On this episode of KayneCast, Jon Christensen, Portfolio Manager and Senior Research Analyst for the KAR Small Cap Core Portfolio, joins Kayne Anderson Rudnick Managing Director Jordan Greenhouse to provide a Q4 2022 stock market review and address challenges and opportunities that may arise in the 2023 Small Cap space.
2022 A Roller Coaster Ride for Small Cap Investing
Christensen begins his 2022 stock market commentary by noting the first three quarters of the year felt “like an endless fall” before a more positive fourth quarter. Taking each month into account, 2022 saw six positive and six negative months, reinforcing the feeling of being on an unpredictable roller coaster. Economic concerns ranged from “inflation to war to supply chain delays to recession-fears to the atmospheric rivers and cyclone bombs impacting the drought-ridden western US.”
Q4 saw Small Cap stocks recover somewhat, as investors became more comfortable with the idea of an impending recession and indications from the Federal Reserve that it would begin relaxing its hawkish approach to fighting inflation with higher interest rates.
Overall, Energy, Materials, and Industrials held up the best in 2022, and the volatility in the market led to lower-quality names doing better, which has historically occurred in such markets.
2023 Likely to Remain Volatile, but Full of Potential
As the market moves into Q1 2023, Christensen expects inflation, supply chain disruptions, and the ongoing Russia-Ukraine war will continue to generate volatility in the Small Cap space. The likelihood of a recession is high; what remains to be seen is how long the recession lasts and whether the market will have a hard or soft landing. Fortunately, the market has had ample warning of a possible recession, and inflation appears to be subsiding or at least peaking.
Concerning Small Cap investing for the coming year, Christensen believes KAR is well positioned to ride out market turbulence due to KAR’s focus on high-quality businesses that can outgrow their markets long-term.
Listen to the podcast to learn more about Small Cap Core performance in Q4 2022, or read our complete 4Q 2022 Commentary, where KAR CIO Doug Foreman reviews market performance and the good and bad news as we look ahead to 2023.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. Past performance is no guarantee of future results.