In physics there is no absolute measure of time and space. Rather, as we know thanks to Einstein, everything is relative, with events having impacts on one another. Similarly, financial markets also don’t have an absolute measure of time and most things are indeed compared relative to each other. As a result, every market cycle is unique and the variability of time between events is one of the big challenges in investing. However, what we do know is that markets regularly cycle between hope and fear and, within this arc of human emotions, key events tend to repeat themselves under similar conditions. With relativity in mind, we think it is worth looking back at the big events of 2022 and what they suggest for the big opportunities in 2023.
The first big change that we observed is that everything got cheaper as multiples were compressed. On an absolute basis, the multiple of the Russell 1000 Growth Index (RLG) compressed just over 30%, while the Russell 1000 Value Index (RLV) compressed almost 15%. continue...