Healthcare, consumer discretionary lead sector risk analysis in Q3 2025

Elevated credit risk and a weakening performance outlook pushed the healthcare and consumer discretionary sectors to the top of S&P Global Market Intelligence's latest quarterly analysis of US public sector risk.

Those signs of risk can factor into investment decisions by private equity firms. Higher levels of risk can erode valuations, creating buying opportunities for investors. The same link between risk and valuations can also prompt private equity firms to delay exits from portfolio companies in affected sectors.

In the third quarter, healthcare and consumer discretionary ranked near the top on several key measures of US public sector risk, including probability of default and recent instances of lowered corporate guidance. Consumer discretionary led all other sectors for the number of companies to receive credit rating downgrades since the start of 2025.

Other signs of stress for companies in the healthcare and consumer discretionary sectors have emerged. In the first half of the year, 52 private equity portfolio company bankruptcies were recorded, with healthcare and consumer discretionary leading all other sectors with 11 bankruptcies each.

Listed companies in both sectors are also facing bearish sentiment from investors, who made them the most-shorted sectors in the US this summer. Average short interest over shares outstanding was 6.5% for healthcare and 6.1% for consumer discretionary as of the end of June.

Corporate guidance

In the healthcare sector, listed companies issued updated corporate guidance 138 times in the third quarter through Sept. 23. In 33 of those guidance updates, or about 24% of the total, the revisions lowered projections for future performance, according to Market Intelligence data. The rate was slightly lower in the consumer discretionary sector, with guidance for quarterly or annual operating results revised down in 22% of the updates announced during the quarter.

Listed companies in the real estate sector were the most likely to cut expectations for future operating results in the third quarter. Real estate companies issued updated corporate guidance 52 times in the third quarter through Sept. 23, with instances of lowered guidance comprising about one-third of that total, according to Market Intelligence data.

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Probability of default

Healthcare ranked first among sectors for median probability of default, according to a Market Intelligence analysis of market-derived signals. The median probability of default for US-listed healthcare companies declined, however, to 5.43% in the third quarter as of Sept. 22, from 5.96% in the second quarter.

Consumer discretionary also ranked among the top four sectors in the US with the highest median probability of default, with a score of 2.44% in the third quarter, down from 2.62% in the second quarter.

Among the top four sectors, real estate was the only one to record a quarter-over-quarter increase in its median probability of default score, rising to 2.41% in the third quarter from 2.06% in the second quarter.

Rating downgrades

The consumer discretionary sector has recorded more long-term credit rating downgrades this year than any other sector, with 41 rating cuts since Dec. 31, 2024, according to Market Intelligence data. In the third quarter through Sept. 23, consumer discretionary also recorded the most downgrades with 19.

In the healthcare sector, there were 20 downgrades of listed companies' long-term credit ratings between Dec. 31, 2024, and Sept. 23, 2025. This total ranked fifth among all sectors for the number of credit rating downgrades since the start of the year.

Consumer discretionary ranked second among all sectors for the number of non-investment-grade companies, with 282 as of Sept. 23, up 2% from 277 at the start of the year, according to Market Intelligence data. The healthcare sector ranked fifth with 132 non-investment-grade companies, a 4% increase from 127 at the start of 2025.

The industrial sector led the list with 321 non-investment-grade companies, up 4% from 308 at the start of the year.