Our June 2025 survey of corporate health, quantified through Loomis Sayles’ Credit Analyst Diffusion Indices or CANDIs, reveals a corporate landscape that remains resilient, albeit under increasing pressure. Late-cycle dynamics are evident, with corporate outlooks and profit margin expectations showing modest improvement from the April survey but remaining historically subdued. While the US economy continues to expand, the pace appears to be decelerating, and uncertainty is escalating. Today, a critical question is whether a catalyst will emerge to reinvigorate corporate health or if conditions will continue to deteriorate, potentially signaling an approaching downturn.
About the CANDIs Once a quarter, we survey Loomis Sayles’ credit research analysts to assess their bottom-up views of approximately 30 different industries. We quantify their responses using a proprietary tool known as the CANDIs—an acronym for Credit Analyst Diffusion Indices (click here to learn more). The process culminates in a forum that combines our credit analysts and top-down global macro strategists to discuss the CANDIs’ output through the lens of the credit cycle. The results can be an indicator of how key corporate health metrics may trend over the next six months. |
Cost pressures persist; pricing power remains weak
Sustained cost inflation remained the dominant theme in the June survey. Tariff pauses did little to alleviate cost concerns, and supply chain constraints continue to impact companies across industries. Cost expectations have remained relatively stable quarter-over-quarter, with most credit analysts indicating limited relief in sight.
Companies continue to face challenges in passing through rising costs. Some are exploring targeted price increases on less price-sensitive products, but these strategies may fall short of fully offsetting sustained input cost pressures.
The automotive sector offers a clear example. Manufacturers face converging cost headwinds, including tariffs, elevated input prices and renewed capital expenditures related to onshoring initiatives. Impending labor negotiations further complicate the outlook. Although balance sheets remain robust and liquidity ample, margin prospects are becoming increasingly precarious, elevating the risk of spread widening as these companies navigate an increasingly complex operating environment.
Chart source: Loomis Sayles Credit Analyst Diffusion Indices, as of 23 June 2025. For the input and supply chain costs component, readings above 50 indicate a rising trend. The chart presented above is shown for illustrative purposes only. Some or all of the information on this chart may be dated, and, therefore, should not be the basis to purchase or sell any securities. The information is not intended to represent any actual portfolio. Information obtained from outside sources is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This material cannot be copied, reproduced or redistributed without authorization.
Leverage trends: incremental increases in select sectors
The June CANDIs also showed an uptick in corporate leverage, particularly in service-oriented sectors, which is a typical late-cycle indicator. This increase, however, appears incremental rather than abrupt, with most companies starting from a position of high liquidity and low revolver utilization.
In the transportation and logistics sectors, our analysts noted that even though labor costs remain a concern, wage inflation may be moderating. If this trend persists, we believe it could alleviate some margin pressure in the latter half of the year, even as overall leverage trends slightly upward.
Chart source: Loomis Sayles Credit Analyst Diffusion Indices, as of 23 June 2025. For the leverage component, readings above 50 signal a rising level of fundamental deterioration.. The chart presented above is shown for illustrative purposes only. Some or all of the information on this chart may be dated, and, therefore, should not be the basis to purchase or sell any securities. The information is not intended to represent any actual portfolio. Information obtained from outside sources is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This material cannot be copied, reproduced or redistributed without authorization.
Earnings growth broadening: delayed but not derailed
The June survey results appear to align with consensus expectations for broader earnings growth in the second half of the year, though with a delayed timeline. Notably, the CANDIs indicators for margins and corporate outlooks improved marginally compared to the last reading, but overall levels remain weak. Recent tariff disruptions have contributed to a moderation in consensus 2025 S&P 500 earnings expectations, from +10% earlier in the year to +7% currently. While still respectable, this revision reflects increased caution.
Should trade tensions further ease and economic conditions stabilize, we believe stable margins can support improved earnings breadth later this year, though the window appears to be shifting toward Q4 or beyond.
Valuations stretched, corporate health stable but vulnerable
Although corporate fundamentals remain solid in many areas, our outlook is complicated by stretched valuations and compressed risk premiums. Bottom-up earnings expectations remain constructive, and realized margins are still near multi-year highs, but much of this positive outlook appears to be priced in.
The June CANDIs data corroborates our view that the US economy is in the late stages of its cycle. Cost pressures remain elevated, pricing power is constrained and leverage is gradually increasing. While the data does not indicate an imminent downturn, our outlook is indeed more precarious than earlier in the year.
For credit investors, we think the implications are clear: maintain selectivity, closely monitor fundamentals and prepare for heightened volatility. The second half of 2025 could bring either stabilization or further pressure, and we believe the CANDIs will continue to serve as a useful tool for tracking key directional trends.
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Market conditions are extremely fluid and change frequently.
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the
subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Information, including
that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This material cannot be copied, reproduced or
redistributed without authorization. This information is subject to change at any time without notice.