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.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.