Outlook for public and private markets
Torsten Slok, Ph.D. | Chief Economist | tslok@apollo.com
Apollo Global Management
September 2023
Unless otherwise noted, information as of September 2023.
Confidential and Proprietary - Not for distribution, in whole or in part, without the express written consent of Apollo Global Management, Inc.
It should not be assumed that investments made in the future will be profitable or will equal the performance of the investments shown in this document.
OUTLOOK FOR 2023: INFLATION HAS PEAKED, TIME TO PUT MONEY TO WORK
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actual events or results may differ materially from those reflected or contemplated in such forward-looking
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comparable terminology.
Private and Confidential
22
Ten downside risks to the US economic outlook
1. Households running out of excess savings
2. Student loan payments restarting
3. Delinquency rates rising for credit cards and auto loans
4. Default rates rising for HY and loans
5. Interest coverage ratios falling for IG and HY
6. Banking sector loan growth slowing rapidly
7. Oil prices rising
8. China, Japan, and Europe slowing
9. Long-term interest rates rising for non-economic reasons
10.Higher interest payments for the US government
Source: Apollo Chief Economist
3
Inflation: Too early to declare victory
%YoY
6%
%YoY
6%
Supercore inflation
PCE: Core Services excluding Housing: Chain Price Index
5%
5%
4%
4%
3%
3%
2%
The Fed’s 2% inflation target
2%
Source: BEA, Haver Analytics, Apollo Chief Economist
May-23
Dec-22
Jul-22
Feb-22
Sep-21
Apr-21
Nov-20
Jun-20
Jan-20
Aug-19
Mar-19
Oct-18
May-18
Dec-17
Jul-17
Feb-17
Sep-16
Apr-16
Nov-15
Jun-15
Jan-15
Aug-14
Mar-14
Oct-13
May-13
Dec-12
Jul-12
Feb-12
Sep-11
Apr-11
0%
Nov-10
0%
Jun-10
1%
Jan-10
1%
4
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
Source: BLS, Haver Analytics, Apollo Chief Economist
Average hourly earnings
May-23
Dec-22
Jul-22
Feb-22
Sep-21
Apr-21
Nov-20
Jun-20
Jan-20
Aug-19
Mar-19
Oct-18
May-18
Dec-17
Jul-17
Feb-17
Sep-16
Apr-16
Nov-15
% YoY
9%
Jun-15
Jan-15
Aug-14
Mar-14
Oct-13
May-13
Dec-12
Jul-12
Feb-12
Sep-11
Apr-11
Nov-10
Jun-10
Jan-10
Inflation: Too early to declare victory
% YoY
9%
5
Goods inflation trending down, service sector inflation still high
% YoY
6
PCE: Services: Chain Price Index (ls)
% YoY
PCE: Goods: Chain Price Index (rs)
10
5
8
6
4
4
2
3
0
2
-2
-4
1
Source: BEA, Haver, Apollo Chief Economist
Jan-23
Jan-22
Jan-21
Jan-20
Jan-19
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
-6
Jan-90
0
12
-8
6
The consensus expects growth to continue to slow
%QoQ SAAR
3.5
3.0
Real GDP
3.2
Today
2.6
2.5
2.0
2.0
2.1
2.0
1.5
Consensus expects a slowdown
over the coming 9 months
0.9
1.0
0.5
0.0
0.4
Q3 2022
Source: Bloomberg, Apollo Chief Economist.
