Since the Fed started raising rates, business confidence has diverged for small and large companies, see chart below.
The source of the divergence is likely higher costs of capital for small companies that have higher leverage and lower coverage ratios, and lack access to broadly syndicated loan markets and private credit.
In other words, the transmission mechanism of tighter monetary policy mainly works through smaller companies that are harder hit by Fed hikes and don’t benefit from tighter credit spreads and higher stock prices.
Source: Conference Board, NFIB, Haver Analytics, Apollo Chief Economist
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