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Jul 20 16 tweets 4 min read Twitter logo Read on Twitter
Corporate bankruptcies have been spiking in recent weeks

Let's take a look at why and the market implications

An important thread 🧵 Image
2/ Rising bankruptcies coincides with bond yields hitting 4%, a level previously associated with the Silicon Valley Bank collapse and UK pension fund crisis Image
3/ Despite escalating financial stress, the Fed maintains a 'higher for longer' stance to curb inflation

This is amidst a U.S core CPI inflation rate persistently above 5% and the Fed funds rate Image
4/ A Deutsche Bank survey indicates that over half of market professionals anticipate market stress due to higher rates

While 20% foresee minimal impact, and approximately 17% warn of potential severe financial stress Image
5/ Businesses are finding it increasingly challenging to secure loans due to stricter credit standards, a consequence of higher rates Image
6/ Historically, tighter lending standards precede recessions, as evidenced in:

- 1989
- 1999
- 2007

In each case, the Fed was in a tightening cycle Image
7/ The stricter credit standards aligns with the rise in bankruptcy filings, as per Apollo research

It’s important to note that the bankruptcy filings are from companies with liabilities exceeding $50 million, a specific sample
8/ A broader view of total U.S. bankruptcy court filings from a different dataset presents a different narrative

Bankruptcy filings remain low on a relative basis, but have been trending higher Image
9/ The current default rate is merely the beginning

As the Fed sustains high rates, bankruptcy figures are set to worsen

While 2023 sees limited debt maturing, refinancing concerns escalate from 2024 onwards
10/ The chart below illustrates annual debt maturity and the breakdown of speculative vs investment-grade debt maturing Image
11/ In 2023, approximately $700 billion of debt matures, sparing businesses that refinanced at low rates in 2020/21 from higher rate environments

However, in 2024, debt maturity is expected to surge to $1 trillion, and in 2025, it is expected to reach $1.2 trillion
12/ The market's current lack of concern stems from the economy's delayed response to interest rate hikes since 2022

Which also explains the persistently low credit spreads Image
13/ Credit spreads, indicative of credit risk pricing in financial markets, typically rise ahead of recessions, as seen in 2001, 2008 and 2020 Image
14/ Despite recent bankruptcies, credit spreads remain stable due to 2 factors:

1. Most companies have yet to refinance their debt

2. The economy has not yet entered a recession
15/ As the Fed persists with restrictive rates, the market is likely to price in more risk as bankruptcies increase

This could lead to wider credit spreads and lower stock prices, with the peak panic occurring during the recession
16/ Our goal at is to help you navigate uncertain markets through evidence based insights

We're committed to the thoroughness of our research, striving to comprehend underlying dynamics and fundamental reasons behind behaviors

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More from @GameofTrades_

Jul 18
Tech is at highest relative valuation against the S&P 500 since the Dot Com bust, despite falling 12-month forward EPS

A thread 🧵 Image
2/ Tech is currently the most expensive it has been since the Financial Crisis, at 1.4x the S&P 500

The only time it was more expensive was during the Dot Com bubble Image
3/ The Dot Com bubble crash was largely driven by extreme valuations, as shown by the PEG ratio Image
Read 8 tweets
Jul 15
The unemployment rate is a key variable for stock market performance

Here’s what you need to know

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2/ A deteriorating labor market is a major warning signal for equities

Rising unemployment leads to poor market returns
3/ Consumer spending is a big driver of corporate earnings growth

Earnings growth = fundamental driver of the stock market Image
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Jul 14
The BAM indicator predicts above-average market returns, and it triggered a buy signal in January

However, it has never triggered simultaneously with a deeply inverted yield curve

A thread 🧵 Image
2/ Market breadth indicators are powerful tools to put the odds on our side

Breadth captures the participation rate of stocks amidst moves in the stock market, indicating the conviction behind the move
3/ A significant increase in market breadth often signals a change in macro regime

The Walter Deemer Breakaway Momentum (BAM) is an excellent tool for capturing this macro dynamic

The most recent signal was triggered in January 2023 Image
Read 18 tweets
Jul 13
The yield curve is the most inverted since the '80s

Yet the recession is still a no-show

What’s going on?

A thread 🧵
2/ The stock market has been on a bullish run

With P/E ratios (market valuations) climbing from around 20 to 25 since September 2022 Image
3/ A key macro factor driving this rally is the disinflation observed since June 2022, when inflation peaked at 9.1%

Since 1926, inflation has only peaked above 9% six times, each one leading to a market rally Image
Read 22 tweets
Jul 8
Home sales have dropped to 1980s levels seen during the Volcker-era

The housing market signals a 28% decline in S&P 500 earnings

A thread 🧵
2/ U.S. existing home sales YoY have collapsed to levels unseen since the 1980s
3/ Q1 2023 marked the first dip in home prices since the Covid-induced housing demand surge
Read 17 tweets
Jul 6
China's economic deterioration is a major threat to the global economy

A thread 🧵
2/ China's housing market experienced its largest contraction in over a decade, despite efforts by the Chinese Central Bank to ease monetary policy
3/ China's economic weakness is indicated by a decline in:

- China large-cap stocks ($FXI)
- 1-year government yield
- Copper prices
Read 18 tweets

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