In June 2024, the number of U.S. corporate bankruptcy filings reached its highest since early 2020, with 75 new filings. This surge rivals the peak months of 2020, driven by the COVID-19 shock. So far in 2024, there have been 346 bankruptcy filings, the most in 13 years. Factors contributing to this include high borrowing costs, supply-chain disruptions, and reduced consumer spending. The first quarter of 2024 saw a 22% increase in commercial bankruptcy filings compared to the same period in 2023.
The Federal Reserve’s high policy rate, held at a 23-year high, has added pressure. Signs of economic slowdown and reduced inflation suggest a potential rate cut in September. Consumer discretionary (XLY) led in sector bankruptcies with 55 filings in 2024, reflecting decreased discretionary spending amid inflation and high borrowing costs. Other sectors like healthcare, industrials, and information technology also saw significant filings. Consumer spending growth has declined since its peak in April 2021, influenced by high inflation.
Small businesses face increased costs and pessimism about the economy, with no relief from inflation in sight. The rise in unemployment claims and sector contractions suggests an impending economic downturn.
Rising Bankruptcy Filings
There have been 346 bankruptcy filings in the U.S. so far this year, a figure higher than any comparable period in the past 13 years. This surge is attributed to a combination of persistently high borrowing costs, supply-chain disruptions, and a pullback in consumer spending, all of which have exerted pressure on struggling companies.
Impact of Federal Reserve Policies
The spike in bankruptcies comes as the Federal Reserve has maintained its policy rate at a 23-year high for nearly a year. Policymakers are grappling with the timing of scaling back this tight policy amidst indicators pointing to a slowdown in economic growth and a renewed drop in inflation. Market participants are confident the first rate cut will occur in September, particularly after June’s cooler-than-forecast Consumer Price IndexThe Consumer Price Index is a measure of the average price level of a basket of goods and services that are commonly consumed by households. More (CPI) report.
Sector-Specific Analysis
By sector, consumer discretionary (XLY) experienced the most bankruptcy filings in 2024, with 55 filings, including 16 new ones in June. Following closely were healthcare (XLV) and industrials (XLI) with 40 filings each. Other sectors impacted include information technology (XLK) with 20 filings, consumer staples (XLP) with 19, financials (XLF) with 16, materials (XLB) with 11, communication services (XLC) with 10, energy (XLE) with 4, and utilities (XLU) with 3.
XLY Technical Analysis
The chart represents the S&P 500 Consumer Discretionary Sector SPDR (XLY) as of July 12, 2024. The stock price has shown a strong upward trend recently, breaking above both the 50-day moving average (181.15) and the 200-day moving average (175.17), which are traditionally considered significant levels of support and resistance. The price is currently at 191.49, suggesting a bullish momentum.
Volume: The volume has seen significant spikes, especially during price rises, indicating strong buying interest. The last recorded volume is 2.73 million shares.
Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... (RSI): The RSI is at 69.54, close to the overbought threshold of 70. This suggests that the stock might be overbought and could face some selling pressure in the short term.
On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... (OBV): The OBV is rising, which confirms the upward price movement and indicates that the accumulation phase is strong.
Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ...: The Stochastic RSI is at 0.750, which indicates a potentially overbought condition, aligning with the RSI. This suggests that there might be a short-term correction or consolidation.
Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... (ADX): The ADX is at 31.46, indicating a strong trend. A rising ADX above 20 usually signifies a strengthening trend.
Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati...: The Chaikin Oscillator is at 799,628, suggesting strong buying pressure, as it is above the zero line.
Time-Frame Signals:
- 3-month horizon: Hold. Given the current upward momentum and strong indicators, holding the stock may be prudent. However, be cautious of potential short-term corrections due to overbought conditions.
- 6-month horizon: Buy. The strong upward trend and positive volume indicators suggest continued growth over the medium term. This is likely because XLY is pricing in rate cuts for the first time on a 6 month time-horizon.
- 12-month horizon: Buy. The breaking above significant moving averages and a strong ADX suggest a sustained upward trend, making it a good long-term investment. Again, the further we go out, XLY is pricing in the bullish impact of rate cuts.
