Today's GDP data prove earnings will remain strong, says Apollo's Torsten Slok

The stock market may be closed tomorrow, but Wall Street is still on alert as we do await results from the February PCE report that will be out tomorrow morning. Joining us now is Apollo Global Management chief Economist, Torsten Slack. Torsten, it’s great to have you back on. We got a lot of data today including GDP which for this final reading was was strong and which did show that inflation remains sticky. But on the flip side, you had some Goldilocks numbers too, particularly consumer sentiment as we’re seeing that at the highest level since July of 2021, inflation expectations in that report hovering near their lowest level since December of 2020. What to make of the mixed messages we’ve been getting from all these data points to date. Now this is very important Morgan. So I think that the key issue really here is that when the Fed began to turn dovish in November, December last year, we can discuss exactly the date whether this was a November 1st meeting or the FOMC member on December 13th. But the bottom line is the stock market has rallied 25% since November the 1st. So think about it, the market cap of the S&P 500 is about 45 trillion. So we added 25% of that is about 10 trillion. We added ten trillion in wealth to consumers to corporates basically in a span of only about 5 months. How can this not be positive for consumer spending? How can this not be positive overall for CapEx spending? How can this not be positive for hiring? We are seeing a significant tailwind as a result of this easing and financial conditions. This is also why you’re seeing credit spreads are tightening. That’s been creating a rebound in IPO in M&A activity. That’s why we’re now seeing a tailwind to inflation, tailwind to the economic data. So the conclusion is the data we got today from GDP was indeed strong because it’s a reflection of the Fed that has now turned around and given a tailwind and we’ve seen employment being strong for the last two months in facing being strong. So the conclusion is we should also expect to see earnings continue to be strong. So what is that? Where does that leave us in terms of the commentary we did get from Fed Governor Waller last night, because he had been pretty hawkish and then he had been sort of the first one to really significantly tilt a little more dovish late last year. That’s when you, to your point, started to see this market rally. And then Powell basically piled on the fact that he shifted slightly more hawkish in tone last night and markets had to digest that today ahead of that PCE number tomorrow. How notable is that? Yeah, this is really important because he was one of the biggest Hawks on the FMC and he then, at a speech he gave in November really turned much more dovish, essentially saying inflation is no longer as big a problem as we thought before. And that’s true, and that is a correct description. The problem was that that unleashed some very significant powers in the form of an easing in financial conditions. And it unleashed the powers in such a way where he now yesterday basically had to step a little bit back and say, well, hold on, maybe this easing in financial conditions is indeed the source of why the inflation prints in January and February were so strong and why they not found payrolls in January and February were so strong. And to your point about the data tomorrow Morgan, exactly we should expect to see still the PCE inflation headline at 2.5, call at 2.8. That is still not quite too. And that conclusion therefore is if we now have a tailwind to consumption. If the economy starts to re accelerate over the next several months with what will be completely logical as a consequence of this significant increase in wealth for households, we would should see the Fed. And we would expect the Fed to begin to worry more about the inflationary trends simply still not being solved yet and therefore the inflation problem still being around.