[Altos Weekly Traders Edge] Debt Threat: Is the Market Turning a Blind Eye?..Details Inside

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Weekly Market Overview Hi Traders, Well, welcome to the Summer. From all of us to all of you, we hope you guys had a GREAT 4th of July and got to relax with some family and friends. As we proceed through this year, a time when higher interest rates were expected to stifle the overly indebted, it appears that the predicted ramifications are materializing, albeit not to the extent initially anticipated. While a few entities are grappling with financial strains, market investors remain optimistic, dismissing the possibility of a widespread crisis. However, this viewpoint could prove to be short-sighted, particularly if interest rates continue to climb. Several distressed firms have made news headlines, including a leading water utility company in Britain, yet paradoxically, the most precarious segment of the bond market has been the best performer. Borrowers with CCC ratings, those on the brink of default, have provided returns of 10% this year, outperforming safe investment-grade borrowers such as AA-rated corporate bonds, which returned only 2.7%. Interestingly, the effects of high-risk bonds seem to be more prominent among smaller companies. High-yield bonds have proven to be more attractive to investors than those with better credit. According to Andrew Lapthorne, head of quantitative research at Société Générale, large stocks with the most fragile balance sheets are outperforming their counterparts with stronger ones. This trend can be attributed to the unexpected strength of the US economy amidst moderating inflation. The companies on the weakest financial footing reaped the benefits, primarily because the anticipated recession failed to materialize. In contrast, creditworthy firms didn't gain much as the Federal Reserve is poised to maintain higher rates for longer. Therefore, while credit risk has proven profitable, interest rate risk has lagged. However, the narrative doesn't end here. As interest rates continue to rise, the economy could be negatively impacted by the need to bolster heavily indebted companies. It is valuable to consider different types of companies and the potential risks they face. I have categorized the weak entities into three groups: The first group comprises companies that are clear calamities: those that are ultra-speculative and those debt-ridden "zombies" saved by zero-interest rates, such as secondary electric car startups. They capitalized on the boom phase post-pandemic, mainly utilizing SPACs. These businesses, with hastily constructed business plans designed to exploit the market's financial influx, are doomed to fail as their models collapse. The second category includes viable companies with substantial cash flow that have accumulated excessive debt during the era of easy money, such as Thames Water in the UK and Casino Guichard-Perrachon in France. These entities now face their reckoning as increasing rates make it difficult to service the debt. Even steady, presumably safe businesses can encounter difficulties. In the US, defaults among corporations are on the rise, although still at the average long-term level. The third category includes companies that should be thriving, namely those with fluctuating earnings and manageable debt. They are expected to gain from economic growth without significant detriment from increasing interest rates. ' Generally, these businesses are publicly listed and do not carry as much debt as private equity firms, as their higher volatility limits their borrowing capacity. Investors must not be complacent, especially in the face of rising interest rates. The impact could be more extensive and damaging than currently perceived. - The Team at Altos Trading (see "5 Companies to keep an eye on") <--- (below) Sponsored [Protect Your Wealth from Inflation - Your Survival Guide]( Inflation is a silent killer of your wealth. You may be losing more money than you realize, and it could only get worse. Don't wait until it's too late to take action. [Go HERE To Learn How to Protect Yourself from Infl]( By clicking the link you are subscribing to The Investors News Newsletter and may receive up to 2 additional free bonus subscriptions. Unsubscribing is easy [Privacy Policy/Disclosures]( Stock Watch: 5 Companies to Keep and Eye On As we venture into July, here are five stocks making significant waves in their respective sectors. These represent compelling opportunities for astute investors keen on diversification and long-term growth. - Inflection AI: This Palo Alto, California-based startup is causing a stir in the artificial intelligence space. Its ambitious plan to create the "world's largest AI cluster" has piqued investor interest, with a recent funding round raising an astounding $1.3 billion, catapulting its valuation to $4 billion. The funding, led by tech heavyweights including Microsoft, Reid Hoffman, Bill Gates, Eric Schmidt, and new investor Nvidia, is earmarked for the development of Pi, an AI-powered assistant designed to deliver personalized, relevant information quickly. Since its inception last year, Inflection AI has now amassed over $1.5 billion in capital, establishing itself as a formidable contender against AI veterans like OpenAI and Google. - - CleanCapital: A rising star in the clean energy sector, this New York-based startup recently secured a significant $500 million commitment from Canadian firm Manulife Investment Management. Specializing in solar and storage development, CleanCapital intends to leverage the fresh funds to invest in early-stage projects and acquire renewable energy assets across the U.S. Having already deployed more than $1 billion in operating, new construction, and early-stage solar and storage development, the company, established in 2015, has a total backing of approximately $1.1 billion. - - Madhive: In the turbulent adtech landscape, New York-based Madhive stands out with a recent $300 million funding boost from Goldman Sachs Asset Management, escalating its valuation to a hefty $1 billion. Initially launched as Otter TV in 2015, Madhive markets its Connected TV (CTV) advertising software platform to local TV companies selling CTV ads. - - Alkeus Pharmaceuticals: Based in Cambridge, Massachusetts, Alkeus Pharmaceuticals recently closed a $150 million Series B funding round spearheaded by Bain Capital Life Sciences. The biotech firm's focus is combating Stargardt disease, a predominant cause of blindness in children and young adults. On top of the new funding, the company has appointed Dr. Joshua Boger, Vertex Pharmaceuticals founder, as its executive chairman, further bolstering its expertise and leadership. - - Bitterroot Bio: In the fight against cardiovascular disease, the leading global killer, Palo Alto-based Bitterroot Bio is one to watch. Emerging from stealth mode last month with a $145 million Series A funding round led by Arch Venture Partners and Deerfield Management, Bitterroot Bio aims to leverage immunology in developing innovative protein therapies. The company's goal is to identify novel targets in cardiovascular disease, signalling an exciting development in combating this deadly disease. Keep a close eye on these companies as they are set to make significant strides in their respective sectors, shaping investment opportunities for the discerning investors. 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