Outlook for Credit Markets

The Fed is not going to pivot anytime soon because if the Fed pivots to dovish with inflation at 8%, it will push up inflation even more. The FOMC wants to lower inflation from 8% to 2%, and it has to happen through a tightening of financial conditions via higher rates, wider credit spreads, and lower equities. Our latest credit market outlook is attached.

Unless otherwise noted, information as of October 2022. Confidential and Proprietary – Not for distribution, in whole or in part, without the express written consent of Apollo Global Management, Inc.
It should not be assumed that investments made in the future will be profitable or will equal the performance of the investments shown in this document.

The Gig Economy is Weakening the Monetary Policy Transmission Mechanism

During the pandemic, more people earned income doing TikToks, selling things online, and, more recently, driving Uber, and the growth of the gig economy over the past decade has been very significant. 

Data from the Fed shows that 27% of US adults earned some money from gigs, and 8% were regular gig workers, in that they spent 20 or more hours in the prior month on gigs. The Fed survey also shows that gig work frequently supplements earnings from a traditional job, nearly half of gig workers also have full-time jobs, while 22% have part-time jobs.

This gradual shift towards more and more gig workers is complicating the Fed’s efforts at cooling down the economy. The more flexibility workers have with alternative work arrangements, the harder it is for the Fed to slow down aggregate demand because having a job is no longer a binary decision, which is a problem when the FOMC is trying to quickly slow down growth and income in the economy.

Source: Fed: Economic Well-Being of U.S. Households. Apollo Chief Economist, https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-executive-summary.htm. Note: Among all adults. Respondents could select multiple answers.

Singapore Visitor Arrivals

Tourism in Singapore is starting to come back to normal, see chart below.

Chart showing a rebound in Singapore tourism after the pandemic
Source: Bloomberg, Apollo Chief Economist

Jobless Claims Still Falling

Incoming data continues to point to an overheating economy. Last week, we learned that core PCE inflation in August rose to 4.9% (up from 4.6% the month prior and slightly above the 4.7% markets were expecting). This week, we will be closely monitoring Friday’s release of the September employment report. The consensus expects non-farm payrolls to come in at 250,000 jobs created, which would be a deceleration from the month before, but still a very strong number when viewed against current demographics. At the same time, weekly jobless claims continue to decline at a steady and consistent clip—meaning fewer people are applying for unemployment benefits. The bottom line remains that more Fed rate hikes are needed to cool the economy to get inflation closer to the central bank’s 2% target.

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.

US Housing Outlook

The Fed is increasing interest rates, and this is starting to have an impact on the housing market. Rising mortgage rates, high home prices, a strong supply pipeline, and high building costs are risks to this housing cycle. Our updated US Housing Outlook is attached.

Slowdown Watch

Our weekly slowdown watch PDF is available here, and the incoming data continues to point to an overheating economy, with core PCE inflation in August rising to 4.9% and weekly jobless claims falling to levels not seen since April, see chart below. The interest rate sensitive goods sector of the economy is slowing down, including housing and autos, but the service sector, including restaurants, airline traffic, hotels, concerts, and sporting events, is not showing signs of slowing down. The bottom line is that more Fed hikes are needed to cool down the economy to get inflation back to 2%.

Source: Department of Labor, Bloomberg, Apollo Chief Economist