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Opinion
Lisa Abramowicz

Credit Market Pain Is Too Muted to Save Stocks

The bar is much higher for the Federal Reserve to back down from its plans to aggressively raise interest rates. 

The pain in the stock market is far from over. (Photo by FPG/Hulton Archive/Getty Images)

The pain in the stock market is far from over. (Photo by FPG/Hulton Archive/Getty Images)

Photographer: FPG/Hulton Archive/Getty Images

Federal Reserve officials don't seem particularly concerned that stock valuations have plunged. They are, however, sensitive to significant movements in credit markets. The central bank would probably pull back on its plan to aggressively tighten monetary policy if corporate America showed signs of having trouble raising debt financing.

But despite some historic losses in credit markets this year, we're not anywhere close to that point. Corporate balance sheets are in some of the strongest positions in 20 years, and defaults are expected to stay “comfortably below” the long-term average of 4% this year, Goldman Sachs Group Inc. analysts wrote in a note last week. Bank of America Corp. credit analyst Eric Yu concurs. "Even if we are headed into a recessionary scenario, we think that high-yield defaults will peak at under 6%,” he wrote in a research note last week. “We suggest taking materially more risk here."