about 2 months ago • 2 mins
What’s going on here?
A slew of major companies declared bankruptcy in 2023, and this new year doesn’t guarantee a fresh start for any struggling businesses out there.
What does this mean?
It’s a tough time to be a business owner: higher prices have put folk off shopping sprees, and interest rates have made it more expensive to borrow money from banks. No wonder, then, that a ton of British firms couldn’t afford to keep up with their debts this year, with the Insolvency Service reporting that more folded in 2023 than 2022. The construction and services sectors were particularly hard hit, making up a fifth of the bankruptcies each, while the hospitality and retail sectors both had their fair share of failings too. And with interest rates staying high for now, experts are expecting more dominoes to fall in 2024.
Why should I care?
For markets: New year, new interest rates.
The Federal Reserve is widely expected to trim interest rates next year. Thing is, even if inflation and interest rates nestle into a more modest level, they probably won’t stoop below the lows set during the pandemic. That’ll make loans stay on the pricey side, all while funds like venture capital firms are drying up. Together, that’ll be a blow for companies used to borrowing big and spending bigger to drum up business. (We’re looking at you, tech.)
Zooming out: Tech checks out.
Tech stocks led the market’s charge in 2023, with investors clamoring over the AI trend. But while it’s true that higher interest rates may well hold fledgling tech companies back this year, the Magnificent Seven are a different breed. Huge, cash-rich, and practically rolling in profit, the squad won’t have the same financial problems as their smaller competitors, adding some credibility to their hefty valuations. And take note: if you’re interested in Silicon Valley’s finest, Big Tech companies are currently trading in line with their historical values.
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