I'm still fascinated by the small cap crash

18 de jan. de 2023

I continue to be fascinated by the fact that small caps once retraced their entire post-Covid move. What I mean is, the Russell 2000, which is 2,000 companies that are identified as small cap stocks, had such a terrible year in 2022 that they went BELOW were they were before Covid was ever a thing.

But why is this interesting?

Because roughly $5 trillion was spent to stimulate the economy in various ways after the first Covid panic occurred.

So let's quickly think about that: the Russell 2000 was, at one point lower last year than it was before an extra $5 trillion hit the economy.

I continue to wonder what this means: did the market overreact? Is it stagflation? Did the recent rise in interest rates suck that $5 trillion back up? The money supply is shrinking again?

There are tons of questions to consider and I also think it's important to wonder if this is still not the end. The following assets have still not yet retraced their covid highs:

• Tech stocks and the Nasdaq 100
• The S&P 500
• The Housing Market
• Inflation
• Price of food
• Price of average goods

Keep in mind, several other assets have retraced and crashed quite hard including:

• Vehicle sales and car prices
• Crypto market
• Treasuries/bonds

So the question remains: is there more carnage ahead or will the market stabilize from here?

The Fed does seem to be on a mission to crash food prices, inflation, and by extensions soaring housing. So one must wonder if the policy toward that eventually makes its way back into markets, including the S&P 500 and Nasdaq-100, or if indeed the worst is over and now we are plateauing.

Part of me thinks its possible the Fed will get inflation under control while also preserving some of the market gains in tech, S&P 500, and more.

Time will tell.

So much more to think about.