Apple and Tesla’s fall and the contraction of the Magnificent Seven belies a central fact in the stock market today: Bigger is way better. 

Size has been a predictive factor for performance on the S&P 500, with the index’s 50 biggest companies collectively performing the best and the 50 smallest performing the worst, according to a Wall Street Journal analysis published last weekend. The trend may widen with the new status quo of higher-for-longer interest rates.

Sizing Up

While the first quarter of the year proved relatively strong for stocks — the S&P 500 rose over 10% through March — April has provided a course correction. A selloff has erased roughly half of the index’s year-to-date gains, with its smallest players demonstrably suffering the most. The top 50 companies in the index have seen a collective 4.5% skid so far in April, while the bottom 50 have slipped 8.6% — with every group of 50 performing progressively worse and worse as market cap decreases. The WSJ observed the trend extending through the Russell 2000 index of smaller-cap companies.

The lesson? When the going gets tough, being small is gonna cost you:

• Amid higher interest rates, smaller companies have a harder time issuing bonds compared to bigger companies. They’re also more likely to borrow at a floating interest rate; one Goldman Sachs analysis found nearly 33% of Russell 2000 debt is at a floating rate, compared to just 6% of S&P 500 debt.
• Meanwhile, smaller companies typically entered the high-rate environment carrying more debt, while bigger players — especially Big Tech — entered with fat war chests. That’s made earnings season more volatile for the little guys, especially amid escalating global conflict in Ukraine and the Middle East.

Get Low: The little guys just can’t catch a break. Even the pre-pandemic era of ultra-low interest rates tended to benefit the big players. In a National Bureau of Economic Research paper published in 2021, economists from Princeton and the University of Chicago found that “falling rates, especially as rates get close to zero, disproportionately benefit ‘superstar’ firms” — with the top 5% of companies in virtually all industries, ranked by earnings or market value or revenue, benefitting the most from that era’s low rates. It’s as if someone someone handed Goliath a slingshot.

Are you sure you’re not feeling even a little peckish?

For people living with diabetes or obesity — two of the biggest health concerns in the US — the immensely popular group of weight loss medications called GLP-1s can be a miracle drug. But for restaurants, snack brands, alcohol makers, and fast food franchises, it’s a rival — and the competition might be winning.

Small Fry

GLP-1s like Novo Nordisk’s Ozempic or Eli Lilly’s Zepbound work by mimicking the natural hormones that make people feel full, reducing cravings and overeating. And when people are less hungry or thirsty, they spend less money on food and drinks.

CNBC reported that a Morgan Stanley survey found growing evidence that “the drugs have a meaningful impact on consumer behavior and spending on groceries and restaurants.”

People living healthier is good overall, but it’s not so great for companies that make their nut on burgers, salty snacks, sweet treats, and libations that get you tipsy. It’s turning out that the real disruptor for food-industry investors isn’t plant-based meat alternatives that taste like the real thing (which they never do), but rather a once-weekly injection:

• In the survey of 300 consumers who started taking GLP-1s in February, 63% said they spend less on eating out at restaurants, while 61% said they’ve cut spending on food deliveries and takeout. And nearly one-third said they’re spending less at the grocery store.
• Morgan Stanley said some of the most at-risk brands include Wendy’s, Hershey, Doritos, Oreos, and Molson Coors — a sort of Hall of Fame of sugary and salty products.

Reaching Maximum Burrito Capacity: In contrast, Morgan Stanley said nutrition-minded names like Simply Good Foods and Sweetgreen are better positioned to handle the growing popularity of weight loss drugs, which are expected to reach a market value of $105 billion by 2030.

Another brand to possibly bet on is Chipotle, which continues to thrive even after hiking prices six times in the last three years. The Wall Street Journal reported that the healthy-ish burrito chain is a go-to eatery for higher-income millennials who are also health-conscious. Its same-store sales grew 8.4% last quarter, outpacing McDonald’s and Starbucks’ US operations, and its share price has surged nearly 60% in the last year. Can a Big Mac Burrito be far off?

The Summer Olympics begin in about three months, with 15 million people expected to descend upon Paris in late July, offering a short but intense opportunity for the city’s residents and merchants to profit off the surge.

But Parisians looking to rent out their apartments and earn la fortune have so far been disappointed.

Paris Is Cooling

The problem appears to be another case of supply and demand — and we’re talking way, way too much supply. The Financial Times reported over the weekend that city residents have watched their dreams for 2x-3x profits dwindle as a glut of listings has come on the market, driving rental prices lower. The FT said that data firm AirDNA found that only about one-third of available Airbnb rentals in the metro area have been booked for the Games, with 3,000 to 3,500 new listings hitting the market each month. That’s hurt the prospects for some extra cash for residents who planned on fleeing the city during the Games, which coincide with France’s traditional August holiday period:

• For many residents, it may just be a matter of lowering the price. According to AirDNA the average nightly price being asked by potential Airbnb hosts is 594 euros ($633), while the average rate for booked accommodations is 323 euros ($344).
• Hotels have started to drop prices, too, the FT said, as they compete with the surge in available bookings, many from first-time listings. Paris has only added about 2,000 hotel rooms for the Games, compared with the 7,000 that London built in 2012.

Buyer’s Remorse: We’re entering those last few anxious weeks where many residents and officials of host cities start to wonder, “Was getting these Games worth it?” But for many locales, hosting future Games is a nonstarter as staggering infrastructure costs become an increasingly tough sell. It was less than 10 years ago, for example, when Boston residents turned on the idea of hosting the 2024 Games when critics pounced on a contract clause that put local taxpayers on the hook for any cost overruns. Not exactly a selling point for anyone with the faintest knowledge of the city’s Big Dig.