Last year was one most investors would like to forget. Stocks suffered their worst year since the 2008 financial crisis, while bonds fared worse than any year since the 1800s.
Not even precious metals and cryptocurrencies could buck the trend, much less help investors keep up with inflation. Gold stayed almost flat in 2022, while Bitcoin took a 63% hit.
But in the first 41 days of 2023, hopeful signs abound. The S&P 500 finished up 8.5% in January — the strongest start to a year since 1987. Every major asset class finished January in the green. That holds whether you’re talking cash (up 0.3%) Bitcoin (up 40%) or investment-grade bonds (up 5.2%). The Nasdaq-100 was up 10.6% for the year.
History shows that January’s market action may not be some kind of aberration. Rather, January’s numbers are in keeping with a historical trend — one that could continue for the next 11 months or more and make investors who understand it a lot of money.
It’s not common for the stock market to experience two consecutive down years — it’s only happened twice since 1950, in 1973-1974 and in the years following the collapse of the dot-com bubble in 2000. Not even the Great Recession saw a two-year selloff in stocks. The S&P 500 returned 26.4% in 2009, despite spiking unemployment and terrible consumer confidence.
Not only that, the four biggest yearly gains for the S&P 500 since 1950 happened after the stock market experienced a losing year. So if the S&P 500 bounced back by 25% or more this year, the rebound would fit well within historical trends.
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Of course, the S&P 500 is just one measure concerning large-cap stocks — the 500 biggest companies that are each worth billions, or even trillions, of dollars. One corner of the stock market should be of particular interest to investors today: the small-cap universe.
A study by Ariel Investments has found that when stocks are as cheap and battered down as they are today, small-cap stocks outperform large-caps 98% of the time.
It’s an observed fact that small-cap companies as a group outperform large-cap stocks after market crashes. Going back to 1930 (right after the 1929 crash that kicked off the Great Depression), $1,000 invested in large caps would have turned into $12 million. But for small-caps, the figure is $69 million.
Today, Benzinga is tracking a handful of small-cap and micro-cap opportunities — including Sensate, a self-care startup that’s grown revenue by 363% in a year even as larger-cap companies floundered. To learn more about Sensate and the patented infrasonic therapy it’s pioneering, click here.
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