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  • The 60/40 Portfolio is Down 20% in 2022

    Torsten Sløk

    Apollo Chief Economist

    If you had entered 2022 with a portfolio of 60% stocks and 40% fixed income, you would be down 20% so far, see chart below. With inflation still at more than 8% in the US, EU, and the UK, central banks will continue to push rates higher and stocks lower to cool down the economy and slow down earnings growth until inflation moves closer to the central banks’ 2% inflation target.

    60/40 portfolio down 20% in 2022
    Source: Bloomberg, Apollo Chief Economist. The Bloomberg US BMA6040 Index rebalances monthly to 60% equities and 40% fixed income.

    See important disclaimers at the bottom of the page.


  • Fed Withdrawing Liquidity

    Torsten Sløk

    Apollo Chief Economist

    Monetary theory points to a sharp decline in inflation over the coming months, see chart below.

    As the Fed withdraws liquidity, inflation will begin to come down
    Source: BLS, FRB, Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • US Macro: It is All About the Service Sector

    Torsten Sløk

    Apollo Chief Economist

    The FedEx results don’t tell us much about the broader economy because goods only make up 18% of GDP, and consumer services such as air travel, hotels, restaurants, sporting events, and concerts are not slowing down. The bottom line is that the goods sector in the economy continues to cool down, and consumer services continue to overheat, see chart below. For markets, the implication is that the Fed will continue to slow down the interest-rate sensitive goods sector, including housing and autos, while we wait for the service sector to show signs of cooling down.

    The goods sector is less than 20% of GDP
    Source: BEA, Apollo Chief Economist. Note: Chart shows share of value added of  goods producing industries which cconsists of manufacturing, construction, agriculture, forestry, fishing, and hunting; and mining.

    See important disclaimers at the bottom of the page.


  • S&P500 Similarity with 2008

    Torsten Sløk

    Apollo Chief Economist

    Last week, the S&P500 continued to follow the pattern seen in 2008, see chart below.

    S&P500 is following a pattern similar to 2007-08
    Source: Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Weekend Reading

    Torsten Sløk

    Apollo Chief Economist

    Quantifying the Role of Interest Rates, the Dollar and Covid in Oil Prices

    https://www.bis.org/publ/work1040.pdf

    Labor Force Exiters around Recessions: Who Are They?

    https://s3.amazonaws.com/real.stlouisfed.org/wp/2022/2022-027.pdf

    Dollar Reserves and U.S. Yields: Identifying the Price Impact of Official Flows

    https://www.nber.org/papers/w30476

    See important disclaimers at the bottom of the page.


  • Fed Expectations Changing

    Torsten Sløk

    Apollo Chief Economist

    In March 2021, the FOMC thought the Fed funds rate would be zero at the end of 2023. Now they think the Fed funds rate at the end of next year will be 4.5%, see chart below.

    Our attached Slowdown Watch PDF shows that the US economy is still overheating, with unemployment at 3.7% and inflation at 8.3%.

    Chart showing rising projections for the Fed funds rate
    Source: FRB, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Recession in Germany

    Torsten Sløk

    Apollo Chief Economist

    The consensus is now expecting a recession in Germany in 2023, see chart below.

    Chart projecting a recession for Germany in 2023
    Source: Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Inventories Normalizing

    Torsten Sløk

    Apollo Chief Economist

    Although services make up 80% of GDP, fluctuations in the goods sector are still important. Inventory levels are normalizing as a result of the supply chain improving and the goods sector of the economy slowing down, see chart below. Inventories for wholesalers are back to pre-pandemic levels, but inventories for retailers are still substantially below 2019 levels.

    Chart showing wholesale inventories are back to pre-pandemic levels. But retail inventories are still below levels in 2019.
    Source: Census Bureau, Haver, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Inflation Expectations Coming Down

    Torsten Sløk

    Apollo Chief Economist

    Survey-based and market-based measures of inflation expectations are starting to decline, and the market believes that the Fed will get inflation down to the FOMC’s 2% target, see charts below.

    Chart showing inflation expectations from surveys coming down over one- and three-year time frames
    Source: FRBNY, Haver, Apollo Chief Economist
    Chart showing hedging costs falling
    Source: Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Who is Buying Treasuries?

    Torsten Sløk

    Apollo Chief Economist

    With rates rising and the dollar going up, foreign private investors are buying US Treasuries at a record pace, see chart below.

    Chart showing foreign investors are buying US Treasuries at a record rate as interest rates and the dollar rise
    Source: Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


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