Past performance is not an indication of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡
Consumer Discretionary Sector
The consumer discretionary sector, involving firms that sell manufactured goods or services that are not essential, saw the highest number of bankruptcy filings. This suggests that consumers are slowing discretionary spending due to elevated inflation and high borrowing costs, prioritizing essential expenses such as food, gasoline, and loan payments instead.
Declining Consumer Spending
Personal consumption expendituresPCE stands for Personal Consumption Expenditures. It is a measure of how much money households spend on goods and services. More (PCE), also known as consumer spending, have been trending downward since peaking in April 2021. At that time, a massive demand-supply imbalance triggered an inflation spike, the likes of which hadn’t been seen since the 1970s. In April 2021, PCE jumped nearly 30% from a year earlier, compared to the 5.1% pace logged in May 2024, according to the St. Louis Fed’s FRED database. PCE inflation peaked in June 2022, indicating that higher inflation has significantly weakened consumer spending.
Challenges for Small Businesses
The landscape for small businesses has also been challenging. “Main Street remains pessimistic about the economy for the balance of the year,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business, in a June report. “Increasing compensation costs have led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.”
Insights:
- Corporate bankruptcies are at a record high since 2020.
- High borrowing costs and supply-chain issues are major factors.
- The Federal Reserve’s rate policies are contributing to economic strain.
- Consumer discretionary spending is significantly reduced.
- Small businesses are particularly pessimistic about economic prospects.
The Essence (80/20)The Origins and Evolution of the 80/20 Principle The Discovery by Vilfredo Pareto In 1897, Italian economist Vilfredo Pareto uncovered a striking pattern in his study of wealth and...:
The core issue is the unprecedented rise in U.S. corporate bankruptcies in 2024, influenced by persistent high borrowing costs, supply-chain disruptions, and declining consumer spending. The Federal Reserve’s high policy rate exacerbates these challenges, and the most affected sectors include consumer discretionary, healthcare, and industrials. Small businesses face significant financial pressures and a bleak economic outlook.
The Guerilla Stock Trading Action Plan:
- Monitor Financial Indicators: Keep a close watch on borrowing costs, consumer spending trends, and sector-specific financial health.
- Strategic Adjustments: Companies should reassess their financial strategies, focusing on cost reduction and cash flowThe cash flow statement provides a detailed overview of the cash inflows and outflows of a company over a specified period of time. It includes cash received from operations, inves... More management.
- Federal Policies: Stay informed about Federal Reserve policies and potential rate cuts that could impact financial planning.
- Consumer Behavior Analysis: Businesses, especially in discretionary sectors, need to adapt to shifting consumer spending patterns.
Blind Spot:
The analysis may overlook the long-term impacts of geopolitical events and environmental factors on supply chains, which could further strain the economic landscape.
Economic Outlook: An Impending Downturn?
The question remains: Can the U.S. dodge an economic downturn? Indicators suggest it might already be too late. The recent rise in initial and continuous claims for unemployment, coupled with contractions in the manufacturing and services sectors, points to an impending economic slowdown. The high number of bankruptcy filings underscores the financial strain on businesses across various sectors, highlighting the broader economic challenges that lie ahead.
In conclusion, June 2024 marked a critical juncture for U.S. corporate bankruptcies, with the highest number of filings recorded since early 2020. The combination of high borrowing costs, supply-chain disruptions, and reduced consumer spending has created a perfect storm, pressuring companies across multiple sectors. As the Federal Reserve contemplates its next moves amidst a cooling economy, the future remains uncertain, and the potential for an economic downturn looms large.
FAQ on U.S. Corporate Bankruptcy Filings
- Hoth Therapeutics breakthrough! 🧬✨ Why one patient sent Hoth Therapeutics stock forecast soaring by 81% in a single day! - September 8, 2024
- BloomZ Stock Price Just Exploded! Here’s the scoop on their latest alliance and why investors are excited 💥 - September 8, 2024
- The 10-year Treasury rate chart shows a surprising twist… Did hedge funds miscalculate with their record shorts? 🤔 - September 8, 2024
💥 GET OUR LATEST CONTENT IN YOUR RSS FEED READER
We are entirely supported by readers like you. Thank you.🧡
This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor.
