2023 ECONOMIC AND CAPITAL MARKETS OUTLOOK Here’s another situation that will surely need to unwind: A high, will need to come down than it is for GDP growth growing disconnect between earnings expectations for S&P forecasts to rise. While we are increasingly confident that 500 companies and overall GDP growth (Exhibit 26). It’s more the Fed might engineer a soft landing, we are still facing an likely that earnings expectations, which have been stubbornly economic slowdown. Exhibit 26: Consensus points to a divergence between S&P 500 earnings and GDP growth expectations o  4.5 245 240 4.0 235 230 3.5 225 220 3.0 215 210 2.5 205 200 2.0 1 1 1 1 1 1 1 2 2 2 2 2 2 195 2 2 2 2 2 2 2 2 2 2 2 2 2 n l g p t v c n b r r y n u u u e c o e a p a J J a e u A S O N D J F M A M J looberg conenu 2022 D­ €orecat ‚ƒ„S… S†­ 500 12‡ontˆ €or‰arŠ ‹­S eŒpectatŽon ‚‘„S… Source: Bloomberg, Apollo Chief Economist. Data as of November 11, 2022. How can investors position themselves for 2023? destruction” on the part of the Fed will decrease. We think that is already happening in the US. History shows that when inflation declines, the stock market rallies. Unfortunately, the toughest part—calling the turn and We believe a less aggressive Fed—or a potential Fed “pivot” the speed of the decline in inflation—is extra-complicated later in 2023—should be bullish for asset prices (public and in today’s environment, given the unique combination of private) ranging from rates, to credit, to equities. That said, disruptions to the global economy (the pandemic, conflict in capital markets will remain vulnerable in 2023 and volatility Europe) and monetary interventions of unprecedented scale. will likely persist because with inflation at high levels and the Fed keeping rates elevated, capital will remain scarce and In the face of such atypical market forces, as well as the expensive, and high-yield primary credit markets will stay higher-than-average degree of uncertainty in the outlooks virtually shut down for the time being. Selectivity in asset for inflation and economic growth, many investors will likely selection, valuations, and entry points will be paramount. be reconsidering their asset allocation decisions as we enter 2023. We see a number of opportunities to turn uncertainty Many investors—weary and battered after a disastrous into opportunity. performance of 60/40 portfolios of public equities and bonds in 2022—are likely to turn to private markets as they To recap: The sequencing of how the Fed reaches its dual adjust their holdings in 2023. Purchase price matters and mandate (taming inflation and maintaining full employment) we see a historic entry point in private credit and attractive is key for capital markets. Receding inflation first, moderating opportunities in private equity for investors able to be employment later would mean that the need for “demand providers of capital in time of stressed and distressed markets. 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. 18