Storm clouds are forming over the global corporate sector as debt costs rise and earnings dwindle, S&P Global says

• There's trouble brewing for world's corporations, according to S&P Global.
• The firm pointed to slower activity, profits, and demand amid tighter financial conditions.
• Wall Street has issued grim warnings over the outlook for US corporations into next year.

Trouble is brewing in the global corporate sector as borrowing costs rise, and earnings ground to a near-halt, according to S&P Global Market Intelligence.

The firm on Monday pointed to ailing global business activity in recent months, which could point to "storm clouds" on the horizon for companies. 

That's partly due to the pandemic-era fiscal stimulus beginning to fade, while the post-pandemic boom and travel and recreation begins to slow. Meanwhile, inflation has remained stubbornly high, despite easing somewhat across most of the world.

"Looking at these factors in aggregate, it isn't surprising that global corporations are confronting falling margins, demand and credit quality," the firm said in a note on Monday.

Global business activity slumped in October as the Purchasing Managers' Index hit a level of 50, its lowest reading in about eight months. Global manufacturing also fell for the fifth straight-month, while consumer demand continued to ebb in areas like resources and technology.

That's been a  big hit for corporate profits. Earnings growth for global corporations slowed to a near-halt in the third quarter, according to a separate S&P Global Ratings analysis, with earnings before interest, taxes, depreciation,and amortization down 4.4% year-over-year.

That, combined with higher borrowing costs, has worsened the credit outlook for corporations. The global credit downgrade ratio surged to 54% in the third quarter, up from 52% in the second quarter, according to S&P Global.

US businesses have struggled over the past year amid tighter financial conditions and higher interest rates. Corporate debt defaults in 2023 have already blown through last year's total, according to Moody's data, while bankruptcies have already surpassed levels seen in 2021 and 2022, according to S&P Global data.

Wall Street strategists have also issued grim warnings over the corporate sector as profits slow and borrowing costs edge higher. Total corporate debt defaults and US bankruptcies could continue to surge until the peak sometime in the first quarter of next year, according to Charles Schwab.