By Bansari Mayur Kamdar
(Reuters) - The retail sector could continue to lead U.S. bankruptcies next year due to sticky inflation and high interest rates, but analysts expect easing monetary policy to offer some respite in the second half of 2024.
There have been 591 U.S. corporate bankruptcy filings so far this year, the highest since 2020, according to data from S&P Global Market Intelligence.
"The end of ultra-low interest rates that started in 2008, ushered in a resurgence of bankruptcy filings" but the trend could normalize going forward, Art Hogan, chief market strategist at B. Riley Wealth, said.
Decades-high interest rates have sent many companies over the edge as they struggle to repay debt maturing this year.
Money markets have fully priced in the U.S. Federal Reserve holding interest rates steady at its decision later in the day, with traders seeing a 75.3% chance of a cut in May, according to CME Group's (NASDAQ:CME) FedWatch tool.
However, a global economic slowdown could still lead to more casualties in the year ahead, Danni Hewson, head of financial analysis at AJ Bell, said.
Among sectors, consumer discretionary companies topped the list of bankruptcies in the first 11 months of 2023 with 76 filings, S&P Global data showed, including retail darlings such as Bed Bath & Beyond (OTC:BBBYQ).
"Retail will be a particularly hot sector next year (for bankruptcies)," Catherine Corey, global head of restructuring data at Debtwire, said.
"There are plenty of retailers that saw a boom in profit during the pandemic that have since dried up."
Some analysts also expect a bounce in M&A deals next year, with companies unwilling to undergo bankruptcies.
"More acquisitions are coming into play and that is a sign that maybe some companies are willing to be acquired, in lieu of facing the lean times ahead," said Peter Cardillo, chief market economist at Spartan Capital Securities.
Overall, M&A activity in the U.S. remained muted this year, with 13,466 deals announced through Dec. 5 with an aggregate deal value of $1,038.3 billion, according to S&P Global, compared with $1,382.4 billion from the 19,192 deals announced in 2022.