Default risk rises across most US sectors in Q3

The odds of default across most U.S. business sectors rose in the third quarter.

Every sector except healthcare and consumer discretionary recorded a higher median market signal one-year probability of default score at the end of the third quarter than the end of the second quarter, according to S&P Global Market Intelligence data. The scores, which represent the odds of default within a year, are based primarily on the volatility of share prices for public companies in the sector and account for country- and industry-related risks.

Vulnerable sectors

Healthcare was the sector with the highest one-year probability of default at 6.5% as of Sept. 30, according to Market Intelligence data. That is down from 7.3% on June 30.

Communication services had the second-highest median market signal at 5.9%, up from 4.7%, according to the data. Consumer discretionary was third at 3.8%, unchanged from the previous quarter.

Hot inflation and central banks' aggressive interest rate hiking cycles weighed on equity and bond markets in the first three quarters of 2022 with few signs of a letup. Dealmaking declined in the third quarter in the U.S. and Canada as interest rates rose.

Troubled industries

Healthcare technology and healthcare facilities had the highest probability of default scores in the third quarter, at 18.6% and 15.5%, respectively, according to Market Intelligence. Broadcasting came in third at 14.7%.

Asset management and custody banks, financial exchanges and data and railroads were the least vulnerable industries by median market signal one-year probability of default.

Increases and decreases

Cable and satellite had the largest increase in the probability of default during the quarter, up 6.2 percentage points to 8.4% as of Sept. 30, according to Market Intelligence data.

Broadcasting had the second-largest increase, up 3.4 percentage points to 14.7%. Textiles followed in third, up 2.6 percentage points to 6.0%.

Healthcare facilities, healthcare services and healthcare distributors were the industries with the largest decrease in probability of default scores during the quarter.