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The 2022 sell-off in credit has been highly synchronized across credit ratings compared to the sell-offs in 2008 and 2020, see the first chart below. In other words, markets are currently not pricing in a recession with significant differentiation across credits. Our latest credit market outlook presentation is linked here.
Source: Bloomberg, Apollo Chief Economist 
Source: FRB, Haver Analytics, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist. Note: Data used for members in the LBUSTRUU Index as of 5th September 2022. See important disclaimers at the bottom of the page.
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CEO confidence is a leading indicator of corporate profits, and the chart below suggests that markets should be more worried about the outlook for earnings.
Source: The Conference Board, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Weekly hotel indicators, including occupancy rates, are softening for seasonal reasons, but the Average daily rate and RevPar are still well above pre-pandemic levels, see charts below. Our weekly Slowdown Watch presentation is linked here.
Source: STR, Haver Analytics, Apollo Chief Economist 
Source: STR, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Fed: Vulnerable Workers and the State of the U.S. Labor Market
https://www.stlouisfed.org/on-the-economy/2022/sep/vulnerable-workers-state-us-labor-market
Fed: The Financial Stability Implications of Digital Assets
https://www.federalreserve.gov/econres/feds/files/2022058pap.pdf
Fed: The Reversal Interest Rate
https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2022/wp22-28.pdf
See important disclaimers at the bottom of the page.
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The labor market is still tight with 6 million unemployed and 11 million job openings, see chart below and this chart book.
The labor market continues to be tight, and the OIS curve is currently pricing that the Fed funds rate will peak at just below 4% in March 2023, but the risks are rising that the Fed will need to raise rates more to slow down hiring and cool down inflation.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The inflation outlook is complicated by the goods sector (including housing and autos) cooling down, and the service sector, including the labor market, still overheating.
With the service sector making up 2/3 of the economy, the Fed is likely worried that goods inflation may be coming down, but service sector inflation continues to rise, see chart below.
The bottom line is that we will need to see a meaningful softening in the labor market for the Fed to slow down the speed of rate hikes. This is not expected in today’s employment report, where the consensus sees headline nonfarm payrolls growing at 300K, wage inflation rising to 5.3%, and the unemployment rate staying steady at 3.5%, the lowest level in over 50 years.
In short: As long as hiring remains strong and wage growth remains high, the Fed will keep raising rates, and equities and credit will be under pressure because of the negative impact of higher wage and cost inflation on margins. And once the labor market starts softening, the market will turn its attention to the speed of the softening and whether it is a soft landing or a hard landing, i.e. a recession.
For investors, the implication is that we need inflation to come down from 8.5% and closer to the Fed’s 2% target, and we need a soft landing in the labor market before we can get a sustained rally in equities and credit.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The attached presentation looks at the ongoing normalization of supply chains. Transportation costs are declining across all types (container, truck, train, air), delivery times are normalizing, the average of unfilled orders is normalizing, the New York Fed supply chain pressure index is normalizing, and the number of container vessels at Long Beach/Los Angeles is back at pre-pandemic levels. If supply-side problems drove two-thirds of the increase in inflation, then we could see a quick decline in inflation over the coming quarters.
Source: NY Fed, BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Delinquency rates for subprime borrowers are starting to rise, see chart below.
Source: Transunion Monthly Industry Snapshot July 2022 See important disclaimers at the bottom of the page.
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Air traffic in London’s Heathrow airport is back at pre-pandemic levels, and US air traffic to Europe is also at pre-pandemic levels, but US air traffic to Asia is still significantly below 2019 levels, see charts below.
Source: Bloomberg, Apollo Chief Economist 
Source: Haver, Apollo Chief Economist 
Source: Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The interest-rate sensitive components of GDP are starting to respond to higher rates and recession worries, see charts below
Source: Bloomberg, Apollo Chief Economist 
Source: Mortgage Bankers Association, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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