Key highlights from this interesting read:
History has shown it can take up to 2 years to get back to the 2% interest rate target.
Inflow in private market can improve after one of the worst years of the 60/40 portfolio split.
2023 there is a possible soft landing while having a stagflation. This would be case where there would be increase in prices and slow growth with high unemployment. This would totally depend on the on going inflation numbers and the labor markets reactions to it. The Fed would be keeping a close eye on these numbers in figuring the terminal rate.
Apollo expects the terminal rate to come around mid 2023 with a rate of 5.5%.
The similar path of inflation in the EU and the US has made it clear that it was not just a demand side inflation but a supply side problem.
Housing takes up 40% of the CPI (Consumer Price Index).
$2.6 Trillion worth of savings from Covid therefore there could be strong consumer spending. High levels in saving accounts.
Labor market overheating has been characterized more by excessive job openings than actual employment.
QT - Quantitative tightening will be a key theme in 2023.
The amount of US government debt held by the public is at an all time high. This is crowding out other types of fixed income. $24 trillion worth is held by the public.
Mid November the 60/40 Portfolio was down 16% in 2022.
Cooling inflation without a large rise in unemployment would be a soft landing.
When inflation declines usually stock rallies.
In 2022 public debt markets have been closed to all but highest rated companies. This is why private grade credit markets are very active at the moment.
Market bottom typically occurs only after earning expectations have bottomed.
Prices of real estate and infrastructure should retain support as investors continue seeking inflation hedges.
Highest Public to Private transactions rate.
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