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  • When a company needs financing, it can go to a bank, public credit markets, or private credit. Having many different sources of financing available for firms is good for GDP growth, job creation, and financial stability.

    Looking at the sum of bank lending to corporates plus the total value of corporate credit markets plus the total value of private credit shows that private credit only makes up 6% of total lending to corporates, see chart below.

    The bottom line is that private credit will continue to grow as companies get access to a broader spectrum of financing, which will be positive for GDP growth and financial stability.

    Private credit share of US corporate debt outstanding
    Note: US debt outstanding includes US IG and HY corporate bond market value outstanding, leveraged loans market value outstanding, US private credit AUM and US bank lending to corporates. Source: Preqin, ICE BofA, PitchBook LCD, FRB, Bloomberg, Apollo Chief Economist

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  • Companies With Earnings Are More Attractive

    Torsten Sløk

    Apollo Chief Economist

    More than 50% of debt for Russell 2000 companies is floating rate. For the S&P 500, it is 24%, see chart below. With interest rates higher for longer, small-cap companies remain more vulnerable than large-cap companies.

    More generally, companies and capital structures with no earnings, no revenues, and no cash flows will continue to struggle with high debt servicing costs.

    The bottom line for both equity and debt investors is to invest in companies that have earnings.

    Russell 2000 more vulnerable when rates stay higher for longer
    Note: Includes bonds and loans (tranches) and excludes financials. Totals may not sum to exactly 100% due to rounding. Source: Bloomberg SRCH, Apollo Chief Economist

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  • Outlook for India

    Torsten Sløk

    Apollo Chief Economist

    Our chart book discusses the outlook for India. There are many reasons to be bullish. GDP growth is strong, inflation is low, and sentiment surveys show that consumers and firms are upbeat. Household, corporate, and bank balance sheets are healthy. The financial sector has seen significant transformation with digitalization and bankruptcy law enactment. Bank lending has been solid, and the Indian stock, bond, and private markets continue to grow at a rapid pace.

    India’s share of global GDP continues to grow
    Source: IMF WEO, Apollo Chief Economist
    Core inflation at 3.6%
    Source: MOSPI, Haver Analytics, Apollo Chief Economist
    Sharp improvement in India’s current account balance
    Source: Reserve Bank of India, Haver Analytics, Apollo Chief Economist
    Fiscal balance also improving
    Source: IMF WEO, Haver Analytics, Apollo Chief Economist
    Rupee has stabilised
    Source: Bloomberg, Apollo Chief Economist
    Bank sector more robust than before
    Source: RBI, Haver Analytics, Apollo Chief Economist
    India has a growing working age population
    Source: UN Population Statistics, Haver Analytics, Apollo Chief Economist
    Digital payments through UPI from INR 0.2 trillion in 2019 to INR 20 trillion in 2024
    Source: RBI, Haver Analytics, Apollo Chief Economist
    BSE 500 has also outperformed major indices since 2020
    Source: Bloomberg, Apollo Chief Economist

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  • No Landing Continues

    Torsten Sløk

    Apollo Chief Economist

    This week we got data for retail sales for September and the first two weeks of October, and it shows that the US consumer continues to do well, driven by solid job growth, strong wage growth, and high stock prices and home prices, see the first two charts below.

    With the Atlanta Fed GDP estimate for the third quarter currently at 3.4%, the bottom line is that the expansion continues, see the third chart.

    Why is the incoming data so strong? Because the list of tailwinds to the economy keeps growing:

    1) A dovish Fed

    2) High stock prices, high home prices, and tight credit spreads

    3) Public and private financing markets are wide open

    4) Continued support to growth from the CHIPS Act, the IRA, the Infrastructure Act, and defense spending

    5) Low debt-servicing costs for consumers with locked-in low interest rates

    6) Low debt-servicing costs for firms with locked-in low interest rates

    7) Geopolitical risks easing

    8) US election uncertainty will soon be behind us

    9) Continued strong spending on AI, data centers, and energy transition

    10) Signs of a rebound in construction order books after the September Fed cut

    These 10 tailwinds are increasing the likelihood that the Fed will have to reverse course at its November meeting.

