2023 Economic and Capital Markets Outlook By Torsten Sløk, PhD Apollo Chief Economist December 2022 KEY TAKEAWAYS The central themes of 2022—namely high inflation, potential The sequencing of how the Fed reaches its dual mandate economic recession, and dislocated asset prices—are (taming inflation and maintaining full employment) is key expected to continue to be with us as we head into 2023. for capital markets. Receding inflation first, moderating But the story of those elements will be different, as the employment later means that the need for “demand fast-and-furious tightening of monetary conditions by the destruction” on the part of the Fed decreases. Federal Reserve in 2022 has begun to take effect across the macroeconomic spectrum—from inflation, to spending, hiring, A less aggressive Fed—or a potential Fed “pivot” in and capital expenditures—as well as in the capital markets. 2023—should be bullish for asset prices (public and private) ranging from rates, to credit, to equities. That This is how we believe 2023 will differ from 2022: said, capital markets will likely remain vulnerable in 2023 and volatility will likely persist because capital remains US inflation appears to have peaked in June 2022, with scarce and expensive, and high-yield primary credit the Consumer Price Index (CPI) showing us good reason markets will likely stay virtually shut down for the time to believe that we’re now in the beginning of a downward being. Selectivity in asset selection, valuations, and entry trend. The decline in inflation in recent months has points will be paramount. been driven mainly by the goods sector, while prices of services have proven stickier. The downtrend is welcome Also, many investors—weary and battered after a news for markets and the Fed, but it doesn’t mean that we disastrous performance of 60/40 portfolios of public will get back to the Fed’s 2% annual target anytime soon. equities and bonds in 2022—are likely to turn to private In fact, history shows it could take up to two years for us markets as they adjust their holdings in 2023. Purchase to get there. price matters and we see a historic entry point in private credit and attractive opportunities in private equity for The decline in inflation is taking place without a sharp investors able to be providers of capital in a time of increase in the unemployment rate, which points to a stressed and distressed markets. higher probability that the Fed might engineer a much- desired soft landing of the US economy, a scenario that many thought very unlikely just a few months ago. The information herein is provided for educational purposes only and should not be construed as financial or investment advice, nor should any information in this document be relied on when making an investment decision. Opinions and views expressed reflect the current opinions and views of the author(s) and Apollo Analysts as of the date hereof and are subject to change. Please see the end of this document for important disclosure information. @ 2022 APOLLO GLOBAL MANAGEMENT, INC. ALL RIGHTS RESERVED.