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The Business Roundtable CEO survey is designed to provide a picture of the future direction of the US economy by asking CEOs to report their company’s expectations for sales and plans for capital spending and hiring over the next six months.
Since the Fed started raising rates in March 2022, CEOs have gradually worried more and more about the economy slowing, see chart below.
This is how monetary policy works. Higher cost of capital slows down business spending. The decline in the employment sub-index to 2020 levels is particularly noteworthy.
Source: Business Roundtable, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our monthly credit market outlook is available here, and the three key themes for investors are 1) Up in quality, 2) Large cap, and 3) Low leverage and high interest coverage ratios.
With the Fed on hold well into 2024 and the maturity wall coming, debt refinancings will continue to come in at higher levels of yields, see the first chart below.
The bottom line is that the cost of capital has increased significantly, and Fed hikes are biting harder and harder, particularly for companies with weak credit fundamentals.
Source: Bloomberg, Apollo Chief Economist 
Source: Moody’s Analytics, Apollo Chief Economist 
Source: Apollo Chief Economist 
See important disclaimers at the bottom of the page.
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Slowing global growth would argue for falling commodity prices. That is also what we are seeing for industrial metals such as copper.
Slowing global growth combined with extreme weather and inventory situations have created a more mixed situation for agricultural commodities. The agriculture price index has been moving sideways, with some components (such as orange juice, cocoa, and sugar) going up and others (such as soybean, corn, and coffee) going down.
For energy, slowing global growth and rising US production would argue for lower oil prices. But OPEC+ production cuts have pushed oil prices higher in recent months.
The sideways movement in the broad commodity price index is likely a welcome development for the Fed. However, a continued rise in oil prices could magnify the ongoing slowdown in growth and reverse the ongoing decline in inflation.
Our latest outlook for commodity prices is available here.
Source: S&P Global, Apollo Chief Economist 
Source: Statistical Review of World Energy, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The divergence between different Fed forecasts for third-quarter GDP is significant.
The Atlanta Fed estimates that GDP this quarter is 4.9%, and the St. Louis Fed estimates that the US economy is currently in a recession.
Given this uncertainty, it makes sense for the FOMC to keep interest rates on hold at their meeting this week.
Source: Atlanta Fed, FRBNY, St. Louis Fed, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The number of people going to Broadway shows has in recent weeks been falling faster than normal, see chart below. We will over the coming weeks be closely monitoring whether Broadway attendance picks up like it normally does in the fall. For markets, this is important because consumer services continue to be the key reason why the economy, despite significant Fed hikes, is still holding up.
Source: Internet Broadway Database, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The 10 largest companies in the S&P500 make up 34% of the index, and these 10 mega-cap companies have an average P/E ratio of 50, see chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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High mortgage rates continue to weigh on demand for housing.
But the inventory of new homes for sale remains very low.
Our latest outlook for the US housing market is available here, key charts inserted below.
Source: Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg L.P., Apollo Chief Economist. Note: Calculation of monthly payment using the 30-year purchase loan application size and the 30-year effective rate. 
Source: Mortgage Bankers Association, Bloomberg, Apollo Chief Economist 
Source: Mortgage Bankers Association, Bloomberg, Apollo Chief Economist 
Source: Realtor.com, Apollo Chief Economist 
Source: Redfin, Haver Analytics, Apollo Chief Economist 
Source: Census CPS, Apollo Chief Economist 
Source: Census Bureau, FRED, Apollo Chief Economist 
Source: National Association of Homebuilders, Bloomberg, Apollo Chief Economist 
Source: University of Michigan, NAHB, Haver Analytics, Apollo Chief Economist 
Source: Census Bureau, NAR, Haver, Apollo Chief Economist. Forecast is Bloomberg consensus. 
Source: NAR, Apollo Chief Economist 
Source: American Enterprise Institute, Haver, Apollo Chief Economist 
Source: American Enterprise Institute, Haver, Apollo Chief Economist 
Source: Census, Haver Analytics, Apollo Chief Economist. Note: Single-family homes are one-unit buildings. 
Source: Census Bureau, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Fed hikes have had a very negative effect on venture capital and tech firms because they have little or no cash flows and require financing that has become much more expensive.
This is likely the reason why the unemployment rate since the Fed started raising rates has increased more in California than in the rest of the country, see chart below.
High costs of financing slows down capital formation. That is how monetary policy works. With the Fed on hold for another nine months, the ongoing softening in the labor market continues.
Source: BLS, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Since the Fed started raising interest rates, the labor market has gradually softened.
Specifically, employment growth is slowing, there are fewer job openings, the work week is shorter, the quits rate is lower, and wage growth is declining for job switchers, see charts below.
With the Fed keeping interest rates at these high levels for another nine months, it is unlikely that the lines in these charts will suddenly start moving sideways.
The likely scenario is that the trends in these charts continue. In short, more weakness in the economic data is coming as Fed hikes bite harder and harder on consumers and firms.
Source: BLS, Haver Analytics, Apollo Chief Economist 
Source: BLS, Haver, Apollo Chief Economist 
Source: BLS, Haver, Apollo Chief Economist 
Source: FRB of Atlanta, Haver, Apollo Chief Economist 
Source: BLS, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Balance sheets with higher debt, lower earnings, and lower savings will get hit first by Fed hikes, both for consumers and firms, see the first chart below. As this process continues, Fed hikes will gradually impact higher-quality balance sheets over time.
Once the Fed funds rate reaches sufficiently restrictive levels, the macro data will weaken. This is happening now: Delinquency and default rates are increasing for more vulnerable households and firms, and capex spending and nonfarm payrolls are weakening, see the second and third charts below.
This is how monetary policy works, and markets should expect the economic data to weaken further over the coming months as Fed hikes gradually bite harder and harder on consumers and firms.
Source: Apollo Chief Economist 
Source: BLS, Haver Analytics, Apollo Chief Economist 
Source: Census Bureau, Bloomberg, Apollo Chief Economist. Note: Capex spending is real capital goods orders nondefense ex-aircraft deflated by private capital equipment PPI. See important disclaimers at the bottom of the page.
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