Foreign exposure: S&P 500 vs. private U.S. middle market and U.S. economy
Source: Bloomberg Finance, L.P., U.S. BEA, FS Investments, as of February 19, 2025.
- 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.
