November 25, 2024

There’s a bull market happening right now, but it’s not in stocks. I’m talking about the bull market that’s occurring in bankruptcies.

This year’s second-quarter data for Chapter 11 bankruptcy filings shows 2,462 defaults among U.S. corporations, which is the highest level since 2012. And the data for September isn’t great either, with Chapter 11 corporate bankruptcy filings increasing 23% over the prior year.

The default rate marched higher following the Federal Reserve’s interest rate hiking campaign that started in early 2022. But remember that monetary policy lags. So, American companies are just now feeling the full brunt of higher borrowing costs. Even worse, it will likely take many months and several more rate cuts before the Fed’s shift to easier monetary policy offers any relief for these battered companies.

While the stock market seems unconcerned, surging default rates typically happen near the end of a bull market, not the beginning. Increased bankruptcies are undoubtedly bad for America, and they reflect a declining macroeconomic environment.

So, even as the market keeps going up, a lot of other important things look rather terrible. It’s kind of bizarre. Perhaps this explains why rich investors are selling their stocks.