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Hodges University

"In the investment business, you go to school every day, but never graduate." - Don Hodges

Our View On the Recent Sell-off

by Eric Marshall, CFA, on May 12, 2022

As of Tuesday, May 10, 2022, the S&P 500 is on pace for one of its worst sell-offs since the March 2020 crash. Much of the damage has occurred in just the last twelve trading sessions. The S&P 500 has fallen to a 52-week low, with more than half of the stocks in the S&P 500 now trading below their 200-day average. While the first-quarter earnings season has reflected solid profits for most domestic companies, concerns over inflation, higher interest rates, and the potential for a deteriorating economy have spooked investors. Since the beginning of the year, higher interest rates and the fundamental backdrop for earnings have caused investors to reevaluate what they are willing to pay for some high-growth momentum stocks. It seems that fad investing in “Acronym Stocks” without regard to their underlying valuations may be over for the time being. As we have discussed many times in the past, we do not invest in the stock market but in individual companies.   During this dramatic sell-off, the investment team at Hodges Capital is rigorously looking for bargains in businesses that we believe are well run and control their own destiny by relying on ingenuity and well-calculated business decisions rather than day to day momentum in the stock market.

Below are a few general observations and our opinions regarding the investing landscape that we would like to share.

  1. The S&P 500 is now down more than 16% year to date, representing the second-worst yearly start in history. According to data provided by BTIG, the four worst annual starts to the year (88 trading days) for the S&P 500 resulted in a rally ranging between + 9% to +30% in the remainder of those years.  

  2. We do not know when inflation will peak or if the Fed can orchestrate a “soft-ish” landing for the economy through monetary policy.   However, we prefer owning profitable, productive businesses over bonds or bitcoin in an inflationary environment. It is our opinion that prevailing inflation and higher interest rates favor stocks with solid balance sheets and whose underlying assets have the ability to raise prices and produce higher earnings.

  3. Aggregate equity positioning in portfolios is well below average (9th percentile according to Deutsche Bank), reaching a level that has only been seen a few times in the past decade; August 2015, January 2016; December 2018, and March 2020. Each time investor sentiment has turned this sour, there presented an opportunity for long-term investors to buy quality stocks.   

  4. Although higher costs have pressured earnings expectations for some companies, profit margins among many industrial, consumer, technology, and material stocks are at or above pre-COVID-19 levels.  

 We appreciate you entrusting a portion of your assets with Hodges Capital Management. Should you have any questions regarding your account(s), do not hesitate to reach out to us.


Hodges Private Client is a program offered through Hodges Capital Management, Inc. (“HCM”).  HCM is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”), is a wholly owned subsidiary of Hodges Capital Holdings and serves as investment advisor to the Hodges Funds.  HCM is affiliated with First Dallas Securities, Inc, a broker-dealer and investment advisor registered with the SEC.

This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.  

All information referenced herein is from sources believed to be reliable and is provided as general market commentary and does not constitute investment advice. This material was created for informational purposes only and the opinions expressed are solely those of HCM.  HCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information.  The data and information are provided as of the date referenced and are subject to change without notice.

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The Hodges University Blog is designed to keep our clients educated and abreast of certain major news headlines. We aim to help investors separate the news from the noise by providing our perspective.

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