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
0.1
Q1 2024
Q2 2024
7
Consensus was forecasting a recession from October 2022 to July 2023
% QoQ SAAR
Consensus Real GDP forecasts
2.90
2.40
Sep 2022
Oct 2022
Nov 2022
Dec 2022
Jan 2023
Feb 2023
Mar 2023
Apr 2023
May 2023
June 2023
July 2024
Aug 2024
Dec-23
Mar-24
1.90
1.40
0.90
0.40
-0.10
-0.60
Sep-22
Dec-22
Source: Bloomberg, Apollo Chief Economist
Mar-23
Jun-23
Sep-23
Consensus forecasting a recession for 10 months in a row
Jun-24
Sep-24
Dec-24
8
The lagged effects of Fed hikes will continue to drag down growth over the coming 12 months
% difference
from baseline
Impact on GDP level of a 5%-point increase in the Fed funds rate, compared with baseline forecast
0
-0.5
-1
-1.5
-2
-2.5
1Q23
2Q23
3Q23
4Q23
1Q24
Source: Bloomberg, Apollo Chief Economist. Note: 500bps monetary policy shock in 3Q23
2Q24
3Q24
4Q24
1Q25
2Q25
3Q25
4Q25
1Q26
2Q26
3Q26
4Q26
9
Employment growth keeps slowing
thous, 3 month MA
700
thous, 3 month MA
Change in nonfarm payroll employment
700
Fed starts
raising rates
600
600
500
500
400
400
300
300
Consensus forecast
200
200
100
100
0
Sep-21
Dec-21
Source: BLS, Haver Analytics, Apollo Chief Economist
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
0
10
The impact of Fed hiking
Private and Confidential
11
0
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist. As of 2022Q4. Represents the views and opinions of Apollo’s Chief Economist. Subject to change at any time without notice.
First NB Of PA
Southstate
Old NB
BOKF
Cadence
CIBC
Frost
Valley
Synovus
East West
Western Alli
Webster
First Horizon
Comerica
Zions
Flagstar
Bank Of The West
City National Bank
Santander
Mufg Union
First-Citizens
Signature
Discover
Regions
Northern
American Express
HSBC
Bmo Harris
Ally Bk
Huntington Nb
Keybank
Manufacturers & Traders
Morgan Stanley
Fifth Third
Silicon Valley
56 57
Morgan Stanley Private
70
First Republic
80
Citizens
90
State Street
Bank Of New York Mellon
54
TD
50
52
Capital One
47
Goldman Sachs
60
Truist
45
PNC
20
42
US
50
Wells Fargo
40
Citibank
30
Bank of America
%
J P Morgan
Tighter credit conditions are coming:
Banks “to the right” of SVB are likely to immediately start reorganizing their balance sheets
Percent cumulative assets
80 80
78 78 78 78 79 79 79 79
76 76 76 77 77 77
75
75
74 74
72 72 73 73
70 70 71
69
68
66 67
64 65 65
63
61 62
59 60
34
26
15
10
12
SVB having a permanent effect
%
12%
Cumulative loan growth for US banks
SVB collapse:
Week 11, 2023
10%
2022
2023
%
12%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53
Source: FRB, Bloomberg, Apollo Chief Economist
13
Weekly Fed data shows small and large bank lending growth slowing rapidly
YoY
20%
Loans & Leases: Bank Credit
Small Domestic Commercial Banks
Large Domestic Commercial Banks
SVB
YoY
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist.
Fed starts
raising rates
-10%
14
Credit card delinquency rates rising
% balance, 4Q moving sum
70+
16
% balance, 4Q moving sum
Credit card Transitions to Serious Delinquency (90+), by age
60-69
50-59
40-49
30-39
18-29
16
Fed starts
14
raising rates
14
12
12
Source: New York Fed Consumer Credit Panel / Equifax, Apollo Chief Economist
Nov-22
Mar-22
Jul-21
Nov-20
Mar-20
Jul-19
Nov-18
Mar-18
Jul-17
Nov-16
Mar-16
Jul-15
Nov-14
Mar-14
Jul-13
Nov-12
Mar-12
Jul-11
Nov-10
Mar-10
Jul-09
Nov-08
Mar-08
Jul-07
0
Nov-06
0
Mar-06
2
Jul-05
2
Nov-04
4
Mar-04
4
Jul-03
6
Nov-02
6
Mar-02
8
Jul-01
8
Nov-00
10
Mar-00
10
15
Credit card delinquency rates much higher for small banks
%
Delinquency rates on consumer credit cards
100 largest commercial banks
8
Fed starts
raising rates
Other banks
%
8
Source: FRB, Bloomberg, Apollo Chief Economist
Jun-23
Jun-22
Jun-21
Jun-20
Jun-19
Jun-18
Jun-17
Jun-16
Jun-15
Jun-14
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
1
Jun-04
1
Jun-03
2
Jun-02
2
Jun-01
3
Jun-00
