Trader’s Narrative

4 Responses to “Is It Large Caps’ Time To Shine ?”  

1. 1 Prospectus Nov 30th, 2007 at 8:15 am

   I think the dollar has something to do with it. Also, look at your chart below on interest rates and the Fed. The small cap performance is inversely related to the rates. I’d say that small companies are hurt more by a high cost of capital than large caps. Also, they benefit more from cheap money to expand with.

2. 2 Tweakie Nov 30th, 2007 at 6:11 pm

   It has to do with the credit worthiness of the firms. In general, but not always, large-caps have lower credit risks than small-caps. Hence, when the opportunity cost of raising new capital becomes high, as seen in the late 90’s and again now, firms with lower credit risks tend to do better than firms with higher credit risks. This is especially true in the current risk-averse business environment with corporate bond yield spread setting new highs.

   And yes, to a lesser degree, multinationals will outperform at the margin due to the relatively low US dollar, which contributes to the outperformance of large-caps.

3. 3 Cuentas Bancarias Nov 30th, 2007 at 7:53 pm

   I think Tweakie has a definate point regarding credit risks. Without doubt the cost of raising capital has reacheda high point again. The effect is certainly felt most by those companies who are a weaker credit risk because the cost of borrowing will be even greater for them than for a low credit risk company.

1. 1 Mid Cap Index Outperforming Both Small & Large Caps Pingback on Jun 2nd, 2008 at 4:31 pm

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