The fallout from the debt ceiling crisis isn't over yet, as corporate earnings will soon take a hit amid efforts to rein in the government's budget, according to Glenmede.
"The Fiscal Responsibility Act may be just the first among several acts of austerity aimed at combatting a growing budget deficit. Historically, when US debt servicing costs reach 14% of revenues, a prolonged period of austerity follows as policy makers attempt ot rein in government spending," the investment manager said in a note on Monday."As a result, additional acts of austerity, which would likely be a headwind to the economy and profits, are on the table.
That will likely put corporate profits under pressure, Glenmede said, in addition to the strain already seen by higher interest rates in the economy. High rates have raised the cost of borrowing for firms and threaten to, with Glenmede predicting the US will fall into a downturn later this year.