The rise of overall domestic nonfinancial debt to more than $55.9 trillion has worried investors as companies take a hit from the lockdown with large layoffs pending and the knock-on effects of slowing consumer spending impacting turnover.
While the U.S. economy was fundamentally sound ahead of the lockdown with near record low unemployment of 3.5%, the level of rising corporate and government debt combined with a steep fall in household spending and net worth is giving investors a moment of pause.
Following large stock market gains in the past 2 weeks, today the Dow plunged more than 1800 points as corporate debt surged and people worried about the over valuation of companies that have yet to see a resurgence in consumer demand.
With states slowly unwinding their lockdowns, and businesses getting back to normality, a new problem for investors is emerging, and that is the potential “overvaluing” of stocks in a stark economic climate where there could be a long period of low consumer spending before a pick up takes place.
Among some of today’s biggest fallers included United Airlines, Delta and retailer Gap.
Although stocks remain above their March low, expect to see more volatility in the stock market over the coming days as further economic data about the U.S. economy gets released.