3
Jun-99
4
Jun-98
4
Jun-97
5
Jun-96
5
Jun-95
6
Jun-94
6
Jun-93
7
Jun-92
7
16
Auto loan transitions to serious delinquency approaching 2008 levels
% balance, 4Q moving sum
6
70+
Auto Loan Transitions to Serious Delinquency (90+), by age
60-69
50-59
40-49
30-39
% balance, 4Q moving sum
18-29
6
Fed starts
raising rates
5
5
4
3
3
2
2
1
1
0
0
Mar-00
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Mar-22
Sep-22
Mar-23
4
Source: FRBNY Consumer Credit Panel, Equifax, Haver Analytics, Apollo Chief Economist
17
Interest rate on auto loans
%
8.5
%
Fed starts 8.5
Commercial Bank auto loan rates
48 month auto loan rate
8.0
60 month auto loan rate
raising rates
8.0
Source: FRB, Bloomberg, Apollo Chief Economist
Feb-23
Aug-22
Feb-22
Aug-21
Feb-21
Aug-20
Feb-20
Aug-19
Feb-19
Aug-18
Feb-18
Aug-17
Feb-17
Aug-16
Feb-16
Aug-15
Feb-15
Aug-14
Feb-14
4.0
Aug-13
4.0
Feb-13
4.5
Aug-12
4.5
Feb-12
5.0
Aug-11
5.0
Feb-11
5.5
Aug-10
5.5
Feb-10
6.0
Aug-09
6.0
Feb-09
6.5
Aug-08
6.5
Feb-08
7.0
Aug-07
7.0
Feb-07
7.5
Aug-06
7.5
18
22
22
20
20
18
18
16
16
14
14
12
12
10
10
Source: FRB, Haver Analytics, Apollo Chief Economist
Mar-23
Mar-22
Credit Cards Assessed Interest
Mar-21
Mar-20
Mar-19
Mar-18
Mar-17
Mar-16
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
%
24
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
Interest rate on credit cards
Fed starts
raising rates
%
24
19
A default cycle has started, and markets are not paying attention
%, Trailing 12m
Bond default rates
US All corporates
16%
US Speculative grade
%, Trailing 12m
Fed starts
raising rates
16%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
14%
Source: Moody’s Analytics, Apollo Chief Economist
20
Leveraged loan index default rates starting to rise
%
%
Morningstar/LSTA Leveraged Loan Index Default Rates
12.0%
12.0%
LTM $ of Defaults/ Total Outstanding
Fed starts
raising rates
LTM # of Defaults/ Total Issuers
10.0%
10.0%
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
2.0%
2.0%
0.0%
Jan-99
0.0%
Jan-01
Source: Pitchbook LCD, Apollo Chief Economist
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Jan-19
Jan-21
Jan-23
21
IG ICR declining
EBITDA/Inte re s t Expe ns e
9.5
Inte re s t Cove ra ge Ra tio for US IG Inde x
EBITDA/Interest Expense
9.5
9.0
9.0
8.5
8.5
8.0
8.0
7.5
7.5
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Bloomberg, Apollo Chief Economist
22
HY ICR declining
EBITDA/Interest Expense
7.0
Interest Coverage ratio for High Yield
EBITDA/Interest Expense
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
Source: Bloomberg, Apollo Chief Economist
23
Since the Fed started raising rates the number of downgrades have outnumbered the number of upgrades
Credit estimates (number)
120
Credit estimates raised and lowered by quarter
Fed starts
raising rates
110
Raised
100
Lowered
80
55
60
41
40
20
40
20
16
5
0
44
40
18
25
40
32
22
50
45
35
28
14
22
39
26
34
25
34
32
20
22
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023
Source: S&P Global ratings, Apollo Chief Economist
24
Fed hikes pushing up the number of leveraged loan Weakest Links
US leveraged loan Weakest Links plus defaults/restructurings
Weakest Links
400
Rated SD or D
350
300
250
200
150
100
50
0
2016
2017
2018
2019
6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 12/31/2022 6/30/2023
Source: Pitchbook, LCD; Morningstar LSTA US Leveraged Loan Index, Apollo Chief Economist (Data through June 30, 2023) (SD and D - An obligor rated ‘SD’ (Selective Default) or ‘D’ has failed to pay one or more of its financial obligations (rated or
unrated) when it came due. A ‘D’ rating is assigned when Standard & Poor’s believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when
Standard & Poor’s believes that the obligor has selectively defaulted on a specific issue or class of obligations, but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.)
