The Daily Spark

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  • The Fed wants to tighten financial conditions to cool down inflation, and investors passively holding the S&P500 and the Investment Grade credit index are so far down 13% and 16% from their peaks, see charts below. The next step is to monitor for any sign of a slowdown in the economic data. The consensus expects the April employment report on Friday to come in at 391K and the unemployment rate to decline to 3.5%, suggesting that the consensus does not yet see any signs of a slowdown in the economy. For more, see our chart book I sent around on Saturday with daily and weekly indicators for the US economy.

    Chart showing the S&P500 falling 13% from its January 2022 high as the Fed tightens financial conditions
    Source: Bloomberg, Apollo Chief Economist. Note: Bloomberg ticker used for S&P500: SPY.
    Chart showing investment grade bonds falling 16% off its high
    Source: Bloomberg, Apollo Chief Economist. Note: Bloomberg ticker used for the IG credit index LQD.

    See important disclaimers at the bottom of the page.


  • Housing Affordability

    Torsten Sløk

    Apollo Chief Economist

    The average monthly payment on a new mortgage is now $1,361, driven by higher rates and higher home prices, see chart below.

    Chart showing surging monthly mortgage payments due to higher income and rising interest rates
    Source: NAR, Haver Analytics, Apollo Chief Economist. Note: NAR begins with the median price of existing single-family homes sold, and they assume an 80% mortgage loan-to-value ratio, that is, a 20% down-payment from the buyer. Using the average effective mortgage rate on loans closed, NAR calculates the median mortgage payment.

    See important disclaimers at the bottom of the page.


  • Weekend Reading

    Torsten Sløk

    Apollo Chief Economist

    Two cheers for the Fed
    https://www.brookings.edu/opinions/two-cheers-for-the-fed/

    Central banks can tighten by doing nothing
    https://www.omfif.org/2022/04/central-banks-can-tighten-by-doing-nothing/

    “The New Fama Puzzle”
    http://econbrowser.com/archives/2022/04/the-new-fama-puzzle

    See important disclaimers at the bottom of the page.


  • High Wage Growth for Job Switchers

    Torsten Sløk

    Apollo Chief Economist

    Wage growth continues to accelerate in particular for job switchers, see chart below. The labor market is overheating and the Fed is trying to cool down the economy by raising rates and doing QT.

    Chart showing robust wage growth for job switchers
    Source: Federal Reserve Bank of Atlanta, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Outlook for markets and alternatives

    Torsten Sløk

    Apollo Chief Economist

    My latest outlook presentation is available here.

    See important disclaimers at the bottom of the page.


  • Fed Withdrawing Liquidity

    Torsten Sløk

    Apollo Chief Economist

    QE had a positive impact on the stock market and QT will have the opposite effect see chart below.

    Chart showing the Fed's removal of liquidity is hurting the stock market
    Source: Bloomberg, Apollo Chief Economist. Note: US reserve balance forecast generated by regressing reserve balances on Fed Funds target rate and Fed balance sheet.

    See important disclaimers at the bottom of the page.


  • Bankruptcy Filings Starting to Move Higher

    Torsten Sløk

    Apollo Chief Economist

    The weekly data for bankruptcy filings have shown a modest uptick in recent weeks see chart below. This data is for companies with more than $50mn in liabilities. With the Fed keen on slowing down inflation investors must monitor high-frequency data for any sign of monetary policy beginning to cool down the economy.

    Chart showing an uptick in companies filing for bankruptcy
    Source: Bloomberg, Apollo Chief Economist. Note: Filings are for companies with more than $50mn in liabilities

    See important disclaimers at the bottom of the page.


  • Yield Levels in Public Markets Still Very Low

    Torsten Sløk

    Apollo Chief Economist

    Yes, interest rates have increased, but 61% of all bonds in the world still trade at less than 3%. See chart below.

    Chart showing that 61% of global bonds still have a yield less than 3%
    Source: Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


  • Video: Outlook for the Economy and Markets

    Torsten Sløk

    Apollo Chief Economist

    I had a 45-minute conversation with Nic Millikan at CAIS about the outlook for markets and asset allocation including for alternatives:

    https://www.caisgroup.com/videos/cxo-or-podcast?video=s2e7-apollo-global-management-inflation-interest-rates-divergent-macroeconomic

    See important disclaimers at the bottom of the page.


  • Equity Investors Too Optimistic?

    Torsten Sløk

    Apollo Chief Economist

    The chart below shows consensus expectations for GDP growth and consensus expectations for earnings growth over the coming quarters. Economists see growth slowing as we go through 2022. Equity investors see a rebound. This is not consistent. Either equity investors are too optimistic or economic forecasters are too pessimistic.

    Chart showing conflicting forecasts for earnings growth and GDP
    Source: Bloomberg, Apollo Chief Economist

    See important disclaimers at the bottom of the page.


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