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The Fed’s inflation target is 2%, and the bottom line of the inflation discussion is that inflation has started to move sideways at 3%, and this is a problem for the Fed, see chart below.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Container transportation prices are slowly coming down from their peaks, but IMF data shows that traffic volumes through the Suez Canal continue to deteriorate, see chart below.
Source: IMF, Apollo Chief Economist See important disclaimers at the bottom of the page.
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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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