Big Difference Between Small-Cap and Large-Cap Valuations in the S&P 500

Looking at P/E ratios for companies in the S&P 500 ranked by market cap shows that large-cap companies are much more expensive than small-cap companies, see chart below.

Why are P/E ratios low for small-cap companies and high for large-cap companies?

Because Fed hikes and higher costs of capital are weighing on highly leveraged small-cap companies with low coverage ratios.

And the AI story has boosted valuations of mega-cap names.

With the Fed keeping interest rates higher for longer, and the AI narrative pushing valuations and index concentration to extreme levels, the downside risks to equities are growing.

Large-cap stocks are much more expensive than small-cap stocks — Source: Bloomberg, Apollo Chief Economist

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Flexibility Is Key: Why Invest Opportunistically in Private Credit

As private credit markets continue to expand, we believe that a flexible approach to investing in the asset class can benefit investors, especially in an environment where volatility is expected to remain elevated. We discuss this and more in our new white paper, “Flexibility Is Key: Why Invest Opportunistically in Private Credit.”

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Key Takeaways

Capital markets have, in our view, entered a new regime of higher volatility that, when properly managed, can create attractive opportunities for investors who are open to adding flexibility to private credit portfolios.
A flexible, relative-value based mandate can allow investors to allocate dynamically across the credit spectrum, capitalizing on opportunities that arise during different market regimes, especially periods of dislocation.
An opportunistic approach can lead to more diversified portfolios and, ultimately, potential higher risk-adjusted returns. In today’s environment, we see attractive opportunities to allocate among private corporate credit, asset-backed finance (ABF), and dislocated credit.
We see investors deploying flexible strategies alongside private credit, as a multi-asset class strategy, or as an “opportunistic” sleeve of credit portfolios.

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The information herein is provided for educational purposes only and should not be construed as financial or investment advice, nor should any information in this document be relied on when making an investment decision. Opinions and views expressed reflect the current opinions and views of the authors and Apollo Analysts as of the date hereof and are subject to change. Please see the end of this document for important disclosure information.

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