Equity Valuations Rise as Corporate Credit Spreads Widen to 2023 Levels

Bloomberg data show the divergence accelerating after the July FOMC meeting. Equities climbed on earnings beats and AI capex guidance, yet high-yield spreads expanded 35 basis points month-over-month. Primary issuance slowed, with only $28 billion in new IG bonds priced in the first two weeks of August versus a $45 billion monthly average in 2025.

Federal Reserve flow-of-funds data indicate nonfinancial corporates increased net borrowing by $180 billion in Q2 while cash holdings fell for the first time since 2022. Credit investors appear to price higher refinancing costs at the 2026-2027 maturity wall; equity markets continue to discount revenue growth from technology and export sectors.

The pattern mirrors 2019, when equity multiples expanded even as loan covenants tightened and CLO issuance peaked before spreads repriced in early 2020. Current primary records from the Treasury’s Office of Financial Research show hedge-fund net long equity exposure at 82 percent versus 41 percent net short credit duration.

Forward indicators point to Q4 earnings season as the next checkpoint: any downward revision in 2027 guidance above 5 percent would likely force convergence between the two markets.