Want it delivered daily to your inbox?
-
The average interest rate at origination for outstanding mortgages is currently around 4% in most states, see map below. With 30-year fixed mortgage rates currently above 7%, this map shows why Fed hikes over the past two years have had such a limited impact on the housing market and consumer spending. Similarly, most corporates have locked in low interest rates during the pandemic.
In addition, consumer spending continues to be boosted by significant wealth gains for households coming from the AI story driving the S&P 500 higher and households receiving decade-high levels of cash flow from fixed income, including private credit.
The bottom line is that easy financial conditions combined with locked-in interest rates for households and firms have made the transmission mechanism of monetary policy much weaker than expected.
In other words, the ongoing strength of the economy is due to easy financial conditions and locked-in low interest rates for the private sector.
See important disclaimers at the bottom of the page.
-
See important disclaimers at the bottom of the page.
-
The median age of the US population is 38 years, while the median ages of the populations in Japan and Italy are 50 and 48 years, respectively, see chart below. The younger population in the US has significant implications for government spending, tax revenues, and economy-wide productivity.
Source: World Health Organization, United Nations, World Population Prospects (2022), Apollo Chief Economist See important disclaimers at the bottom of the page.
-
Another way to illustrate the extreme concentration in the S&P 500 is to look at the record-low percentage of component stocks outperforming the index, see chart below. This chart shows that stock picking in the S&P 500 essentially boils down to whether you like tech or not.
Source: Bloomberg, Apollo Chief Economist. Note: Annual data is from January 1 to December 31 for each year. The 2024 data is as of July 2, 2024 (year-to-date). See important disclaimers at the bottom of the page.
-
The homeownership rate has in recent years increased much more for younger households, see chart below.
Source: US Census Bureau, Current Population Survey/Housing Vacancy survey, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
In rates markets, there is a tug-of-war between a slowing economy arguing for lower rates versus the structural forces putting upside pressures on inflation and rates (i.e., deglobalization, energy transition, more restrictions on immigration, more defense spending, and significant fiscal challenges).
So far, 10s have been moving around one-to-one with Fed expectations, see chart below. But in recent weeks, a gap has opened up, suggesting that other factors, perhaps including the fiscal outlook, are beginning to play a role for long rates.
Source: Bloomberg, Apollo Chief Economist. Note: The indices used from Bloomberg are MSM1UT Index and GT10 Govt. See important disclaimers at the bottom of the page.
-
For the first time in more than 60 years, US energy production is now higher than US energy consumption, see chart below.
Note: Primary energy production and consumption. Source: US Energy Information Administration, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
There are 2.3 million firms in the US with more than five employees. Investors and the media spend a disproportionate amount of time on a fraction of these, namely the S&P 500 companies (see chart below).
The bottom line is that the US economy consists mainly of privately owned firms—companies that need equity and debt financing to generate jobs and economic growth.
Source: Census, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The idea behind the Fed raising interest rates is to slow the economy down in order to slow down inflation. Normally, when the Fed stops raising rates, it ultimately causes a recession within 18 months, see chart below.
The last Fed hike was in July 2023, and using this historical relationship, we should see a recession before the end of 2024.
But we are likely to break this 18-month record during this cycle because of the continued strong tailwinds to growth from easy fiscal policy and easy financial conditions.
In short, the US economy continues to power ahead, driven by easy fiscal policy, a dovish Fed, and AI investments and AI wealth gains.
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The TSA has daily data for the number of people scanning their boarding pass with a TSA agent, and it continues to show no signs of the economy slowing down, see chart below.
Source: Transportation Security Administration, Apollo Chief Economist 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.