By Paul R. La Monica
It's no fun to be a buzzkill on a day when the stock market is soaring thanks to the cease-fire in Iran. But even if the war in the Middle East is resolved soon and oil prices continue to fall, there is still another big concern for investors: the problems in private credit.
Worries about loans to software companies that have been rocked by artificial-intelligence disruption fears may come to the forefront when big banks such as JPMorgan Chase, Bank of America and Wells Fargo report their first-quarter results the week of April 13. One investment strategist told Barron's that the worst may not be over just yet.
"Worries about private credit and software are more impactful to the market," said Emily Roland, co-chief investment strategist at Manulife John Hancock Investments. "Investors are lightening up on financial stocks because this is on the list of concerns."
Roland argued that the narrative that "AI is going to destroy every software company seems stretched." But she conceded that investors have the right to be worried about what's coming next.
"A lot of capital flowed to private credit. This is the first test of the cycle and it's not going great," Roland said.
Roland's comments are telling because life insurer stocks also have been hit by worries about exposure to private credit. The iShares U.S. Insurance and State Street SPDR S&P Insurance ETFs, which own leading insurers such as MetLife, Prudential Financial, Allstate and Aflac, are down 4% and 6% respectively this year.
A report from the Chicago Fed last year noted that private placement lending by life insurers in 2024 totaled $849 billion, more than double the volume of $386 billion a decade earlier. So the investor unease seems understandable.
Manulife John Hancock's parent company Manulife has fared better than its peers though. The stock is flat year to date. Manulife Chief Financial Officer Colin Simpson played down worries about private credit at an investing conference last month.
"The headlines you read are not necessarily reflective of the private credit market, of which we've been a big participant in the above investment grade business, and we'll continue to be so," he said.
Roland added that the bond market isn't necessarily flashing signs of impending doom in private credit either. She pointed out that spreads between high yield and investment grade corporate bonds are still relatively tight, at around 3%.
That spread was above 4.5% around Liberation Day last year, and topped 5% in the spring of 2023 due to fears about high-profile bank failures such as Silicon Valley Bank and Signature Bank. And the spread hit nearly 6% in the summer of 2023 due to fears about inflation reaching 9%.
"Fundamentals aren't bad right now," she said. "It's more about headline risk."
Still, investors need to be wary of any further signs of unraveling in private credit. Even if the life insurers and big banks wind up emerging relatively unscathed, there could be more problems for alternative asset management firms like Apollo Global Management, Ares Management, Blackstone, Blue Owl and KKR that have more significant exposure to private credit.
To be sure, their stocks have already plunged about 25% to 40% this year. But Scott Opsal, chief investment officer of The Leuthold Group, said in a report Wednesday that it's not a time to be a hero and rush to buy them just yet.
"The price decline in the alternative asset management space is well-founded on worries about the business model, potential disruption in the retail asset gathering channel, and the lack of analyst downgrades to earnings estimates," Opsal wrote. "We suggest value investors keep an eye on this group, but the first quarter's sharp price drop, itself, is not reason enough to take the plunge."
Keep an eye on bank earnings next week too. If JPMorgan Chase's Jamie Dimon and other top financial executives hint that the worst has yet to come for private credit, than that could hit shares of all financial stocks hard.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 08, 2026 13:21 ET (17:21 GMT)
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