Despite persistent recession fears and consumer pessimism, the stock market has actually done quite well for investors over the last three years. Even if you include the March drop prompted by the war in Iran, the S&P 500 is still up nearly 30% in the past year alone.
But all that could change. Even though stocks have proven resilient to inflation, both inflation and private credit are flashing warning signs right now. Here’s how that could spell trouble for your portfolio.
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Most corporate lending takes place in the public markets through bank loans or bonds, which can then be sold and traded. But there’s another way for a business to access capital: Private credit from an asset manager, hedge fund, or other financial company.
Private loans aren’t repackaged or sold, and only a handful of private credit firms are publicly traded. Alternative asset manager Blackstone (NYSE: BX) is a notable example. But many publicly traded banks have set up “private credit” funds to allow their investors to participate in the $2 trillion private credit market.
If a private credit loan doesn’t work out, the lender would normally just eat the loss. But if that lender itself borrowed money from a bank, or if the lender was a bank’s private credit arm, shareholders might be on the hook. If a lot of private credit loans default at once, those private credit lenders and the banks that funded them could be in big trouble, much in the same way that insurers who underwrote housing loans were put at risk during the financial crisis of 2008. Unfortunately, private credit defaults are on the rise.
Fears of a domino effect are already hitting financial institutions. Both Morgan Stanley (NYSE: MS) and BlackRock (NYSE: BLK) limited investor withdrawals from their respective private credit funds last month. JPMorgan Chase (NYSE: JPM) has begun restricting its private credit fund lending to “loans associated with software companies” as a precautionary measure. Blackstone’s stock has already been hit hard in 2026 (down almost 34%), although it has partially recovered.
Driven by surging gas prices, U.S. inflation rose from 2.4% to 3.3% in March. The sudden jump in oil and gas prices is likely to hit a number of unrelated industries, including airlines due to more expensive jet fuel, and agricultural products due to pricier fertilizer.
