With just over a quarter in the books in 2022, we are seeing a divergence in performance between large-cap stocks (as measured by the S&P 500) and small-caps (as measured by the Russell 2000). These indexes are once again more than 5% apart in terms of year-to-date performance. The last time that happened was on Feb. 4, when the S&P was down 5.47% and the Russell was off 10.82%.
That difference of 535 basis points evaporated over the following month, and by March 9, both were down about 10%.
As of Thursday, the S&P was down 5.21% while the Russell was off by 10.21%. You'd expect large-caps to outperform in this extremely uncertain environment of rising interest rates, inflation, and war, and frankly, I am surprised there is not a larger divergence.
In terms of volatility, as measured by trading days that an index has closed up or down at least 1% (a "volatile day"), the Russell 2000 is, not surprisingly, the winner. During the 67 trading days so far in 2022, the Russell has experienced 48 volatile days, with 21 up days, and 27 down days.
That means that on average, the Russell is experiencing 3.5 volatile days a week. That includes 15 days where the index moved up or down at least 2%, and four 3% days.
For its part, the S&P 500 has had 33 volatile days year-to-date, 15 up and 18 down. That includes eight days of plus or minus 2% performance, and none above 3%. Frankly, that's a bit surprising as well, given the current state of affairs.
This market has held up much better than I would have expected. If you told me that 2022 would be the year of 7% inflation, potentially seven interest-rate hikes that could take the fed funds rate to about 2%, and an invasion of Ukraine, among other circumstances, I would have predicted much different results at this point. But that's part of what makes markets so interesting, and at some points, so frightening.
I, for one, expect that the divergence between large-cap and small-cap performance will grow. But on those "throw the baby out with the bathwater days," when small and micro names get hammered well beyond what is deserved, I will likely be doing some opportunistic bargain hunting.
