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  • The Incoming Data Remains Strong

    Torsten Sløk

    Apollo Chief Economist

    The data this week shows that the economy remains strong.

    Consumers are in good shape, and year-over-year retail sales show steady growth, see the first chart below. Capex spending plans are improving, see the second chart, and the Atlanta Fed GDP estimate for first quarter GDP and the Dallas Fed weekly estimate for GDP are at 2.3% and 2.5%, respectively, see the third and fourth chart.

    We are carefully monitoring trade war uncertainty, but so far, there are no signs that it is having a negative impact on the incoming data, see the fifth chart.

    Retail sales still strong
    Source: Census Bureau, Haver Analytics, Apollo Chief Economist
    Corporate capex spending plans
    Source: Business Roundtable; NFIB; Federal Reserve Bank of Philadelphia, Dallas, New York, Kansas, and Richmond; Apollo Chief Economist
    2025 Q1 GDP estimate from Atlanta Fed: 2.3%
    Source: Federal Reserve Bank of Atlanta, Haver Analytics, Apollo Chief Economist
    The Fed’s Weekly Economic Index, measured in GDP units
    Source: Federal Reserve Bank of Dallas, Bureau of Economic Analysis, Apollo Chief Economist
    Changes in trade policy has increased economic policy uncertainty
    Source: PolicyUncertainty.com, Haver Analytics, Apollo Chief Economist

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  • The Source of Returns in the 60/40 Portfolio

    Torsten Sløk

    Apollo Chief Economist

    Almost all returns in the 60/40 portfolio come from the stock market, see chart below. When the stock market goes down, there are years when Treasuries are not the correct hedge against downside risks in the S&P 500, including in 2022.

    Asset allocation has evolved significantly since the 60/40 portfolio was invented in the 1950s, and investors are now asking more nuanced questions about fixed income replacement and equity replacement, with a focus on less concentration in the S&P 500, lower volatility in returns, and less need for daily liquidity, see also here.

    Almost all the variation in returns in the 60/40 portfolio comes from the equity market
    Source: Bloomberg, Apollo Chief Economist

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  • When History Rhymes

    Torsten Sløk

    Apollo Chief Economist

    Inflation is moving higher, inflation expectations are moving higher, and breakevens are moving higher, see charts below. If the Fed cuts interest rates too early, it increases the likelihood that we will see a repeat of the 1970s. The Fed has no other options than to keep interest rates higher for longer.

    Inflation: Today vs. the 1970s
    Source: Bloomberg, BLS, Apollo Chief Economist
    CPI: Inflation is moving away from the Fed’s 2% inflation target
    Source: BLS, Haver Analytics, Apollo Chief Economist
    Core CPI: Inflation is moving away from the Fed’s 2% inflation target
    Source: BLS, Haver Analytics, Apollo Chief Economist

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  • The share of equity trading volume on the exchanges is now smaller than the share of equity trading volume in dark pools, negotiated trades, and internalized trades, see chart below.

    More equity trading volume is now off-exchange
    Note: Off-exchange trading activity is Trade Reporting Facility (TRF) trading volume. All trades executed otherwise than on an exchange is reported under TRF. Examples include dark pools, negotiated trades, and internalized trades. Source: Bloomberg, FINRA, Apollo Chief Economist

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  • The transmission mechanism of monetary policy works through higher costs of capital that lowers demand for capex and hiring but also raises return requirements for equity to pay the debtholders in the company.

    Higher interest rates are a redistribution of value from the junior parts of the capital structure to the senior parts, see chart below. Someone has to pay the higher level of interest rates in corporate capital structures, and it is not the Fed, it is the equity holder.

    In short, companies with no earnings, no cash flow, and no revenue will continue to struggle simply because they cannot pay the higher debt servicing costs. In other words, when interest rates are higher for longer, companies with earnings tend to outperform because companies with earnings are able to pay higher debt servicing costs. The purpose with higher interest rates is to slow growth, which makes value more attractive than growth.

    In fact, this is the entire idea from the Fed with raising interest rates—to discourage too much risk taking, such as investments in companies and capital structures with no earnings, no revenue, and no cash flow. Examples of unattractive sectors are growth, software, and venture capital.

    When interest rates are higher for longer, relative value moves up the capital structure
    Source: Bloomberg, Apollo Chief Economist

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  • 13% of US Imports Come from China

    Torsten Sløk

    Apollo Chief Economist

    The share of US imports from China has been declining since 2016 and currently stands at 13%, see chart below.

    13% of US imports come from China
    Source: Census Bureau, Haver Analytics, Apollo Chief Economist

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  • The Growing Number of Retirees

    Torsten Sløk

    Apollo Chief Economist

    There are 11,500 people who turn 65 years old every day in the US.

    In China, it is 32,000; in Japan, it is 4,000; and in Germany, it is 3,300—see the chart below.

    The bottom line is that the number of retirees globally is growing rapidly, and there is a need to provide retirement savings for all of them.

    The number of people turning 65 every day
    Source: UN Population Statistics, Haver Analytics, Apollo Chief Economist

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  • Growth Is Accelerating

    Torsten Sløk

    Apollo Chief Economist

    Corporate capex spending plans are moving higher after the election, see chart below. This points to upside risks to growth and hiring.

    Our chart book with high frequency indicators for the US economy is available here.

    Corporate capex spending plans
    Source: Business Roundtable, NFIB, Federal Reserve Bank of Philadelphia, Dallas, New York, Kansas and Richmond; Apollo Chief Economist
    Weekly data for same-store retail sales
    Source: Redbook, Haver Analytics, Apollo Chief Economist

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  • Months from Final Rate Cut to First Rate Hike

    Torsten Sløk

    Apollo Chief Economist

    The last Fed cut was in December, and the number of months from the final Fed cut to the first Fed hike has historically been as low as seven months, implying that the Fed could hike rates already in June, see chart below.

    Months from final Fed cut to first Fed hike
    Source: Federal Reserve, Haver Analytics, Apollo Chief Economist

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  • Investors Spending Too Much Time on the S&P 500

    Torsten Sløk

    Apollo Chief Economist

    Companies are waiting longer and longer to go public, and some companies never go public, see chart below.

    There are 6 million businesses with employment in the US, and the norm for companies is to not be publicly listed in the S&P 500.

    Companies are waiting longer to go public
    Source: Jay Ritter, IPO Data – Jay R. Ritter, Apollo Chief Economist

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