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When the Fed started raising interest rates in March 2022, the Magnificent 7 stopped hiring more workers, see chart below.
Why is the tech sector so vulnerable to higher interest rates? First, tech firms are priced to deliver cash flows far out in the future, which makes tech companies more vulnerable to changes in the discount rate. Second, tech firms often need to borrow to finance multi-year projects, which also makes them more vulnerable to higher interest rates. Third, when interest rates are high, general risk appetite among investors is low, as investors can generate higher returns in fixed income.
The bottom line is that the bubble in AI valuations was simply the result of a long period with zero interest rates.
With upward pressures on inflation coming from tariffs, deglobalization, and demographics, interest rates will remain high and continue to be a headwind to tech and growth for the coming years.
Sources: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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While tariffs on China have declined from 145% to 30%, the headwind to corporate earnings from tariffs remains significant because of the overall jump in the average tariff rate from 3% in January to 18% today, see the first and second chart below. We are already beginning to see weakness in the economic data with a significant decline in the earnings revisions ratio since Liberation Day, see the third chart.
Sources: White House, China Ministry of Finance, Macrobond, Apollo Chief Economist 
Note: Includes IEEPA tariffs on Canada, Mexico, and China (with USMCA exemptions); April 2 “reciprocal” tariffs; and steel, aluminum, auto, and auto parts tariffs. Tariff revenue estimate uses an elasticity of -0.997 and a noncompliance rate of 8 percent. Sources: US Census Bureau; Historical Statistics of the United States: Colonial Times to 1970, Part II; US International Trade Commission, “U.S. imports for consumption, duties collected, and ratio of duties to values, 1891-2023, (Table 1)”; Tax Foundation calculations; Apollo Chief Economist 
Note: Earnings revisions ratio measures how many upward revisions to earnings estimates analysts are making versus downward revisions over a given period. Above 0.5 more upgrades than downgrades and below 0.5 more downgrades than upgrades. Sources: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The Covid-motivated pause on reporting delinquent federal student loans has now ended. As a result, starting in May 2025, up to 10% of US households may face a steep decline in their credit score, see chart below. This means they will no longer be able to get a loan to buy a car, a house, or new furniture. Combined with tariffs and high uncertainty, this is a significant headwind to consumer spending over the coming months. See here for more discussion from the New York Fed.
Sources: Federal Reserve Bank of New York, Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The trade war is making products more expensive at Walmart, student loan payments are restarting, and the Moody’s downgrade is pushing up borrowing costs for consumers and firms. The list of headwinds is growing, see below.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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Indirect bidding in Treasury auctions refers to bids submitted on behalf of foreign institutions. These bidders don’t participate directly, but instead have their bids placed by intermediaries—hence “indirect.” Looking at foreign participation in 30-year Treasury auctions shows a downward trend in recent months, see chart below.
Sources: Bloomberg, Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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US data centers are currently powered mainly by gas and coal. The IEA is forecasting that this will change over the coming years with renewables playing a much more significant role, see chart below.
Sources: IEA, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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See important disclaimers at the bottom of the page.
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The latest IMF WEO forecast shows that Germany and France, over the coming years, will have bigger fiscal deficits than other EU countries, see chart below.
Sources: International Monetary Fund (IMF), Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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When you buy a new t-shirt in Manhattan, some of the money goes to the manufacturer in China, and some of the money goes to the US company that sells the t-shirt.
Looking at the distribution of expenditures on imports shows that for China, 56% of the money paid stays in the US, and 44% goes to China, see chart below.
The bottom line is that more than half of the money paid for US imports from China stays in the US.
For more discussion, see also here.
Note: Chart shows how expenditures on imports are distributed between local content that stays in the US and the imported content that goes overseas to the trading partner. Sources: Federal Reserve Bank of San Francisco, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Currencies normally move around with interest rate differentials. For example, when the Fed keeps interest rates higher for longer because of higher inflation, the US dollar goes up.
Since the trade war started, this relationship has broken down. Now the dollar is driven by forces other than interest rate differentials, and the chart below suggests EURUSD should be trading closer to parity.
In other words, the dollar is about 10% weaker than interest rate differentials would have suggested.
Note: 1-year yield differential = 1-year German government bill minus 1-year US T-bill. pp = percentage points. Sources: Bloomberg, Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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