25
The negative effects of higher costs of capital continue
Count
90
80
70
Count
US bankruptcy filings
90
Fed starts
raising rates
80
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Source: S&P Capital IQ, Bloomberg, Apollo Chief Economist. Note: Bankruptcy figures include public companies or private companies with public debt with a minimum of $2 million in assets or liabilities at the time of
filing, in addition to private companies with at least $10 million in assets or liabilities.
26
Outlook for the economy
Private and Confidential
27
Share of mortgages outstanding by interest rate
Share of mortgages outstanding by interest rate at origination by count, 2023 Q1
9
23
10
20
38
Below 3%
Source: FHFA, Apollo Chief Economist
3 to 4%
4 to 5%
5 to 6%
Above 6%
28
Active listings at very low levels, very low inventory of homes for sale
mn units
mn units
US hous ing inve ntory, a ctive lis tings
1.6
2018
2019
2020
2021
2022
1.6
2023
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
Jan
Feb
Source: Realtor.com, Apollo Chief Economist
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
29
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Source: National Association of Homebuilders, Bloomberg, Apollo Chief Economist
Traffic of prospective buyers of new homes
Jan-23
Jan-22
Jan-21
Jan-20
Jan-19
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Index
80
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-89
Jan-88
Jan-87
Jan-86
Jan-85
Traffic of prospective homebuyers starting to improve
Index
80
30
Confidence improving for homebuyers and homebuilders
Inde x
Index
Home Builders: Housing Market Index (Homebuilder confidence)
Current Conditions for Buying Houses (Homebuyers confidence) (RHS)
100
200
90
180
80
160
70
140
60
120
50
100
40
80
30
Source: University of Michigan, NAHB, Haver Analytics, Apollo Chief Economist
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
20
1994
0
1993
40
1992
10
1991
60
1990
20
31
Home sales starting to recover
Saar, thous.
Total Existing Home Sales
7500
Saar, thous.
New 1-Family Houses Sold (rs)
1600
7000
1400
6500
1200
6000
5500
1000
5000
800
4500
600
4000
400
Source: Census Bureau, NAR, Haver, Apollo Chief Economist; Forecast is Bloomberg consensus
Mar-23
Jul-22
Nov-21
Mar-21
Jul-20
Nov-19
Mar-19
Jul-18
Nov-17
Mar-17
Jul-16
Nov-15
Mar-15
Jul-14
Nov-13
Mar-13
Jul-12
Nov-11
Mar-11
Jul-10
Nov-09
Mar-09
Jul-08
Nov-07
Mar-07
Jul-06
Nov-05
Mar-05
Jul-04
Nov-03
Mar-03
Jul-02
Nov-01
Mar-01
3000
Jul-00
3500
200
32
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Feb-23
Apr-23
Jun-23
Average number of offers received per sold property is starting to recover
Numbe r of offe rs
5.5
Source: NAR, Apollo Chief Economist
Ave ra ge numbe r of offe rs re ce ive d pe r s old prope rty
Number of offers
5.5
33
Will housing inflation come down now that housing is rebounding?
