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When the Fed was raising interest rates from March 2022 to September 2024, the amount of money in money market accounts increased $2 trillion as investors liked the higher level of yields, see chart below.
So what will happen with the money in money market accounts now that the Fed has started cutting interest rates? In other words, where will the $2 trillion added to money market accounts go now that the Fed is cutting?
The most likely scenario is that money will leave money market accounts and flow into higher-yielding assets such as credit, including investment grade private credit.
For more discussion, see our latest credit outlook here.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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For high yield, more companies in Europe need to refinance over the coming years compared with the US, see chart below.
Put differently, if interest rates stay higher for longer, it will have a more negative impact on the European economy, indicating a bigger need for the ECB to lower interest rates.
For more discussion, see here.
Source: ICE BofA, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The median interest coverage ratio for the investment grade credit index is just below 7, and for high yield, it is just below 4. Lower-rated credits are more vulnerable to interest rates staying higher for longer because lower-rated credits, by definition, have higher debt-servicing costs.
Recent developments in interest coverage ratios show that Fed cuts and continued strong earnings are starting to help investment grade companies, see charts below. Meanwhile, high yield companies are still seeing a downtrend in coverage ratios driven by higher debt-servicing costs.
The Fed cutting interest rates and continued strong earnings will be helpful for both investment grade credit and high yield credit. But as interest rates stay elevated, debt-servicing costs will weigh more heavily on high yield companies, and investment grade credits with lower debt-servicing costs will be more attractive.
This happens to be exactly how monetary policy works: Companies with higher debt-servicing costs and lower coverage ratios are hit harder by Fed hikes and interest rates staying higher for longer.
For more discussion, see here.
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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This week, we got higher CPI, PPI, and retail sales, and the incoming data continues to be strong.
Combined with the observed acceleration in average hourly earnings in recent months, the risks are rising that inflation could begin to move higher again, see charts below and our weekly chart book.
Source: BLS, Apollo Chief Economist 
Source: BEA, Haver Analytics, Apollo Chief Economist 
Source: BLS, Haver Analytics, Apollo Chief Economist 
Source: Indeed Wage Tracker, Haver Analytics, Apollo Chief Economist 
Source: Bloomberg, BLS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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In this chart book, we take a data-driven look at the US fiscal situation. We also discuss where in financial markets the first signs might appear that US fiscal policy is unsustainable.
Source: Apollo Chief Economist 
Source: CBO, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The population is aging, there is not enough retirement savings, and retirement asset allocation is distorted with too much money in daily liquid equities highly concentrated in the Magnificent Seven. The bottom line is that more retirement savings are needed and better retirement products are needed. Our chart book, available here, looks at the growing retirement savings challenge.
Source: Apollo Chief Economist 
Unless otherwise noted, information as of November 2024
Proprietary – Not for distribution, in whole or in part, without the express written consent of Apollo Global Management, Inc.See important disclaimers at the bottom of the page.
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Modified duration measures the expected change in a bond’s price to a 1% change in interest rates. The charts below show that since the Fed started raising rates, index duration has declined both for high yield and investment grade, with high yield duration currently standing at 3.5% and investment grade duration at close to 7%.
Note: The measure used is modified duration, which measures the expected change in a bond’s price to a 1% change in interest rates. Source: Bloomberg, Apollo Chief Economist 
Note: The measure used is modified duration, which measures the expected change in a bond’s price to a 1% change in interest rates. Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Spreads for public investment grade credit have tightened to just 74 basis points on the index, see the first chart.
But what matters for pension funds, insurance, and households is all-in yields, and all-in yields remain high, in particular for private credit, see the second chart.
For more discussion, see also here.
Source: ICE BofA, Bloomberg, Apollo Chief Economist 
Note: Data from Jan 2014 to Nov 2024. Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The economy is strong, and there are upside risks to inflation. Markets are pricing in too many Fed cuts, see chart below.
Source: Bloomberg, FOMC, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The narrative that the labor market is cooling is inconsistent with the continued strength seen in the incoming data for above-trend GDP growth, strong retail sales, strong durable goods, low jobless claims, and rising average hourly earnings.
In addition, default rates continue to decline, corporate profits are at all-time highs, weekly forward profit margins are at record highs, and US household balance sheets are in excellent shape, see charts below.
In short, the US economy remains incredibly strong.
Combined with tailwinds to growth from record-high stock prices, tight credit spreads, M&A/issuance markets rebounding, the AI/data center boom, the Chips Act, the IRA, the Infrastructure Act, and lower taxes for domestic manufacturers and deregulation likely coming, the bottom line is that we could see a dramatic increase in job growth in November, including a reversal of the weather and strike effects that were pushing down nonfarm payrolls in October.
Our chart book with daily and weekly indicators for the US economy is available here.
Source: PitchBook LCD, Apollo Chief Economist 
Source: BEA, Haver Analytics, Apollo Chief Economist 
Note: The 12-month forward profit margins are calculated by using the weighted average of 1FY (current year estimate) and 2FY (next year estimate) to smooth out fiscal year transitions. Source: Bloomberg, Apollo Chief Economist 
Source: Statistics Canada, Reserve Bank of Australia, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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