{"id":79103,"date":"2023-10-31T19:58:23","date_gmt":"2023-10-31T23:58:23","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/zombie-companies-already-make-up-11-5-of-u-s-listed-stocks\/"},"modified":"2023-10-31T19:58:26","modified_gmt":"2023-10-31T23:58:26","slug":"zombie-companies-already-make-up-11-5-of-u-s-listed-stocks","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=79103","title":{"rendered":"\u2018Zombie\u2019 companies already make up 11.5% of U.S. listed stocks"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002676783\" role=\"document\">\n<p>About 11.5% of listed U.S. stocks already belong to a large network of \u201czombie\u201d companies that have consistently earned less than they owe in interest costs, according to a tally from Glenmede.<\/p>\n<p>While that might not sound ideal, higher bond yields or a recession could make a potentially ugly situation for investors even worse.<\/p>\n<div class=\"paywall\">\n<p>\u201cThe combination of rising borrowing costs and heightened recession risks could begin to tip zombie companies into bankruptcy,\u201d a team led by Jason Pride, chief of investment strategy and research at Glenmede, wrote in a Tuesday client note.<\/p>\n<p>Stocks, unlike bonds, often are at risk of seeing their entire value wiped out if a company files for bankruptcy. Recessions also tend to shake out smaller and weaker companies with high debt loads, in part because funding from Wall Street can dry up. <\/p>\n<p>The Glenmede strategy team arrived at their zombie figure by looking at the share of companies in the Russell 3000 index<br \/>\n        RUA<br \/>\n       whose earnings before interest, taxes, depreciation and amortization didn\u2019t meet their interest costs in the past three years.<\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>While off peak levels in the wake of the pandemic, the chart suggests an elevated risk of public U.S. companies vulnerable to collapse.<\/p>\n<p>The Russell 3000 index tracks shares of the largest 3,000 publicly traded companies, weighted by market capitalization, making it a proxy for the U.S. stock market, whereas the S&amp;P 500 index<br \/>\n        SPX<br \/>\n       tracks the biggest 500 companies and the Dow Jones Industrial Average<br \/>\n        DJIA<br \/>\n       tracks 30 stocks.<\/p>\n<p>Higher bond yields can ratchet up interest costs for companies that need to borrow or refinance maturing debt. The benchmark 10-year Treasury yield<br \/>\n        BX: TMUBMUSD10Y<br \/>\n       has now climbed for six straight months, closing out October at 4.874% and easing back from a brief jolt above 5%.  <\/p>\n<p>\u201cAll else equal, higher yields on Treasuries put pressure on equity markets,<br \/>as future cash flows used to determine fair value are discounted at higher rates,\u201d the Glenmede team wrote.<\/p>\n<p>Yields in the roughly $1.5 trillion high-yield, or \u201cjunk bond,\u201d market were last pegged near 9.4%, according to the ICE BofA US High Yield index, among the highest since 2009. <\/p>\n<p>Yet the biggest junk-bond ETF, the iShares iBoxx $ High Yield Corporate Bond ETF<br \/>\n        HYG<span>,<\/span><br \/>\n       was off only 1.4% on the year through Tuesday, according to FactSet. <\/p>\n<p>Part of the resilience could be tied to the U.S. economy, which has continued to grow despite the Federal Reserve\u2019s aggressive pace of rate hikes since last year. <\/p>\n<p>Also, while 11.5% of the Russell 3000 index was pegged as zombies, the group accounts for only 2.2% of the total value of the stock market, since many were small-cap companies, according to Glenmede. <\/p>\n<p>Furthermore, not all zombies automatically look like an imminent risk, the Glenmede team said, because it folds in companies still finding a market for their products or services. It also can include small biotechnology and technology companies, which tend to follow a \u201cproof of concept, then monetize\u201d business model, they said.<\/p>\n<p>Stocks ended higher Tuesday, but with the Dow Jones Industrial Average<br \/>\n        DJIA<span>,<\/span><br \/>\n       S&amp;P 500 index<br \/>\n        SPX<br \/>\n       and Nasdaq Composite Index<br \/>\n        COMP<br \/>\n       booking three straight months of declines, according to Dow Jones Market Data.<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/zombie-companies-already-make-up-11-5-of-u-s-listed-stocks-75d0c01e?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>About 11.5% of listed U.S. stocks already belong to a large network of \u201czombie\u201d companies that have consistently earned less than they owe in interest costs, according to a tally from Glenmede. While that might not sound ideal, higher bond yields or a recession could make a potentially ugly situation for investors even worse. \u201cThe [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":79104,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-79103","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>\u2018Zombie\u2019 companies already make up 11.5% of U.S. listed stocks | iFintechWorld<\/title>\n<meta name=\"description\" content=\"About 11.5% of listed U.S. stocks already belong to a large network of \u201czombie\u201d companies that have consistently earned less than they owe in interest\" \/>\n<meta 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