%YoY
%YoY
CPI Owners Equivalent Rent
9
Zillow Observed Rent Index (9 month lead, RHS)
7
16
Apartment List (9 month lead, RHS)
11
BLS New Tenant Repeat Rent Index (6 month lead, RHS)
5
6
3
1
Source: BLS, Apartment List, Zillow, Haver Analytics, Apollo Chief Economist
May-24
Mar-24
Jan-24
Nov-23
Sep-23
Jul-23
May-23
Mar-23
Jan-23
Nov-22
Sep-22
Jul-22
May-22
Mar-22
Jan-22
Nov-21
Sep-21
Jul-21
May-21
Mar-21
Jan-21
Nov-20
Sep-20
Jul-20
May-20
Mar-20
Jan-20
Nov-19
Sep-19
Jul-19
May-19
Mar-19
Jan-19
Nov-18
Sep-18
Jul-18
Mar-18
Jan-18
-1
May-18
1
-4
34
Household savings across different income groups
$trn
8.0
De pos its he ld by income pe rce ntile
7.0
Q419
6.0
Q122
Q222
Q322
Q422
Q123
5.0
4.0
3.0
2.0
1.0
0.0
0-20 percentile
Source: FRB, Haver Analytics, Apollo Chief Economist
20-40 percentile
40-60 percentile
60-80 percentile
80-99 percentile
top 1 percentile
35
US households running out of excess savings
$trn
2.5
Accumulated excess savings
1970
1980
1990
2001
2008
2020
2.0
1.5
1.0
0.5
0.0
-0.5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
Months since start of recession
Source: BEA, Haver Analytics, Apollo Chief Economist.
Note: Excess savings are calculated as the accumulated difference between actual personal savings and the trend implied by data for the 48 months leading up to the first month of each recession, as defined by the NBER.
36
Outlook for financial markets
Private and Confidential
37
S&P500 earnings expectations moving higher
%YoY
S &P 500 12-month forwa rd EP S e xpe cta tions
%YoY
240
240
235
235
230
230
225
225
220
220
215
215
210
210
205
205
200
200
195
195
190
190
Source: Bloomberg, Apollo Chief Economist
38
0
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
HY issuance by rating
$bn
70
HY is s ua nce by ra ting
BBB
Source: S&P LCD, Apollo Chief Economist.
BB
B
CCC or lower
NR
60
50
40
30
20
10
39
Consensus has lowered recession probability for Europe, UK, and China. But not the US.
%
%
Probability of recession
100
CN
EU
US
UK
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Source: Bloomberg, Apollo Chief Economist
40
For the first time in 20 years, the consensus is forecasting lower long rates
%
6
%
10-ye a r ra te vs 10-ye a r ra te fore ca s ts from Fe d's S urve y of P rofe s s iona l Fore ca s te rs
6
5
5
4
4
3
Consensus 3
predicts 10s
falling to 3.5%
2
2
1
1
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
0
Source: Bloomberg, Philadelphia Fed Survey of Professional Forecasters, Apollo Chief Economist
41
Why is it taking the Fed so long time to slow down the economy?
1.
2.
3.
4.
5.
High savings in the household sector, and post-covid strong demand for air travel, hotels, restaurants
During the pandemic, HY and IG corporates extended the maturity of their loans, making them less
vulnerable to higher interest rates.
US households have 30-year fixed mortgages and are therefore less sensitive to Fed hikes. Higher
mortgage rates for homebuyers are holding back supply of homes.
A growing share of capex spending is intangibles (i.e. software, R&D) which generally is less sensitive
to Fed hikes
IRA and CHIPS Act are creating a boom in energy transition and manufacturing
Source: Apollo Chief Economist
42
US government interest payments per day have doubled from $1bn per day
before the pandemic to almost $2bn per day in 2023
$bn
2.5
Net interest expense per day on public debt
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
2019
2020
2021
Source: CBO, Haver Analytics, Apollo Chief Economist. Note: Interest rate assumption by CBO: 2.1% in 2022 and 2.7% in 2023. Annual CBO data divided by 365.
2022
2023
43
Investment implications
Private and Confidential
44
Asset allocation under no landing, soft landing, and hard landing
GDP growth
20%
20%
60%
2022
Source: Apollo Chief Economist. Represents the views and opinions of Apollo’s Chief Economist. Subject to change at any time without notice.
2023
45
Torsten Slok joined Apollo in August 2020 as
Chief Economist and he leads Apollo's
macroeconomic and market analysis across
the platform.
Torsten Slok, Ph.D.
Chief Economist
Apollo Global Management
tslok@apollo.com
Prior to joining, Mr. Slok worked for 15 years
as Chief Economist at Deutsche Bank where
his team was top ranked in the annual
Institutional Investor survey for a decade. Prior
to joining Deutsche Bank Mr. Slok worked at
the IMF in Washington, DC and at the OECD in
Paris.
Mr. Slok has a Ph.D in Economics and has
studied at the University of Copenhagen and
Princeton University.
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