Addicted to Debt

Good Morning,


The weekend is here and much needed! The past couple of years have been great for the stock market and companies have benefitted from lower interest rates, but it looks like that might be changing. Earlier this week Reuters posted an article about US companies being overleveraged.

The article points out that 17% of public companies struggled to make debt payments last year and the median debt to income has risen past pre-financial crisis levels. The higher debt levels create a headwind for capital investments along with hiring/pay raises. Right now, the market is doing well but this is something worth considering if investing in individual companies or ETFs because in a downturn the highly leveraged companies always end up producing the worst returns.

While the author is not doom and gloom, a realistic view of the economic landscape is given. There was a mention of the leveraged loan market being a canary in the coal mine, so for those interested, I have included a link to provide insight into that market. 

https://www.reuters.com/article/us-usa-debt-leveraged-analysis/loose-money-era-leaves-trail-of-u-s-corporate-debt-junkies-idUSKCN1PU0DA

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