So much for the “January Effect” this year as small cap
stocks measured by the Russell 2000 have been underperforming so far in 2022.
The “January Effect” (not to be confused with our January
Barometer) is the tendency for small caps to outperform large caps in the
month of January. As we feature on pages 112 and 114 of the Stock
Trader’s Almanac 2022, “Most of the So-Called January Effect Takes
Place in the Last Half of December.” This did occur this time around as the
Russell 2000 small cap index gained 2.3% from December 15, 2021 through December
31 vs. 1.3% for the Russell 1000 large cap index.
As you can see here in the table above this is the second
worst start to the year for the Russell 2000 since inception in 1979. Based
year-to-date performance as of the 5th to last trading day of January
2022’s YTD loss of -10.7% is the second worst. Of the 18 years listed January
was down in all but one year, 2007.
It also runs with some interesting bearish company: 2016
mini bear bottom in February, 2008 bear, 2009 bear bottom in March, flat 2005,
secular bull launch in August 1982, etc. It does indicate and confirm our
outlook for heightened volatility this year, but it’s not a forgone indication
for a bear market year. DJIA and S&P 500 finished these years in the black
66.7% of the time, NASDAQ 72.2% of the time, but the R2K was up only 55.6% of
the time – not a glowing endorsement for small caps this year.