Despite a Strong Economy, Corporate Borrowers Are Feeling the Pressure

The US economy is experiencing a period of stress, according to Apollo Global Management co-president Jim Zelter. Despite the overall strength of the economy, some corporate borrowers are struggling with high debt burdens and slow recovery from the COVID-19 pandemic.

Zelter noted that there has been both signs of challenge and weakness as well as significant private equity and financing activity over the past five to seven years. This has led to borrowers facing “stray challenges around the edges.” Despite the corporate default rate reaching 5% at the end of last year and equity market surges of over 20%, Zelter warned of a “hardening of economic conditions” taking hold.

In terms of monetary policy, Zelter addressed the return of the “Fed put” and the central bank’s ability to combat volatility with existing tools. He noted that the Fed’s pushed back timelines for rate cuts, with many experts and analysts pinning their hopes on the first rate cut happening in May.

Recent strong economic indicators have been released, such as a 3.3% GDP surge in the fourth quarter of last year and a lower-than-expected unemployment rate of 3.7%. However, these indicators have created a conundrum for investors, as strong data pushes back expectations for rate cuts in the near-term. Another indicator is that January’s consumer price index data showed an annualized inflation rate of 3.1%, slightly lower than December’s 3.4%. Overall, Zelter believes that while there are pockets of stress within an otherwise robust economy, there are also opportunities for private equity and financing activity to continue driving growth and investment opportunities in certain sectors.

By Editor

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