Want it delivered daily to your inbox?
-
I think there is a 75% chance we will have a recession. It is just not happening yet. Our high-frequency indicators show that air travel is still strong, hotel occupancy rates are high, restaurant bookings are strong, credit card spending is still strong, and the weekly data for bank lending is also trending higher.
Weekly jobless claims have started to move slightly higher in recent weeks, but this is consistent with the seasonal pattern. The weekly mortgage purchase applications data is modestly weaker, and we are watching the housing market very carefully.
The Fed’s goal is to cool down all these indicators, and they will ultimately succeed, so investors should continue to prepare for the coming slowdown.
Source: TSA, Bloomberg, Apollo Chief Economist 
Source: STR, Haver Analytics, Apollo Chief Economist 
Source: OpenTable, Apollo Chief Economist 
Source: Department of Labor, Bloomberg, Apollo Chief Economist 
Source: Mortgage Bankers Association, Bloomberg, Apollo Chief Economist 
Source: Redfin, Haver, Apollo Chief Economist 
Source: FRB, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
Apartment rents in Manhattan are up 40% over the past 12 months, and the median rent is now $3,900, see charts below. The ongoing increase in housing costs across the country is beginning to have a negative impact on other types of consumer spending. The more money households have to spend on paying for their rent or mortgage, the less money is available for consumer discretionary purchases such as buying a new phone, replacing a washer or dryer, and eating at restaurants. The Fed is trying to cool down the economy, including the housing market, and they will succeed, and the risks are rising that we will get a U-shaped recession as the Fed keeps rates high to make sure inflation comes down from the current level of 8% to their 2% target.
Source: Elliman, Apollo Chief Economist 
Source: Elliman, Apollo Chief Economist 
Source: Elliman, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The number of people using the subway in New York City is still far below normal, see chart below.
Source: toddwschnieder.com, MTA, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The first chart below shows that many tech stocks are down 70%-80% from their peaks, the second chart shows how SG&A spending for many of these companies has increased dramatically in recent years, and the third chart shows that total employment in these companies has increased from around 300,000 in 2019 to about 450,000 today. The bottom line is that the bursting tech bubble will have significant negative consequences for the broader economy through layoffs, less spending on rents, and less spending on advertising.
Source: Bloomberg, Apollo Chief Economist (Note: SG&A is defined as the sum of all direct and indirect expenses (such as advertising expenses), general and administrative expenses (including rental expenses). 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The price of airline tickets increased 19% from March to April, the daily TSA data for traveler throughput continues to grow, and Las Vegas visitor volumes continue to recover, see charts below.
With the economy reopening, significant household savings, and more people flying, eating at restaurants, and staying at hotels, the Fed has to increase interest rates further to slow down the consumer services sector.
Source: TSA, Bloomberg, Apollo Chief Economist 
Source: LCVCA, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist. Note: Winnings includes total revenue from table, counter and card games and slot machines. See important disclaimers at the bottom of the page.
-
The chart below shows inflation by frequency of purchase. Inflation for products we frequently buy, such as food, beverages, and gas, is currently running at close to 12%. Inflation for goods we buy infrequently, such as furniture, clothes, and cars, is running at 10%. Contractual inflation, such as housing and rent, is currently around 5%. Across all frequencies, the trend is higher and that is the reason the Fed is so hawkish.
Source: BLS, Apollo Chief Economics See important disclaimers at the bottom of the page.
-
Our chartbook with daily and weekly economic indicators is available here, and while financial conditions continue to tighten, there are still no signs of the economy slowing down. Importantly, consumers and corporates hold about $4trn extra in cash, see the first chart below, which is very supportive for US consumer spending. Note also that the recent increase in the level of credit card debt seen in the second chart is NOT because consumers are running out of cash but simply because the virus is subsiding, and more people are going out to shop, eat at restaurants, and stay at hotels etc. The bottom line for markets is that the Fed still has a lot of work to do to slow this economy down. In plain English: Demand in the economy is simply too strong.
Source: FRB, Haver, Apollo Chief Economist 
Source: FRB, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
Once the Fed succeeds in slowing down the economy, we will begin to see more differentiation in credit markets, see chart below. So far, the sell-off in credit markets has been remarkably synchronized compared with the significant differences in returns seen in tech and value in equity markets. With inflation above 8% and projected to be 5% by the end of the year, the correction in risk assets continues.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The Bloomberg US IG Aggregate Bond Index includes Treasuries, corporate bonds, and MBS, and currently, 80% of the index is trading below par.
Source: Bloomberg, Apollo Chief Economist. Note: Data used for members in the LBUSTRUU Index as of 11th May 2022. See important disclaimers at the bottom of the page.
-
The venture capital index seen in the chart below measures the value of the US-based venture capital private company universe in which venture capital funds invest. It shows that venture capital valuations have so far fallen 56% from their peak. And there is likely more downside over the coming quarters given the consensus expectation that inflation at the end of 2022 will be 5%, which is still significantly above the Fed’s 2% inflation target. The bottom line for markets is that as long as inflation is meaningfully above the Fed’s target, we will continue to see turbulence in markets, particularly in long-duration assets such as tech and venture capital.
Source: Bloomberg, Apollo Chief economist. Note: The Refinitiv Venture Capital Index is designed to measure the value of the US-based venture capital private company universe in which venture capital funds invest. See important disclaimers at the bottom of the page.
This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).
Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.
Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo.
Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.