While we bathe in the Trump bull market it is best not to forget the deterioration in credit quality. This chart shows the trend of credit ratings for ‘investment grade’ equities in the US by decile. Note the alarming trend of the highest rated companies declining as a percentage of total and the sharp uptick in deteriorating low ‘investment’ grade credit ratings. Yes, credit quality seems to be getting much worse.
For all of the turbo charged low interest rate environment set by central banks, the ‘real’ state of corporate financial health on aggregate continues to worsen despite near full employment, record level equity markets and every other word of encouragement from our politicians.
TINA (there is no alternative) certainly would back the theory that money is looking for a place to go. However if this is the state of the corporate sector at arguably the sweet spot of the economic cycle I shudder to think the state of potential bankruptcies that will come when the cycle takes a turn for the worse. This is a very bad sign.