    In short, the no landing continues.

    See our chart book with daily and weekly indicators for the US economy.

    Weekly data for same-store retail sales
    Source: Redbook, Haver Analytics, Apollo Chief Economist
    Consumer spending remains strong and broad-based
    Source: Census Bureau, Haver Analytics, Apollo Chief Economist
    2024 Q3 GDP estimate from Atlanta Fed: 3.4%
    Source: Federal Reserve Bank of Atlanta, Haver Analytics, Apollo Chief Economist

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  • Looking at the historical relationship between the S&P 500 forward P/E ratio and subsequent three-year returns in the benchmark index shows that the current forward P/E ratio at almost 22 implies a 3% annualized return over the coming three years, see chart below. In other words, when stocks are overvalued like they are today, investors should expect lower future returns.

    Forward P/E ratio 21.8 implies 2.9% 3-year subsequent annualized return
    Source: Bloomberg, Apollo Chief Economist

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  • Foreigners Are Significantly Underweight US Credit

    Torsten Sløk

    Apollo Chief Economist

    Foreigners hold a significant amount of US stocks and fixed income, and the composition of their holdings has changed dramatically since the financial crisis, see chart below.

    Today, 58% of US financial assets held by foreigners are equities. In 2010, 33% of financial assets held by foreigners were equities.

    For corporate credit, the share has declined from 15% to 8%.

    The bottom line is that foreigners are significantly overweight US equities and significantly underweight US credit.

    Foreigners hold a significant amount of US stocks and fixed income, and the composition of their holdings has changed dramatically since the financial crisis
    Note: Totals may not sum to 100% due to rounding. Source: FRB, Haver Analytics, Apollo Chief Economist

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  • More Mandatory Government Spending

    Torsten Sløk

    Apollo Chief Economist

    There are two categories of spending in the federal budget process, discretionary and mandatory.

    Discretionary spending is subject to the appropriations process, and mandatory spending includes entitlement programs, such as Social Security and Medicare.

    The share of government spending on mandatory spending has increased from 30% to 60%, thereby giving politicians less room to achieve a balanced budget without cutting entitlements.

    Discretionary government spending has declined from 70% of the total to 30%
    Source: CBO, Haver Analytics. Apollo Chief Economist

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  • Companies with no earnings, weak revenues, and weak cash flows underperform when interest rates stay higher for longer because they are not able to pay their higher debt servicing costs, see chart below.

    A rising share of the Russell 2000 have negative earnings
    Source: Bloomberg, Apollo Chief Economist

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  • The Structure of US Government Debt

    Torsten Sløk

    Apollo Chief Economist

    Eighty-nine percent of US government debt outstanding is fixed rate and 22% are bills, 50% are notes, and 17% are coupons, see chart below.

    The structure of US government debt
    Data as of August 2024. Source: Fed, Monthly Statement of Public Debt (MSPD) | US Treasury Fiscal Data (https://fiscaldata.treasury.gov/datasets/monthly-statement-public-debt/summary-of-treasury-securities-outstanding), US Treasury Department, Apollo Chief Economist

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  • US Households in Great Shape

    Torsten Sløk

    Apollo Chief Economist

    US households have experienced significant gains in stock prices and home prices over the past 15 years, and Fed hikes have generated significant cash flows to owners of fixed income.

    As a result, the debt-to-income ratio looks much better for US households compared with other countries, including Canada and Australia, see the first chart below.

    At the same time, credit card debt for US households is at very low levels and declining, see the second chart.

    The bottom line is that US household balance sheets are in excellent shape.

    Combined with strong job growth, solid wage growth, rising asset prices, and the Fed cutting rates, there is no recession on the horizon.

    US households in great shape
    Source: Statistics Canada, Reserve Bank of Australia, Bloomberg, Apollo Chief Economist
    Credit card debt as a share of disposable income
    Source: Federal Reserve Board, BEA, Haver Analytics, Apollo Chief Economist

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