July 2025 Update
The problem with debt is it can be ruinous when things go wrong.
Warren buffet
Since the January 2025 update, the U.S. economy has remained resilient, though markets have experienced notable volatility. The S&P 500 rose roughly 6–8% in the first half of the year, climbing to an all-time high above 6,300 by mid-July. This growth was initially fueled by strong Q1 corporate earnings and continued consumer spending. However, markets briefly corrected in April following the announcement of sweeping tariffs under President Trump’s second administration, referred to by some economists as the “Liberation Day” tariff shock. Though the S&P 500 fell nearly 10% during that period, markets quickly rebounded as key exemptions were introduced and investors regained confidence in sectors like tech and industrials.
Monetary policy has remained tight. The Federal Reserve has kept the federal funds rate steady at 4.25%–4.50% throughout 2025, citing persistent inflation and a still-strong labor market as reasons to delay rate cuts. Inflation remained sticky through mid-year, sitting at approximately 2.7% in June, driven in part by higher import prices due to trade policy shifts. Unemployment hovered around 4.1%, a modest uptick from late 2024 but still indicative of a relatively healthy labor market. Real GDP growth is projected between 1% and 2.5% for the remaining year, reflecting cautious optimism despite growing concerns over the long-term impact of trade frictions.
Sector-specific performance has been mixed. Tech stocks have continued to outperform, bolstered by demand for AI infrastructure and software. Industrial production saw a slight rebound, particularly in aerospace and manufacturing. Meanwhile, healthcare companies faced mounting challenges in Q2, including expiring interest rate hedges and increased leverage. Energy stocks rose on the back of oil price gains, and financials have held steady, with large banks like JPMorgan and Goldman Sachs continuing to post solid earnings. As borrowing costs remain elevated, debt management has become an increasingly important factor in evaluating company strength, further reinforcing the relevance of the D/S and DEM metrics in today’s market environment.
| Sector | Debt per Share | Debt to Earnings |
| S&P 500 | 223.55 | 9.71 |
| Materials | 35.81 | 33.91 |
| Real Estate | 50.9 | 26.98 |
| Utilities | 60.5 | 16.62 |
| Financials | 1291 | 8.77 |
| Consumer Discretionary | 72.26 | 8.18 |
| Energy | 26.48 | 6.89 |
| Communication Services | 54.03 | 6.46 |
| Consumer Staples | 25.52 | 6.28 |
| Healthcare | 42.71 | 5.96 |
| Industrials | 43.5 | 5.3 |
| Information Technology | 19.42 | 3.83 |
Since January 2025, average debt per share (D/S) across the S&P 500 increased modestly from $220.09 to $223.55, continuing a slow upward trajectory that reflects rising borrowing costs and modest debt accumulation. However, the more striking development is in the Debt to Earnings Multiple (DEM), which jumped from 9.15 to 9.71—suggesting that overall earnings growth has not kept pace with rising debt burdens. Real Estate maintained the highest DEM, reflecting heavy leverage, while Information Technology preserved its position at the bottom, supported by strong earnings generation.
Utilities experienced a slight increase in both D/S and DEM, continuing to reflect the sector’s capital-intensive model. Financials remained largely flat in D/S while DEM declined, indicating a strong earnings performance among large banks. Communication Services witnessed one of the most significant drops in DEM, suggesting a healthy recovery in earnings post-trade disruption. Consumer Discretionary showed little movement in D/S, with a modest uptick in DEM, hinting at slowing spending growth.
The most dramatic shift came from the Materials sector, where the DEM spiked from 8.20 to 33.91—a more than 300% increase in just six months. This signals a significant earnings collapse relative to rising debt levels, possibly due to global demand softening, supply chain inefficiencies, or exposure to tariffs on raw materials. In contrast, Communication Services saw its DEM drop from 9.51 to 6.46, reflecting a robust rebound in earnings—likely driven by stabilization in digital advertising, telecom services, and media platforms.
In today’s economy, three sectors are especially relevant: Information Technology, Real Estate, and Financials. Tech remains the backbone of market growth, with industry leaders like Apple, Microsoft, and Nvidia posting strong earnings and maintaining low DEMs. Their ability to fund innovation without heavy debt continues to set them apart. Real Estate, on the other hand, is under pressure. Despite stabilizing home prices, high mortgage rates and structural shifts in commercial property have pushed DEMs to new highs, exposing the sector to refinancing risk and earnings stagnation. Finally, Financials remain essential in the current interest rate environment. Their flat D/S and improving DEM suggest that the sector is navigating macroeconomic conditions better than most, with major banks benefiting from elevated rates and steady loan demand.
DEM is a valuable “red-flag” tool. As discussed in earlier reports, Gilead Sciences (GILD) continues to exemplify DEM’s warning potential. In July 2024, Gilead already held a concerning DEM of 51.85, which surged to 186.55 by January 2025 following a sharp decline in EPS. Its DEM has climbed even higher to 298.65 today. Despite a stable D/S of $34, this extreme multiple reflects collapsing earnings power. Gilead’s decline, driven in part by post-pandemic demand normalization and growing competition in antivirals, demonstrates DEM’s ability to catch earnings strain before it fully materializes in stock price performance. Meanwhile, MarketAxess (MKTX) maintains one of the lowest DEMs in the index at 0.04, a marginal change from its January figure. Despite muted equity performance, its underlying fundamentals remain sound.
New entrants to the high-risk watchlist include FMC Corporation, whose DEM surged to 82.45, up dramatically from January due to a collapse in earnings. Similarly, Wynn Resorts has returned to troubling territory, now posting a DEM of 142.13 after a temporary recovery in January. These shifts suggest renewed strain in discretionary travel and chemicals, likely reflecting global economic pressures and input cost volatility. Collectively, these trends reinforce the value of sector- and firm-specific DEM tracking.
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