Apollo's Jim Zelter Looks Ahead to 2026

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00:00Let's start with the look ahead for next year, which is everything is awesome. And what we're

00:04hearing from every single person who comes on the show is that next year is going to be double

00:07digit gains in the S&P 500 at the same time that you continue to get, grind out better returns

00:13from the debt space. Is there a contradiction here? Well, I would just say that the confidence

00:19sitting here in December about next year that anybody puts forth has to be taken with a little

00:25bit of skepticism because of the year we've just had. If you were here on this journey

00:31this year, obviously, it's been a trend on volatility and we've ended up in a place that many probably

00:35wouldn't have predicted. But as we sit here right now thinking about the year ahead, you're

00:39going to end this year with an extremely strong M&A calendar and M&A backlog in terms of what's

00:45actually been executed this year, but also in the pipeline of new deals. The expectations

00:50on the Bloomberg economics page is a 30 percent chance of a recession next year, a little bit

00:56higher inflation, a little bit lower growth. And as we talked about a moment ago, one of

01:01the markets has to be wrong in this intersection right now where many are saying we need to lower

01:06rates because of an economic slowdown and the other side saying earnings upside because of

01:12accelerating earnings from the mag seven and the four ninety three. Those both can't be correct

01:18or it's very, very unlikely that they'll both be correct. We're in the camp at Apollo as Torsten's

01:24been up here and many others that between the K shape economy and other demographic issues,

01:30we're going to probably see a deceleration of lower rates and a stronger economy in terms of M&A

01:38CapEx cycle, positive regulatory backdrop and things of that nature.

01:42So if bonds and stocks can't both be right and they seem to be in conflict right now,

01:47are you saying that stocks have it right and bonds have it wrong?

01:51I'm saying the what's been surprising to all of if we take a big step back the last four or five years,

01:56the idea that the the Fed would raise rates so much that they did be starting in 22.

02:02We all predicted massive slowdown in the U.S. economy, tightening financial conditions,

02:08and we were all wrong. This U.S. economy has been amazingly resilient. Now, it's been resilient for

02:16organic reasons as well as a lot of fiscal spending, obviously now the CapEx cycle,

02:23but the U.S. economy has been the most resilient for a variety of reasons. And our suspicion is that

02:29that will tend to continue in the in the year ahead. So I think if you look at if you look at the gap in

02:35the last month or so of the Mag 7 earnings growth and the 493, a year ago, it was like 30, 35 percent.

02:43The growth rates of the Mag 7 and the 493 in the last quarter was 11 percent, 22 versus 11, I believe.

02:50So the rest of the U.S. economy is doing somewhat better in light of the breadth of the AI cycle.

02:56So

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