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Our latest housing outlook is available here. Higher mortgage rates are weighing on demand, but the inventory of homes for sale remains very low, and housing demand is supported by solid wage growth, high stock prices, and high cash flows to owners of fixed income, including private credit.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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As home prices continue to rise, more and more households are taking out HELOCs to finance consumer spending, see chart below.
In other words, homeowners are liquifying their home price gains and using the proceeds for consumption.
Combined with low jobless claims, strong wage growth, high stock prices, and solid cash flows from fixed income, including private credit, the US consumer continues to do well.
Source: New York Fed Consumer Credit Panel/Equifax, Apollo Chief Economist See important disclaimers at the bottom of the page.
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When growth is strong, corporate earnings are high. When growth is weak, corporate earnings are low. This makes it difficult to find out if companies are cheap or expensive.
One way to analyze if stocks are cheap or expensive is to remove the business cycle by taking the 10-year average of earnings, and doing so shows that stocks are very expensive at the moment.
Specifically, the cyclically adjusted price earnings ratio at 38 is near all-time highs, significantly above its long-term average at 17, see chart below.
Source: Robert J. Shiller, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The Conference Board asks US households about their outlook for the stock market, and a record high of 51.4% say that stock prices will move higher, see chart below.
Our chart book with daily and weekly indicators for the US economy is available here.
Source: Conference Board, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The rise of passive investing has had a significant impact on financial markets in the last three decades, especially on its contribution to higher asset-price volatility, reduced liquidity, and possible contribution to heightened market concentration. By analyzing the substantial shift of assets from active to passive strategies—particularly through the growth of ETFs and retirement-savings plans, such as a 401(k)—this paper illustrates how passive investors, who primarily track major indices, have contributed to reduced price elasticity and market responsiveness, which, in turn, have led to amplified price movements, decreased liquidity, potential macroeconomic inefficiencies, and a disproportionate concentration of market influence in a few dominant stocks, such as the Magnificent Seven.
Source: Morningstar, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Fed cuts, tight credit spreads, and higher animal spirits will boost M&A and IPO activity over the coming quarters, see charts below.
Note: IPO as of announced date. Source: Bloomberg, Apollo Chief Economist 
Note: M&A announced transactions, US/Europe, is the daily sum of mergers, acquisitions, divestitures, self-tenders and spin-offs announced involving either a US/Europe target or acquirer. Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The distribution of interest coverage ratios for leveraged loan deals has remained remarkably stable during the Fed hiking cycle, see chart below. For more discussion, see here.
Source: PitchBook LCD, Apollo Chief Economist See important disclaimers at the bottom of the page.
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When the Fed was raising interest rates from March 2022 to September 2024, the amount of money in money market accounts increased $2 trillion as investors liked the higher level of yields, see chart below.
So what will happen with the money in money market accounts now that the Fed has started cutting interest rates? In other words, where will the $2 trillion added to money market accounts go now that the Fed is cutting?
The most likely scenario is that money will leave money market accounts and flow into higher-yielding assets such as credit, including investment grade private credit.
For more discussion, see our latest credit outlook here.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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For high yield, more companies in Europe need to refinance over the coming years compared with the US, see chart below.
Put differently, if interest rates stay higher for longer, it will have a more negative impact on the European economy, indicating a bigger need for the ECB to lower interest rates.
For more discussion, see here.
Source: ICE BofA, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The median interest coverage ratio for the investment grade credit index is just below 7, and for high yield, it is just below 4. Lower-rated credits are more vulnerable to interest rates staying higher for longer because lower-rated credits, by definition, have higher debt-servicing costs.
Recent developments in interest coverage ratios show that Fed cuts and continued strong earnings are starting to help investment grade companies, see charts below. Meanwhile, high yield companies are still seeing a downtrend in coverage ratios driven by higher debt-servicing costs.
The Fed cutting interest rates and continued strong earnings will be helpful for both investment grade credit and high yield credit. But as interest rates stay elevated, debt-servicing costs will weigh more heavily on high yield companies, and investment grade credits with lower debt-servicing costs will be more attractive.
This happens to be exactly how monetary policy works: Companies with higher debt-servicing costs and lower coverage ratios are hit harder by Fed hikes and interest rates staying higher for longer.
For more discussion, see here.
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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