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Friday, 29 July 2022 03:11

Strong Small-Cap Earnings Bode Well for Economy

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While large-cap stocks get most of the press during earnings season, small-cap earnings releases might be a better barometer of the economy. Small-cap companies tend to be more sensitive to an economic slowdown or recession. This is due to most of their sales coming from the U.S. Large-cap companies on the other hand are typically multi-nation. Small-cap stocks also fall harder during economic downturns. In other words, if the economy was about to dive, it would be small-cap stocks that would be reporting poor earnings. But so far, small-cap company earnings are looking strong. According to an analysis from Credit Suisse, small-cap earnings projections are running 6.4% above their historical trend. This compares to 1.3% for large-cap stocks. Small-cap stocks are currently outpacing the market with the S&P 600 small-cap index outperforming the large-cap S&P 500 index.

Finsum: Since small-cap companies are typically more sensitive to economic uncertainty, strong earnings from small-cap stocks may help alleviate recessionary fears.

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