Markets are pricing that the Fed funds rate will bottom at 4% in 2025 and then start rising again, see chart below.
The same profile can be seen for the ECB, where rates will bottom at 3% and then start rising again.
The conclusion is that long-term investors should plan on rates being permanently higher than they were from 2008 to 2020.
In other words, rates are not going back to zero.
The September data for bankruptcy filings are out, and more and more companies are going bankrupt because of Fed hikes, see the first chart below.
Bankruptcies are hitting companies with high levels of debt and low earnings in the Consumer discretionary, Healthcare, and Industrials sectors, see the second chart.
The sectors that have higher refinancing needs in 2024 are Leisure, Retail, and Capital Goods in investment grade. And Transportation, Real Estate, and Autos in high yield, see charts below.
The number of people going to the movies has in recent weeks slowed down more than the usual seasonal pattern, see chart below.
Consumer services make up two-thirds of consumer spending, and watching for signs of a slowdown in consumer spending in the service sector is critical for markets.
The number of foreigners in the labor force has increased by more than 5 million since April 2020, and a rise in immigration puts downward pressure on wage growth and hence inflation, see chart below.
Interest coverage ratios for September show that Fed hikes continue to have a more and more negative impact on the economy.
Specifically, with the Fed funds rate at 5.5%, we are significantly above the Fed’s 2.5% estimate of neutral, and as a result, monetary policy is biting harder and harder, and the incoming data continues to weaken.
From last week’s employment report, we learned that the US economy created 336,000 jobs in September—which was better than expected. In the week ahead, we will get CPI inflation data. The consensus expects headline inflation to come in at 3.6% and core inflation to come in around 4.1%—still above the Federal Reserve’s 2% inflation target. Taken together, we can assume that the Fed is not done with raising rates. This “higher for longer” scenario is biting harder and harder on consumers and corporates. In looking at how markets are trading against this backdrop, we’ve been tracking the sizable divergence happening in the S&P500. The S&P7, the seven biggest stocks in the index, are up 50% so far this year. Meanwhile the S&P493, the vast majority of stocks in the index, are essentially flat. The bottom line is that if you buy the S&P500 today, you are basically buying a handful of companies that have an average P/E ratio of around 50.
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.
From last week’s employment report, we learned that the US economy created 336,000 jobs in September—which was better than expected. In the week ahead, we will get CPI inflation data. The consensus expects headline inflation to come in at 3.6% and core inflation to come in around 4.1%—still above the Federal Reserve’s 2% inflation target. Taken together, we can assume that the Fed is not done with raising rates. This “higher for longer” scenario is biting harder and harder on consumers and corporates. In looking at how markets are trading against this backdrop, we’ve been tracking the sizable divergence happening in the S&P500. The S&P7, the seven biggest stocks in the index, are up 50% so far this year. Meanwhile the S&P493, the vast majority of stocks in the index, are essentially flat. The bottom line is that if you buy the S&P500 today, you are basically buying a handful of companies that have an average P/E ratio of around 50.
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.
From last week’s employment report, we learned that the US economy created 336,000 jobs in September—which was better than expected. In the week ahead, we will get CPI inflation data. The consensus expects headline inflation to come in at 3.6% and core inflation to come in around 4.1%—still above the Federal Reserve’s 2% inflation target. Taken together, we can assume that the Fed is not done with raising rates. This “higher for longer” scenario is biting harder and harder on consumers and corporates. In looking at how markets are trading against this backdrop, we’ve been tracking the sizable divergence happening in the S&P500. The S&P7, the seven biggest stocks in the index, are up 50% so far this year. Meanwhile the S&P493, the vast majority of stocks in the index, are essentially flat. The bottom line is that if you buy the S&P500 today, you are basically buying a handful of companies that have an average P/E ratio of around 50.
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.
From last week’s employment report, we learned that the US economy created 336,000 jobs in September—which was better than expected. In the week ahead, we will get CPI inflation data. The consensus expects headline inflation to come in at 3.6% and core inflation to come in around 4.1%—still above the Federal Reserve’s 2% inflation target. Taken together, we can assume that the Fed is not done with raising rates. This “higher for longer” scenario is biting harder and harder on consumers and corporates. In looking at how markets are trading against this backdrop, we’ve been tracking the sizable divergence happening in the S&P500. The S&P7, the seven biggest stocks in the index, are up 50% so far this year. Meanwhile the S&P493, the vast majority of stocks in the index, are essentially flat. The bottom line is that if you buy the S&P500 today, you are basically buying a handful of companies that have an average P/E ratio of around 50.
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.
