THERE WAS MUCH hoopla last week about high inflation, surging interest rates and geopolitical turmoil. Sure, these are important macro conditions. Still, stocks took things in stride. If you only pay attention to once-highflying growth companies, especially tech stocks, the market appears dire. Broaden your perspective, though, and things haven’t been all that terrible of late.
Yes, the S&P 500 lost 1.8% last week. Small-caps, however, were up 1.5%. Foreign shares were about unchanged. The U.S. bond market, despite one of its worst days of the past decade on Thursday, was down just 0.4%.
Traders’ heads are still spinning after a wild earnings season. From company-specific volatility to U.S. economic headlines to the Russia-Ukraine crisis, investors might be on edge. But there are some encouraging signs.
Most stocks remain above their Jan. 27 lows. Diversified investors—who likely underperformed last year—have benefited from international exposure in 2022. Vanguard FTSE Emerging Markets ETF (symbol: VWO) is positive year-to-date, while foreign developed market stocks have beaten the S&P 500 by 3.5 percentage points in 2022.
Another green shoot: Small-cap stocks have turned up versus large-caps. The iShares Russell 2000 ETF (IWM) has outpaced the S&P 500 by almost four percentage points since Feb. 2. While a short timeframe, that could be a sign that not everyone is risk-averse right now.
Many small speculative stocks have endured a tough year. While the iShares Russell 2000 ETF has lately held up well, it’s down more than 10% over the trailing 52 weeks. Given the extended duration and magnitude of the decline among small company stocks, now might be a decent time to buy.
It’s humbling how quickly financial markets can turn from optimism to fear. There’s no shortage of risks to worry about right now. But that often means opportunity for those investors who focus on the long run.