What to Expect of the Smaller Companies in the Next 2 Quarters?

One of the reports in Money section of The Straits Times (12 May 2009) says "Profit results put smile back on analysts' faces". The article talks about better-than-expected results from blue chips companies.

I think most of the small companies, especially those in the manufacturing sector, may see business bottomed in Q1 2009. Although many will hand-in dismal results during this reporting season but improvement can be anticipated in the next two quarters. However, this does not imply that the economy is out of the woods.

During the last quarter of 2008, the pessimism and panicky as a result of the series of unfortunate events had caused MNCs and big companies to drastically reduce orders and capital investment. As most of the transactions and agreements could not be cancelled immediately, the significant part of the adverse impact on suppliers was only evident in Q1 2009.

Now it seems that the situation does not turn out as bad as that predicted during the super-gloomy days in October 2008. Companies that had stopped or reduced purchases are likely to be running low in inventory, hence are slowly increasing orders. That is why the smaller companies may see a rebound in sales for the next few months.

Whether the improvement is sustainable, a lot will have to depend on what happens to the US economy in the next two quarters. Without additional systematic shocks, we could likely be on our way to recovery.