But in the meantime, we are in a mini "throw the baby out with the bathwater" environment, where dumpster diving for small, seemingly cheap and/or distressed names is not working.
Punishment for these companies that disappoint the markets with underwhelming earnings reports or underwhelming guidance seems to be stickier these days.
