Middle market resilience amid trade uncertainty?
The private U.S. middle market may represent a compelling opportunity as companies in this sector face less disruption from global supply chains.
Foreign exposure: S&P 500 vs. private U.S. middle market and U.S. economy
Trade uncertainty took center stage this week among the factors driving down investor sentiment recently.
The S&P 500 is down nearly -7% over the past two weeks as investors consider the impact tariffs could have on economic growth, monetary policy and specific industries (with autos, electronics and agriculture in focus).[1]
Public equity markets started the year facing historically high valuations. A potential trade war could complicate their path forward. As the chart shows, the S&P 500 has more than double the exposure to foreign sources of revenue than private U.S. middle market companies and roughly three times that of the U.S. economy.[2]
Given the risks posed by trade disruption to large firms with global supply chains and international consumer bases, investments focused more directly on the domestic economy may offer a compelling opportunity. The U.S. middle market (composed of firms operating mostly within the confines of the U.S. but large enough to withstand economic uncertainty) represents a potential sweet spot.
Private middle market companies also stand out for their potential to offer attractive growth at a reasonable price compared to public markets.
[1] For the two-week period ended March 6, 2025.
[2] Bloomberg Finance, L.P., U.S. BEA, FS Investments, as of February 19, 2025.
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