Apollo Management

CEO Sheds Light on the Non-Recession Recession Phenomenon Affecting Asset Holders

In 2022, 58% of Americans owned stock—including individual stocks as well as retirement savings accounts—according to a Gallup poll from May of last year, a two percentage point increase from 2021.

Private Equity CEO of Apollo Management Sheds Light on the ‘Non-Recession’ Recession Phenomenon Affecting Asset Holders

Over a year has passed since investors began warning about a recession, and despite the Federal Reserve’s tightening measures and interest rate hikes, employment remains high and wages continue to rise. According to Marc Rowan, billionaire investor and CEO of Apollo Management, a private equity firm managing over $500 billion, the current economic climate represents an unconventional recession, predominantly affecting asset holders.

In a recent CNBC interview, Rowan highlighted that although wage increases have struggled to outpace inflation, young workers and low-income households have witnessed the largest nominal pay raises due to a tight labor market. Meanwhile, middle-class and wealthy individuals who own assets are more likely to experience the impact of this ‘non-recession’ recession.

The Fed’s interest rate hikes have significantly affected stock markets, with 2022 marking the worst year for Wall Street since the Great Recession. The Nasdaq 100 lost a third of its value, and the S&P 500 decreased by nearly 20% by year-end. Although stocks have rallied in 2023, some investors remain cautious of bear market traps, and certain sectors like retail have yet to see substantial gains. US households lost almost $7 trillion in wealth in 2022, primarily due to the stock market’s decline.

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However, not every American is closely monitoring their portfolio. Rowan points out that a majority of the country does not own assets in a significant way. A 2022 Gallup poll revealed that 58% of Americans owned stock, including individual stocks and retirement savings accounts. However, this figure decreases with income level: 89% of households earning over $100,000 annually invested in the stock market, compared to 61% of those earning between $40,000 and $99,999, and only 25% of households earning less than $40,000.

Higher-income households also tend to participate more in retirement investment plans such as 401(k)s. A 2022 Vanguard study found that 96% of eligible employees earning above $150,000 contributed to a retirement plan, compared to 75% of those earning under $50,000.

The labor market remains a bright spot for lower-income households, with 253,000 new jobs added and unemployment hitting a 54-year low. Rowan suggests that we are experiencing a “non-recession recession,” which deviates from the historical pattern of massive unemployment shifts during a recession.

The Congressional Budget Office (CBO) states that home equity is the most prevalent asset for Americans in the bottom half of the wealth distribution, while wealthier Americans invest in stocks and retirement assets. The CBO identifies rapid growth in asset classes over recent decades as a key driver of wealth inequality in the US. Rowan argues that the “free money” era since 2008 benefited wealthier households, with stimulus measures boosting stock markets to record highs during the pandemic.

As the era of free money comes to an end, low-income households are beginning to see gains that higher-income Americans are not experiencing. However, due to the significant head start of the wealthy, the wealth gap remains unlikely to close in the near future.

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