Another example is Bed Bath & Beyond, which is struggling to compete with online retailers and stay ahead of changing consumer tastes. That retail chain is expected to close about 150 of its stores and cut 20 percent of its workforce in its business and supply chain. It has a debt of more than $1 billion. On Wednesday, the company said it had struck a deal with some investors to convert some of its debt into equity.
Executives from both companies have said their turnaround plans are working.
Heyward Donigan, Rite Aid’s chief executive, has emphasized “good progress on key initiatives,” including increasing prescriptions filled and cutting some expenses. And Sue Gove, the chief executive of Bed Bath & Beyond, said in a recent statement that the company was “confident that our current liquidity will enable the necessary changes we are making.”
There are other signs of stress. After a surge during the pandemic, the number of new companies being created in the United States has ground to a halt this year. The housing market has slowed sharply and some companies such as Meta and Twitter are laying off thousands of employees.
If the Fed continues to raise interest rates and weaker companies begin to fail or struggle, relatively healthy companies may find it harder to borrow money as investors begin to worry about who will take the next blow. Even if the failure rate is relatively small, it can “have a cascading effect,” said Joe Quinlan, chief market strategy for global wealth and investment management at Bank of America.
“The herd is moving in one direction and that can create its own problems,” said Mr. Quinlan.
Still, many Wall Street analysts said they weren’t worried, pointing to a variety of indicators that they believe showed companies will get through the next year or two largely unscathed.
The New York Federal Reserve is compiling a corporate bond emergency index that aims to measure the overall health of the market, with a higher number indicating greater distress. The index is currently at its highest level since late 2020, but is well below its levels at the start of the pandemic and during the 2008 financial crisis.
Analysts who think companies will do well most of the time note that, in total, U.S. households have used up only about a quarter of the $2.3 trillion in additional savings they accumulated during the pandemic, suggesting that demand for goods and services should remain robust. Also, many companies have a lot of cash on hand from when the economy was stronger and interest rates were lower, which should reduce or eliminate their need to borrow money for years to come.