This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Large Caps to Beat Small Caps: NY Fed


NEW YORK ( TheStreet Ratings) -- Adjusting the asset allocation weightings in your portfolio between large cap and small cap companies can create big differences in long run results. Any clues helpful in deciding whether large cap stocks may outperform small cap stocks in this economic cycle should not be ignored.

In the latest edition of "Current Issues in Economics and Finance" by Aysegül Sahin, Sagiri Kitao, Anna Cororaton, and Sergiu Laiu of the Federal Reserve Bank of New York explain why small businesses were hit the hardest by the recent recession. While unstated, the research presented implies that large businesses may be better positioned to ride out the doldrums and gain in an economic recovery.

The research found that from December 2007 to December 2009, firms with 50 or less employees shed 10.4% of their employees while companies with more than 50 employees only reduced headcount by 7.5%. This is a reversal of the 2001 recession where large companies laid off more workers than small companies. This time 40% of the overall employment decline was from small businesses compared to just 10% in 2001.

The National Federation of Independent Business ongoing survey of the single most important problem associated with weak economic conditions as reported by small businesses showed that the overwhelming concern was poor sales and the lack of consumer demand for their products. Factors such as insurance costs, labor availability, interest rates, financial conditions, and competition from large businesses continue to diminish.

The research pointed to small businesses lagging large businesses in inventory and sales growth. In what may be the most important factor divergence, while large businesses have been increasing their fixed investments small firm fixed investment continued to plunge into 2010.

Without customers there was no call to borrow to build capacity. This could lead to larger companies having a competitive advantage over smaller companies.

Another reason to avoid over focusing on publically traded small businesses was pointed out in a 2010 study by Haltiwanger, Jarmin, and Miranda. Their research pops the commonly quoted misconception that existing small companies would lead the recovery as job creators when the driving force behind job creation is mostly attributable to business start-ups and young businesses that happen to start off small.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,416.85 +225.48 1.31%
S&P 500 2,021.25 +19.09 0.95%
NASDAQ 4,683.4070 +45.4130 0.98%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs