CHART OF THE WEEK 📈
Whenever the markets are under stress, it is almost common knowledge that relatively safe assets do better and that riskier assets underperform. That happens as investors flock to protect their capital. Some classic examples include:
Buying Gold, Government Bonds, Value Stocks
Selling Crypto, High-yield Debt, and Growth Stocks
However, contrary to this, over the last year, mid and small caps have been performing better than large caps. So we went back to analyse some of the previous stress periods, and here’s what we found:
During crises that have a heightened and rather dramatic impact on the markets (the US Mortgage Crisis of 2008, or the knee-jerk impact of COVID-19 from January to March 2020), large caps have outperformed mid caps. These are times when the markets have fallen >20%
In periods when the markets haven’t declined so much (the European Debt Crisis of 2011, or the slowdown in 2015-16), mid-caps have outperformed large caps. These are times when the markets have fallen <10%
Even over the last year, while there have been uncertainties caused by geopolitics and inflation, the markets haven't exactly been doing well. Although global markets have fallen >20%, the Indian markets from October 2021 to October 2022, have slipped just 2%.
It is definitely one of those declines which aren't as dramatic as 2008 or 2020, and just as history tells us, mid-caps have performed better!