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The long-term growth outlook for Europe has deteriorated steadily over the past 20 years, see chart below.
The long-term growth outlook for the US has also softened. But since 2016, it has been stable at just below 2%.
Source: ECB, FRB, Haver Analytics, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Data centers need a lot of energy, and there is more talk about nuclear power playing a bigger role. There are currently 54 nuclear power plants in 28 states, see map below.
Source: EIA, Apollo Chief Economist See important disclaimers at the bottom of the page.
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US households are savvy. When the Fed funds rates was zero, the number of households with a TreasuryDirect account, where you can buy and sell US government bonds, was about 700,000, see chart below. But once the Fed started raising interest rates, the number of households with a TreasuryDirect account increased to 4 million. Even before the Fed started cutting, the number of accounts started declining.
Combined with the $6.5 trillion currently in money market funds, the key question is what households will do with their Treasury holdings and money market holdings as the Fed continues to cut interest rates.
The most likely outcome is a steeper curve whereby households will withdraw money from the front end of the curve and put it into credit and other higher-yielding fixed income assets.
Source: US Treasury Department, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The US consumer is not slowing down. Visits to the Statue of Liberty continue at 2023 levels. Consumer spending remains healthy with air travel strong, hotel spending robust, and Broadway show attendance solid. Retail sales for September were strong at 1.7% year-over-year, and continue to be supported by strength in weekly same-store retail sales data. The US consumer continues to do well, driven by solid job growth, strong wage growth, and high stock prices and home prices.
See our chart book with daily and weekly indicators for the US economy.
Source: irma.nps.gov, Apollo Chief Economist 
Source: TSA, Bloomberg, Apollo Chief Economist 
Source: STR, Haver Analytics, Apollo Chief Economist 
Source: Internet Broadway Database, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The power need for the largest hyperscale data centers is currently 1 GW, and estimates show that 18 GW of additional power capacity will be needed to service US data centers by 2030.
For comparison, the total power demand for New York City is currently around 6 GW.
In other words, there is a need to add three NYCs to the US power grid by 2030.
Note: Current capacity as of 2022, Why invest in the data center economy | McKinsey, Systems – NYC Mayor’s Office of Climate and Environmental Justice, Data Center Power: Fueling the Digital Revolution, US data center power consumption to double by 2030 – DCD. Source: NYISO 2022, McKinsey, Nextgen, datacenterknowledge.com, Apollo Chief Economist See important disclaimers at the bottom of the page.
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NVIDIA is now bigger than the total market cap of five of the G7 countries, see chart below. And foreigners own 18% of the US stock market.
The bottom line is that global equity markets, including retirement allocations to equities, are basically leveraged to NVIDIA.
Let’s hope the value of NVIDIA doesn’t decline significantly.
The idea that public markets are safe and retirement savings in public markets are safe is misguided.
Some investments in public markets are safe, and some are risky.
Same for private assets. Some private investments are safe, and some private investments are risky.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The chart below shows that Fed hikes have not had the desired effects on firms. You would normally expect that when interest rates go up, corporates see an increase in debt-servicing costs.
But because of locked-in low interest rates combined with strong corporate earnings, net interest payments as a share of operating surplus have been going down, see chart below.
The bottom line is that not only have Fed hikes had a limited negative impact on consumers because of locked-in low mortgage rates. Fed hikes have also had a very small impact on corporates because of locked-in low interest rates and rising earnings.
In short, the transmission mechanism of monetary policy has been much weaker than the economics textbook would have predicted. This is because consumers and firms locked in low interest rates during the pandemic.
As a result, the economy never slowed down when the Fed raised rates. And now the Fed is cutting, boosting asset prices and growth in consumer spending and capex spending further.
To be sure, firms with weak earnings, weak revenue, and weak cash flows have been hit by Fed hikes. But the aggregate outcome seen in the chart below shows that from a macro perspective the negative effects of Fed hikes on corporates have been small.
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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When a company needs financing, it can go to a bank, public credit markets, or private credit. Having many different sources of financing available for firms is good for GDP growth, job creation, and financial stability.
Looking at the sum of bank lending to corporates plus the total value of corporate credit markets plus the total value of private credit shows that private credit only makes up 6% of total lending to corporates, see chart below.
The bottom line is that private credit will continue to grow as companies get access to a broader spectrum of financing, which will be positive for GDP growth and financial stability.
Note: US debt outstanding includes US IG and HY corporate bond market value outstanding, leveraged loans market value outstanding, US private credit AUM and US bank lending to corporates. Source: Preqin, ICE BofA, PitchBook LCD, FRB, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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More than 50% of debt for Russell 2000 companies is floating rate. For the S&P 500, it is 24%, see chart below. With interest rates higher for longer, small-cap companies remain more vulnerable than large-cap companies.
More generally, companies and capital structures with no earnings, no revenues, and no cash flows will continue to struggle with high debt servicing costs.
The bottom line for both equity and debt investors is to invest in companies that have earnings.
Note: Includes bonds and loans (tranches) and excludes financials. Totals may not sum to exactly 100% due to rounding. Source: Bloomberg SRCH, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our chart book discusses the outlook for India. There are many reasons to be bullish. GDP growth is strong, inflation is low, and sentiment surveys show that consumers and firms are upbeat. Household, corporate, and bank balance sheets are healthy. The financial sector has seen significant transformation with digitalization and bankruptcy law enactment. Bank lending has been solid, and the Indian stock, bond, and private markets continue to grow at a rapid pace.
Source: IMF WEO, Apollo Chief Economist 
Source: MOSPI, Haver Analytics, Apollo Chief Economist 
Source: Reserve Bank of India, Haver Analytics, Apollo Chief Economist 
Source: IMF WEO, Haver Analytics, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: RBI, Haver Analytics, Apollo Chief Economist 
Source: UN Population Statistics, Haver Analytics, Apollo Chief Economist 
Source: RBI, Haver Analytics, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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