Small US companies squeezed hardest by Covid-19 effects

Number of small US companies failing to turn a profit hits historic level; Non-earners in Russell 2000 index, 12-month rolling basis (%)
Rebased line chart showing Small-caps suffer more than larger companies as downturn bites

The number of small US companies failing to turn a profit has jumped to levels last seen after the financial crisis a decade ago, as the downturn caused by the pandemic hits local businesses across the nation.

The proportion of companies in the Russell 2000 index of small-caps that are either just breaking even or operating at a loss jumped to 42 per cent in May — the highest share of the benchmark since January 2010.

The measure was an important marker of the health of smaller companies, and the speed at which it had increased was a concern for investors, said Nicholas Bohnsack, president of Strategas Securities, a US broker-dealer.

“We’re really only getting started,” Mr Bohnsack warned, noting that levels of profitability within smaller cap stocks already “leave a lot to be desired”.

The stocks of bigger companies have fared better than small-caps this year as investors have taken refuge in large-caps, which have been powered by technology groups. The Russell 2000 index is down 14.5 per cent for the year, while the Russell 1000 benchmark of large-caps is off just 3.3 per cent.

Only one sector within the small-cap benchmark is in positive territory for the year — healthcare, which has been boosted by a particularly strong run in the shares of Teladoc, a telemedicine company. The group’s 129 per cent gain this year has pushed its market capitalisation beyond $14bn, some $5bn clear of the next biggest company in the benchmark.

Source Article