Quarterly Market Outlook
Q2 2026
Author
Chief Investment Officer
Key Themes
- Private Credit Headlines Outpace Market Exposure
- Pockets of Stress but Not Systemic
- Macro and Geopolitical Backdrop More Complex
- Constructive but Selective Investment Outlook
Markets have grown increasingly focused on pockets of stress emerging across private credit. While headline volatility can amplify concern, our assessment is that the current environment reflects idiosyncratic developments rather than systemic deterioration. There are patterns forming—particularly in certain segments of corporate credit—but they do not, at this stage, suggest broad instability. This is not a “clear skies” backdrop, yet it is also far from a disorderly upheaval. The appropriate response is neither complacency nor capitulation, but a disciplined, holistic review of exposures and underwriting standards.
The most scrutiny within private credit is focused on corporate direct lending. Significant capital has flowed into direct lending strategies, and origination volumes have expanded accordingly. The flows migrated toward technology and software businesses, sectors that have benefited from durable revenue models and investor enthusiasm. Newly issued debt in these segments has been borrower-friendly in structure, warranting attention. In addition, isolated cases of fraud and bankruptcy within the asset-based finance space have made headlines in the last few quarters.
The sensationalized headlines address a relatively isolated set of concerns (from a dollar volume perspective ) which are unlikely to create systemic issues. Software companies’ private debt comprises ~2% of the broader ~$17 trillion private credit universe. The core issues aren’t whether there is cause for concern; rather, these are currently isolated cases that are unlikely to lead to broader contagion, outside of corporate direct lending focused strategies.
Although not our base case, we are watching out for pathways that allow this stress to become more widespread. Refinancing constraints could emerge if capital flows slow, limiting the funds available to roll loans. Market infrastructure—including fund leverage and financing—could tighten, reducing deployable capital. Finally, software stress could be an early signal of broader fundamental pressure in corporate debt, as history suggests the weakest segments show strain first.
The macro backdrop has quickly become more complex. Geopolitical uncertainty has increased, unemployment has edged higher, and the economic impulse from pandemic-era stimuli has run its course. These developments do create more credible room for the Federal Reserve to continue easing if conditions warrant. Liquidity in the system is still substantial by historical standards, and fiscal stimulus continues to flow through the economy. These dynamics create a nuanced but constructive outlook on private credit in general and on asset-based finance in particular.
Against that backdrop, we favor collateral backed income strategies in real estate and asset-based finance, remain cautious on corporate direct lending, and are increasingly positive on capital solutions strategies and public credit.
The current environment will likely create greater dispersion rather than systemic disruption, and careful leverage and liquidity management will separate winners from losers.
Real Estate Lending
Consumer & SME Lending
Corporate Lending
The U.S. housing stock is aging faster than the demand for new and upgraded homes. Home Equity and Home Improvement loans in high HPA areas continue to offer extremely attractive returns. Transitional and bridge loans to single- and multifamily developers remain our sweet spot for the most attractive risk-adjusted returns.
Real estate credit quality remains healthy. Delinquencies are stable and consistent with prior years across non-QM, securitized HELOCs, and closed end home equity loans—defaults and losses remain low.
Auto delinquencies continue to rise while recovery rates soften; 2025 vintage subprime auto loans are exhibiting amongst the worst cumulative net losses in the post-COVID era. We remain negative on the sector.
Sub-sectors that offer the best loss coverage and highest returns include litigation finance and working capital for small businesses. These specialties offer meaningfully stronger coverage relative to other asset-based categories—an important distinction as consumer-facing sectors like auto finance continue to show delinquency pressure and softening recoveries.
Although we have seen no changes in defaults or losses, software and tech face a “sell first, ask later” dynamic as markets digest AI’s impact on business models—tech ranked as having the 4th highest foreclosure rate within private credit in 2025.
The highest quality SaaS companies continue to demonstrate ~20% revenue growth, strong incremental margins, and healthy balance sheets, suggesting fundamental bifurcation between winners and the rest of the market.
