US credit outlook tied to AI investment confidence while consumer sectors face headwinds: Fitch

The United States credit outlook is becoming heavily dependent on the confidence surrounding artificial intelligence investments, which are fueling significant IT capital expenditure and boosting corporate bond issuance, according to a new report by Fitch Ratings. In the first quarter of 2026, IT capital expenditure grew by 18% year-on-year, contributing substantially to the US economy's gross domestic product. This surge in spending by hyperscalers has led to a 26% increase in US corporate bond issuance during the first half of 2026.

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The pipeline of planned debt and equity issuances in 2H26 will test market capacity to absorb new supply while equity valuations remain elevated and reliant on optimistic AI return assumptions.

However, the report also warns of potential market absorption risks for the planned debt and equity issuances in the second half of 2026, especially as equity valuations remain high and rely on optimistic AI return assumptions. Simultaneously, macroeconomic forecasts have been revised downward. Fitch Ratings has reduced its 2026 US GDP growth expectation to 1.9% and anticipates that the Federal Reserve will maintain its policy rate at 3.75% for the remainder of the year, removing previous projections for interest rate cuts.

Fitch highlighted growing financial strain on households, forecasting a slowdown in consumer spending to 1.7%. This is attributed to eroding real wage growth and increased affordability pressures, particularly for lower-income groups, exacerbated by the ongoing conflict in Iran and its resulting fuel price shock. The rating agency also revised its year-end Consumer Price Index (CPI) forecast for 2026 to 3.7% and raised its benchmark US mortgage rate expectation to 6.5%, further impacting housing-adjacent sectors.

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Consumer spending is forecast to slow to 1.7% as the ongoing Iran conflict and resulting fuel price shock erode real wage growth and increase affordability pressures on lower-income cohorts.

Consequently, Fitch has revised its midyear sector outlooks predominantly to the downside, assigning 'deteriorating' outlooks to key segments such as North American Sovereigns, US Homebuilders, North American Building Products, Utilities, and Global Airlines. Conversely, North American Midstream Energy and Global Oil & Gas saw positive upward revisions. Financial stress has also permeated private debt markets, with Fitch reporting a record high Private Credit Default Rate of 6.0% in May 2026.

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Private credit continues to face distinct headwinds, with Fitch's Private Credit Default Rate reaching a record high of 6.0% in May 2026.