Corporate outlook at record low amid debt fears
FEARS are growing for the health of the world’s top companies after the biggest collapse in corporate earnings forecasts on record and growing signs that businesses are drowning in debt.
Warnings of stuttering growth triggered the largest slide in the global earnings revision ratio last month since it began in 1988. The gauge tracks analyst expectations for future company profits. The markets rout has also paralysed the market for risky debt. Amid rising concerns over debt-soaked companies, the high-yield bond market was shut off in December. Not a single highyield bond was issued by US companies in the $1.2 trillion (£943bn) market for the first time since the depths of the crisis, Dealogic data has revealed.
Another shock like the one suffered by markets in December could end the credit cycle, Bank of America Merrill Lynch warned this week. “We think this can no longer be dismissed as noise on the grounds of illiquidity or machine trading alone,” analyst Oleg Melentyev said. “Evidence is accumulating that this could be the end of a credit cycle.”
Fund managers have the most pessimistic outlook for company earnings since 2008, surveys indicate. A combination of “higher input costs, the trade tariffs, the roll-off from Donald Trump’s 2017 tax cut and weakening global growth” had dented confidence, said Stewart Cook, analyst at Berenberg.
Federal Reserve chairman Jerome Powell attempted to calm nerves on Friday, signalling flexibility on interest rates.