Its global credit risk monitor's indicators - debt loads, access to capital markets, cash flow and earnings - all flashed red in the fourth quarter of 2022, signalling caution to investors.
The firm, which manages around US$275 billion in assets, expects earnings growth to weaken in 2023, with energy and input costs eroding companies' cash flows.
While companies' financial metrics have been resilient so far, the second half of 2023 is when corporate margins will decline as weaker consumer confidence and higher interest rates bite, the study found.
All companies it tracks across global regions had flat or negative earnings forecast revisions for this year. Earnings are then expected to rebound in 2024, particularly in emerging markets.
Although an economic soft landing looks more likely, the asset manager remains cautious given the retreat in inflation is too late to prevent further deterioration in the credit cycle.
It said economic activity data point to a recession and government bond yield curves moved deeper into inversion territory - often a reliable signal of an upcoming recession - while central banks continue to withdraw liquidity and inflation-adjusted rates spikes translate into high borrowing costs.
More positively, a buoyant market for debt sales signalled strong demand for credit, though that may not last.
The risk premium on euro and US investment-grade corporate bonds has fallen some 19 basis points since the start of the year. The cost of insuring exposure to junk debt has fallen by 86 bps, according to S&P Global Market Intelligence.
"Optimism in a central bank retreat has allowed markets to reopen, but this too may prove fleeting," Jim Cielinski, the firm’s global head of fixed income, said.
"We are not out of the woods yet, although the decline in inflation seen in the last three months is a critical prerequisite to the elusive soft landing that investors cherish."
