Bankruptcies are on the rise how will they impact me?
Bankruptcies are on the rise how will they impact me?
The US economy’s resilience and performance throughout the first half of the year surprised experts, who widely predicted that the nation would experience a recession.
Nevertheless, many anticipate some volatility in the second half of the year as Federal Reserve policymakers have said they want to continue painful interest rate rises.
Price pressures continue despite a moderate decline in inflation rates, and the Fed has indicated that its benchmark interest rates will remain higher for longer.
Additionally, it appears that banks will continue to tighten lending conditions in the second half of the year. Small and medium firms (as well as US consumers) will find it more difficult and expensive to acquire financing as a result.
Both corporate bankruptcy filings and consumer debt delinquency are increasing. According to the most recent monthly CreditGauge study from VantageScore, delinquencies increased across all “days past due” categories on a year-over-year basis, rising from 0.16% of loans in May 2022 to 0.25% in May 2023.
Are we about to see a credit crunch? Before the Bell got in touch with Chiza Vitta, a senior analyst at S&P Global, and David Tesher, the regional credit conditions head at S&P Global, to learn more.
David Tesher: Initially, we predicted a brief and modest recession, but now we don’t believe one will occur. Currently, economic prospects are less favorable, although a recession is not approaching in the short term.
The US consumer has shown to be robust, but it is clear that ongoing inflation is reducing their purchasing power. Consumers from lower-income families are undoubtedly under more strain and consuming more credit card debt. This will likely have an impact on company growth.
Prior to the Bell, The consumer remains robust despite some softening in the economic indicators. Is a recession still on the horizon?
Credit is getting harder and harder to acquire and businesses are going under more quickly than they have in the past as the economy slows. Will there be a credit crunch?
Chiza Vitta: Although there isn’t a widespread market decline, there is a lot of risk for less well-established businesses. So, certainly, some businesses are in trouble, but this isn’t something that’s hurting the entire market, as you might expect from a widespread credit crunch.
Which industries will suffer the most?
Vitta: The scale of the business has a significant impact on ratings. Sectors with high profitability, including technology and energy, are doing well. It will take a considerable amount of distress before they are downgraded, much less face a default. We’re not expecting that to happen. Generally speaking, it’s deeply speculative where interest rates are typically up twice as high. Public firms may be growing more slowly, but there isn’t much concern, in our opinion.
People frequently highlight how difficult it is for the commercial real estate industry to secure capital when discussing a potential credit crisis. What do you perceive?
Tesher: The value of commercial real estate assets is being severely pressured by the decline in demand for office space, which is also putting pressure on cash flows at a time when borrowing costs have risen. The hybrid arrangement of working from home will continue for some time, and lenders are realizing that some of the evaluations they now use are outdated. Banks, insurance firms, and anybody else holding the commercial real estate risk must deal with it, even though it is moving slowly. This may lead to the funding of commercial and industrial initiatives being more selective. So there is no doubt that it has an overhang to it. Real estate is selling, and revaluations based on reduced prices are being acknowledged. It is a looming risk, yet not everything is happening all at once.
Tech companies had a difficult year in 2022 as tech stocks plunged more than 30% while the market as a whole declined 20%.
This year’s market gains have mostly been driven by IT companies, who have benefitted from the rise of artificial intelligence.
The tech-focused Nasdaq composite index had the biggest first-half gain in forty years on Friday.
(AAPL) shares on Friday reached a $3 trillion value, making it the first business to ever achieve that milestone.
(NVDA), which manufactures AI chips, increased by 3.6% on Friday and by roughly 190% year-to-date. Microsoft and Meta both had gains of 1.9% on Friday and more than 138% for the year.
(MSFT) increased by 1.6% today and 42% in the previous six months.
This was not how it was intended to be.
Since the economy seemed to be destined for a downturn, “the sentiment around tech stocks was extremely negative” going into 2023, according to Wedbush’s Daniel Ives in a note. Instead, “AI has changed the tech world and investor sentiment with this transformational technology,” he stated.
According to Ives, the tech industry will grow by an additional 12% to 15% in the second half of this year.
However, not all analysts agree.
According to Liz Ann Sonders, chief investment strategist at Charles Schwab, market sentiment looks to be too overblown. In the near future, equities will probably get choppy as a result, she stated.
According to Megan Horneman, chief investment officer at Verdence Capital Advisors, “What we have seen this year is the dangerous pattern when investors let the fear of missing out (also known as FOMO) override disciplined due diligence.” The tech-heavy Nasdaq has beaten the Dow Jones Industrial Average by more than 25% this year because AI is linked to technology. About 80% of the S&P 500’s entire gain this year is coming from firms that are thought to be improving AI or otherwise directly related to it.
This Fourth of July weekend will see heavy traffic on the roadways, but motorists will at least benefit from significantly lower gas costs than last year, according to my colleague Matt Egan.
A record-breaking 43.2 million Americans are anticipated to travel this holiday weekend, according to AAA. That is 2.4% more than on the previous Fourth of July.
According to AAA, the national average for regular gasoline dropped to $3.55 per gallon on Thursday. Regular gas a year ago was selling for $4.87 per gallon.
It’s practically unheard of for prices to decrease so much.
According to the US Energy Information Administration, the average price of gasoline during the week ending June 26 was $3.57 a gallon. That represents a $27% decrease over the same time last year.
John LaForge, who oversees real estate strategy at the Wells Fargo Investment Institute, claims that this is the second-largest one-year price decline in the week before the Fourth of July since EIA statistics began 33 years ago.