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Annuity sales are almost double their pre-pandemic levels because of higher interest rates. And strong annuity sales create strong demand for credit, see chart below.
Source: LIMRA, Bloomberg, Apollo Chief Economist. Note: 2023 estimates from LIMRA. See important disclaimers at the bottom of the page.
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The buyer base for US Treasuries has shifted from yield-insensitive buyers (sovereign wealth funds and central banks, including the Fed) to yield-sensitive buyers (US households, US pensions, US insurance), see chart below.
This may become a problem once the Fed begins to cut rates because that could mean less demand from the yield-sensitive buyers, ultimately resulting in a steeper yield curve.
Source: FFUNDS, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Canadian business insolvency filings have increased dramatically in recent months, see chart below.
Source: Office of the Superintendent of Bankruptcy, Apollo Chief Economist See important disclaimers at the bottom of the page.
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With no signs of a recession, commercial real estate prices are starting to recover, see chart below. This is helpful for the regional banks and for the broader economic recovery.
Source: RCA, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The ongoing rally in credit is likely to continue driven by attractive all-in yields with strong demand from retail, insurance, and pensions. Our latest outlook for credit markets is available here.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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The distribution of P/E ratios for the S&P 500 shows that stocks today are more overvalued than they were in March 2000, see chart below.
Source: Bloomberg, Apollo Chief Economist. Note: 1990s tech bubble is March 2000. See important disclaimers at the bottom of the page.
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Household expectations to future home price appreciation are currently at the highest level since 2007, see chart below.
Source: University of Michigan, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Since the Fed turned dovish in December, financial conditions have eased dramatically, with the S&P 500 reaching all-time highs, credit spreads tightening, IPO activity picking up, and M&A activity picking up. As a result, consumer spending is currently getting a strong boost from record-high stock prices, high home prices, and record-high Bitcoin prices combined with high cash flows for owners of fixed income. The bottom line is that a dovish Fed giving the green light to investors too soon could result in a second mountain in inflation. That is the reason why the last mile is harder.
Source: Bloomberg, BLS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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With the Fed on hold until 2025, my colleague Shobhit Gupta and I took a look at recent episodes since 2022 when rates markets have been pricing higher for longer. The evidence shows that rates higher for longer have generally been associated with tighter credit spreads both for IG and HY, likely because of stronger-than-expected growth and earnings, see table below.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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The employment report showed a continued increase in immigration, which supports employment growth, consumer spending, and demand for housing, see chart below.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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