Are small and mid-cap companies weathering the US economic storm?

The US reported Q2 GDP of -32.9%. Whilst better than some expectations, it was still the worst figure since the Great Depression.

Fortunately, GDP is a backward looking metric.

What is most important for US small and mid-cap equities is the surge in activity in May and June, and that continuing as we enter the third quarter.

That momentum has led to a plethora of earnings surprises this season, admittedly off a low base.

But looking forward, as the US economy continues to inflect off the bottom, we expect to see a broadening of growth. That could lead to positive earnings surprises for US small and mid-cap companies, relative to their large cap peers.

As relative earnings growth improves, we expect to see a catch-up in performance of small and mid-cap companies versus their large cap peers, continuing a trend we have seen since the market bottomed in late March.