Apollo Global's six charts that point to share market falls, US recession

Torsten Slok the chief economist at US$548 billion US investment giant Apollo Global (NYSE: APO) has declared the US government's voluntary trade reset will spiral into empty shopping shelves, job losses, and a recession within months. 

In a 40-page presentation to the group's clients on Friday, Apollo concluded a trade war will push the nation's flagship S&P/500 Index lower and borrowing rates higher in a combination that will produce a stagflationary shock. 

“The consequence will be empty shelves in US stores in a few weeks and COVID-like shortages for consumers and for firms using Chinese products as intermediate goods,” Slok told Apollo's clients on Friday.

Investors have shrugged off the gloomy predictions about the impact of tariffs so far as Australia's S&P/ASX 200 (ASX: XJO) hit a two-month high on Tuesday and the S&P/500 closed just 2.6% shy of its level before President Trump revealed the tariff plans. 

Slok produced nearly 40 charts of data in his presentation to support his alarming narrative and visually show how risks around declining corporate profits, tumbling consumer confidence, and the return of inflation spell danger for share market valuations.

So, let's take a look at a small sample of six charts and their potential implications. Also, remember that many of these assumptions are largely on the basis President Trump doesn't abandon tariffs, especially the 145% levels against China, in the short term. Please also note the below commentary is from the author and not the views of Apollo or Slok. 

Chart one - timeline to US recession

Slok reckons the US will head into recession and empty shelves within months if the status quo remains. There's plenty of data to support this assumption and the Great Financial Crisis of 2009 suggests a recession, job losses and broken confidence will hurt share valuations. 

Chart two - Profit warning!

This chart shows the reality that US companies are already raising alarm bells about the impact of tariffs on their profits to suggest it may already be too late for Trump to reverse the damage from his trade war. If you look at the chart the percentage of companies downgrading earnings guidance, versus those upgrading is now heading towards the lows of the COVID-19 hysteria in 2020.

In Australia companies including Flight Centre (ASX: FLT), Brambles (ASX: BXB), Reliance Worldwide (ASX: RWC) Bubs (ASX: BUB) and Yowie (ASX: YOW) have also all flagged potential problems from tariffs. 

Chart three - US consumer confidence is plunging

This chart shows US consumer pessimism about the jobs market is now worse than during the pandemic-era and near the same level during the GFC of 2009, which was characterised by mass bankruptcies and the near collapse of the financial services sector. 

Chart four - inflation expectations are rising

This chart shows inflation expectations are rising after steadily declining since the last great inflationary period across 2022. Inflation expectations are normally reasonable guides to actual future inflation as workers tend to demand pay rises and businesses move to lift prices if they expect inflation to rebound. In this instance consumers likely expect tariffs and goods shortages to push prices higher and may expect government support, income tax cuts, or private sector pay rises in compensation. 

If inflation does rebound in the US this will make it hard for the Federal Reserve to match interest rate futures traders' expectations for it to deliver 98 basis points of rate cuts in 2025. 

Chart five - US corporates are more reliant on China, than vice versa

Despite the rhetoric coming out of Washington that it has the cards against China as the US has a trade surplus, other data points suggest US corporates clearly need China as well. The below chart shows S&P500 companies collect six times more revenue from China than what the US exports to China. Overnight, China also denied White House claims that it was in talks about resolving the stand-off. 

Chart six - shares could fall and interest rates rise

The horror combination of falling share markets and higher interest rates is a realistic scenario if a trade war creates inflation and a recession or slower growth. This nightmare scenario of 'stagflation' is being mooted by Apollo as the most likely outcome of an ongoing trade war per the final chart. 

Before you sell everything and run for the hills, it's worth remembering these are just assumptions based on forecasts and excluding masses of variables. 

As such, nobody knows where stock markets head next and more money is often lost trying to predict corrections, than in the actual corrections themselves, so it's always best to focus on the long term in the share market.