Credit stress is rising sharply in 2025, as new data from Moody’s shows a jump in high-risk firms. Which sectors are leading the decline, how many are public, and what does it mean for markets?

A new quarterly report from Moody’s Investors Service has sent a clear signal to credit markets: U.S. corporate defaults may be entering a new phase of escalation. According to the agency, the number of companies rated in the highest-risk category rose to 241 in Q2 2025 — the highest level in nearly a year. The primary driver behind this increase: growing uncertainty surrounding U.S. trade tariffs and their cascading effects on cash flows and debt servicing capacity.

Tariffs and Uncertainty Are Reshaping the Corporate Credit Landscape

Moody’s identifies elevated trade friction — particularly between the U.S. and China — as a key catalyst for worsening credit fundamentals. Higher import costs, tighter margins, and lower global demand are placing significant stress on corporate liquidity. In the second quarter alone, 16 new companies were added to the list of issuers rated Caa1 or lower — a threshold signifying a high risk of default.

This brings the total count of companies at serious risk of default to 241, the highest since August 2024. The data reinforces a narrative of fragility in lower-tier corporate debt — especially in sectors exposed to global supply chains.

How Many of These Firms Are Public?

While Moody’s does not release a full list of the 241 companies, sources familiar with the report indicate that at least a portion of them are publicly traded U.S. firms. Notable mentions include Conair Holdings and Power Stop, both of which had their debt downgraded to junk status in recent weeks.

Based on historical reporting patterns and SEC filings, it is estimated that approximately 10–15% of the companies in this distressed category are publicly listed. This suggests that between 24 and 36 publicly traded corporations are now facing elevated default risk, particularly among mid-cap and small-cap issuers in sectors like manufacturing, retail, and tech.

Sector Breakdown: Which Industries Are Most at Risk?

Sectoral data points to a troubling trend. Technology leads the list, with a wave of small to mid-sized firms suffering from rising financing costs and slumping venture capital inflows. Moody’s also expects the consumer discretionary sector to deteriorate later this year as tariff-driven input costs and weakening consumer sentiment erode profitability.

Industrial and logistics firms with significant offshore exposure are also under stress. A convergence of inflationary pressure and trade disruption is now forcing many of these companies into distressed debt territory.