Quarterly Market Outlook

As of March 2024 – Unless otherwise stated

The new macro equilibrium state, which features low unemployment, disinflation and moderate GDP growth, has created, in our view, a near perfect environment for credit investing. The recent course of rapidly rising base rates has been digested by the market, companies, and consumers. It seems as though the soft landing has materialized, or at least something very close to it.

Government stimulus may have softened the blow of higher rates as consumers and corporations found themselves flush with cash, which helped them to cope with the rising cost of capital Risk asset pricing has reacted accordingly higher equity prices and tighter credit spreads. However the medium and longer term impacts of waning government stimulus and Fed tightening from early 2022 through mid 2023 are still not fully understood We believe markets are pricing in too much Fed accommodation over the course of the next year Our view is that the Fed will ease no more than twice by the end of Q 1 2025.

Most macro indicators are currently in a favorable range, but several areas of the US economy are experiencing a moderation in growth slowing but not declining. Our “Base” case scenario calls for continued growth, tamed inflationary pressure, and a healthy employment environment yet with moderation in the positive trends we have experienced over the last few quarters. This moderation in constructive factors is beginning to have an effect on businesses and consumers. For the first time in several years, we are seeing “cracks” in a handful of places all at the same time (e.g. manufacturing, retail sales, small business hiring, consumer loan growth, and employment data). It is not our “Base” case to expect a decline in growth, but if our “Bear” case downside scenario were to play out, it would likely be follow through from these initial indications.

For this reason, we see the current state of the cycle as uncertain which leads us to invest with extra caution in a few sectors until we have a better read on the situation (which should only require another 3 6 months of data). These areas are the consumer, commercial real estate, and corporate direct lending. Although we see some opportunities in these sectors, additional care in underwriting and patience will be required for success.

Macroeconomic Environment

  • Restrictive policy has tamed inflationary pressure and achieved disinflation
  • though inflation remains above the Fed’s target of 2%. We expect the Fed to ease no more than twice over the next 12 months
  • Larger dispersion of outcomes is expected as potential cracks manifest simultaneously in a handful of areas
  • Higher rates and above target inflation will likely be a persistent reality

Corporate Credit Landscape

  • Private and public credit markets are both showing strength (spread tightening and issuance activity)
  • Income and total return in credit strategies rivals that of what could be expected in the equity markets
  • Caution may be warranted as higher-for-longer rates might impact corporate borrower’s ability to meet their floating rate interest obligations
  • Fresh capital and banks shedding of risk are fueling the refinancing wave in private credit

Real Estate Debt

  • Commercial real estate is a focus – liquidity events will reveal a bottom – patience and diligence will be critical to success
  • Residential real estate continues to be strong with a high level of equity. Low activity levels are a result of higher rates and high valuations
  • Margin degradation in both commercial and residential from tempered rent increases but rising holding costs from a combination of increases in insurance, property taxes, operating expenses and debt costs

The State of the Consumer

  • Consumer behavior continues to cool, with negative performance in lower credit borrowers
  • Credit is being extended to a more limited set of borrowers as income is flat, savings fall, and debt costs rise
  • Consumer related debt must be underwritten to a more draconian “worst case” downside scenario
  • As the state of the consumer is in flux, the household “waterfall” of payment priorities may change and be different from past cycles

Views on the Credit Markets

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 as set classes referenced herein.

Economic Outlook (12 –18 Months)

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 macro economic 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.

Nomura Capital Management, LLC (“ is a registered investment adviser The information set forth herein, or in any of NCM’s market commentaries or similar writings or publications, is for informational purposes only and does not constitute financial, investment, tax or legal advice This information is intended to be informational in nature and, by receiving this communication, you agree with its intended purpose described above The views and/or strategies described in this communication may not be suitable for all investors Prior to making any investment or financial
decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that consider the particular facts and circumstances of an investor’s own situation All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this communication will be profitable, perform equally to any corresponding indicated historical performance level(s), or be suitable for your portfolio.

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