Source: Bloomberg
The views expressed in this chart are those of the Investment Team of Nomura Capital Management LLC and are based on the Investment Team’s forward-looking assessment of credit markets as of the date referenced above. The views expressed herein are subject to change at any time following the publication of this report. The arrows in the chart reflect the change in the Investment Team’s outlook of each credit market since its prior quarterly market commentary. This chart is provided for informational purposes only and is not intended to represent a recommendation from Nomura Capital Management LLC to invest in, or divest from, the credit market asset classes referenced herein.
The views expressed in this chart are those of the Investment Team of Nomura Capital Management LLC and are based on the Investment Team’s forward-looking assessment of the general macroeconomic environment as of the date of this report. The Bull/Base/Bear Market (“Market Scenarios”) outcome probabilities noted in this report reflect the Investment Team’s forward-looking estimate of the probability of each Market Scenario occurring within the next 12-18 months from the date of this report. The market metrics noted within this report (Growth, Inflation, Unemployment, Risk Assets, Base Rates and Volatility) represent the Investment Team’s forward-looking estimate of each market metric resulting from the corresponding Market Scenario. All views and estimates contained within this report are as of the date of this report and are subject to change at any time following the publication of this report.
Although software concerns have emerged in the private credit markets, we do not see it as a systemic issue at this point
*The estimated $17T private credit market consists of Asset-Based Lending, Specialty Finance, Real Estate Lending, and Corporate Direct Lending
Source: Preqin, Federal Reserve, New York Fed, Equipment Leasing and Finance Foundation, Houlihan Lokey, U.S. Small Business Loan Market, XA Investments
The Case for Diversification in Private Credit is Stronger than Ever
Source: Preqin, Federal Reserve, New York Fed, Equipment Leasing and Finance Foundation, Houlihan Lokey, U.S. Small Business Loan Market
Sectoral Disruptions Do Not Always Evolve Into Systemic Stress
Source: FRED, Preqin, Bloomberg, NY Fed Consumer Credit Panel (Household Debt and Credit Released February 2026) / Equifax
Tight Supply, Aged Stock, Low Affordability: The Case for RTLs
Source: FRED, Census Bureau, Bankrate, Freddie Mac, Bloomberg
Recalibration of CRE Supply and Demand Dynamics Bodes Well for Sector in 2026
Data sourced from CoStar, Green Street, PGIM
FOMC: Continues to maintain a cautious, data-dependent stance. Economic activity continues to expand at a solid pace.
Inflation: U.S Inflation remains somewhat elevated. While core inflation (excluding food and energy) eased, persistently rising energy prices due to geopolitical tensions in the Middle East continue to pressure consumer budgets
Labor market: Job openings and wage growth have moderated, hiring activity remains subdued, and the unemployment rate has drifted slightly higher but remains low.
Growth: The economic outlook is constructive and resilient.
What we still like:
Asset-based corporate loans: Collateralized “capital solutions” loans for management of liquidity, receivables and project completion.Residential real estate: Home equity loans, residential transition loans and other home loan products in high HPA geographies backed by healthy levels of borrower equity.Commercial real estate: Short-duration bridge and gap loans for multifamily, student housing and warehouses.Specialty finance: Cash flows backed by intellectual property, royalties, and equipment leasing.What we don’t like:
Corporate credit: Cyclical tights in corporate credit spreads makes their risk/reward profile asymmetric and highly primed for market volatility.What we are reading:
Co-Intelligence by Ethan MollickThe Thinking Machine: Jensen Huang, Nvidia and the World’s Most Coveted Microchip by Stephen WittAbundance by Derek Thompson and Ezra KleinThis is for informational purposes only and is not intended to represent a recommendation from Nomura Capital Management LLC to invest in, or divest from, the credit market asset classes or security types referenced herein.
These materials reflect the opinion of NCM on the date of production. Opinions and statements of financial market trends that are based on current market conditions constitute our judgement and are subject to change without notice. Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, NCM does not independently verify or otherwise warrant the accuracy of this information. All investments are subject to risks, including the risk of loss of principal.
