Historical Value

Factor returns mostly fell outside normal expectations last week. Large cap Value was particularly extreme.

This past Monday’s Weekly Factor Return blog mentioned how extreme the return to Value was in our large cap universe. Value within the Russell 1000 index returned -6.23% for the week ended June 24th, 2022. This means Growth stocks significantly outperformed. The previous post goes on to state “it was one of the worst weekly returns to Value within the Russell 1000 in our data history.” Here, we expand on the magnitude of Value’s decline last week.

Since the beginning of 2000, there have been 1,173 weeks up to and including last week. Last week’s return to Value was below the 1st percentile of all returns in the large cap space. That means weekly Value returns in the Russell 1000 were greater than last week over 99% of the time. It had a z-score of -3.5, which measures how many standard deviations away from the mean a data point lies.

Histogram of weekly Value factor returns within Russell 1000

Source: S&P Global, Jackson Creek Investment Advisors

There have only been four weeks with a return below -6.23%. Those weeks were (ended):

· November 21st, 2008 (-8.4%)

· June 2nd, 2000 (-7.6%)

· July 14th, 2000 (-6.4%)

· May 8th, 2020 (-6.24%)

The dates are visible on the histogram above to the left of the red dot. The July 14th, and May 8th weeks barely edge out last week. The varying shades of blue represent standard deviations from the mean (vertical dotted line).

The vertical white lines in the chart below note the four weeks mentioned above, but the dates are probably recognizable from other tumultuous periods. The two in 2000 (far left on chart) occurred during the bursting of the Tech Bubble. The 2008 decline was during the Financial Crisis and 2020 was the pandemic.

Historical candlestick chart of Russell 1000

Source: Koyfin

It is interesting to note where in the cycle the previous Value declines occurred. The 2000 occurrences were prior to the subsequent drawdown in the overall market. The November 2008 episode was in the depths of the Financial Crisis but still months from the end. The most recent occurrence was shortly after the market bottomed due to pandemic related economic shutdowns. The four declines greater than last week each occurred in different stages of the market’s crises.

That said, drawing any conclusions or making predictions would be foolish. Those familiar with Jackson Creek know how averse we are to market predictions. Last week’s negative Value spread does not identify where we are in the current market cycle. The previous crisis periods were all unique in terms of underlying causes, speed, and magnitude. This is meant to provide some historical context to our weekly factor returns, not a market timing tool. But historical knowledge is helpful.