Tags: NFIB | economy | large caps | small caps

Big Companies Surmount Economic Weakness

By Dan Weil   |   Tuesday, 16 Apr 2013 09:32 AM

While the economy is starting to show some sluggishness — in hiring and retail sales for example — big companies continue to thrive.

They are reaping the rewards of increased productivity and growth in emerging markets, The New York Times reports. Large companies also have more access to credit than do their smaller brethren.

“Big companies have found a way not just to survive, but to prosper despite the broader economy and all the uncertainty,” Howard Silverblatt, a senior index analyst at Standard & Poor’s, tells The Times. “There’s a disconnect between them and the rest of the world.”

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

The disparity shows up in first-quarter earnings estimates. Analysts predict the 100 largest companies in the S&P 500 Index will register a profit gain of 6.6 percent this quarter, compared with a 1.6 percent drop for the smallest 100.

“It’s a bifurcated economy,” says William Dunkelberg, chief economist for the National Federation of Independent Business (NFIB), a small business association.

“Corporate profits are at a record, but all the data we have say small business is dead in the water.” The NFIB’s Small Business Optimism index slipped in March, ending three months of gains.

“Smaller companies face greater headwinds,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, tells The Times. “Is it G.E. or Caterpillar who will be hurt? Of course not. It’s Joe’s Deli.”

Stocks of both large cap and small cap companies have performed well recently. The S&P 500, excluding dividends, has gained 15.9 percent over the past year and 9.5 percent year to date.

That compares with 15.6 percent and 7.2 percent respectively for the Russell 2000 Index.

Some analysts say conditions are ripe for small caps. “In periods of subpar economic growth like now, small caps outperform large caps by close to a 2-to-1 margin,” Dan Veru, chief investment officer at Palisade Capital Management, tells InvestmentNews.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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