More downside risk for the economy going forward, says Apollo Global's Torsten Slok

Key Concepts

• Tariffs and their impact on corporate earnings, particularly for tech companies.
• The significance of international revenue for S&P 500 companies, especially the "Magnificent Seven" tech stocks.
• Declining corporate and consumer sentiment.
• The role of the jobs report in assessing the economic outlook.
• The potential for a recession due to tariffs and weakening economic indicators.

Impact of Tariffs on Corporate Earnings

• Torsten Slok emphasizes that 40% of revenue for S&P 500 companies comes from abroad, and for the "Magnificent Seven" tech companies, it's 50%.
• Tariffs are expected to have a greater impact on the rest of the world's GDP than on the US, which will negatively affect the earnings of these companies.
• Dan Ives suggests that if tariffs remain at current levels, it could be "Armageddon in technology."
• The tariffs on Vietnam, such as the 46% tariff, are highlighted as significant.

Declining Sentiment and Recession Risk

• Corporate sentiment is already negative, with companies planning less CapEx (capital expenditure) over the next six months, according to Fed surveys.
• Consumer sentiment is also declining, both for households making more than $100,000 and those making less.
• Consumers are more worried about their jobs and expect business conditions to worsen in the next 12 months to levels not seen in the last 40 years.
• Peter Navarro's statement that the tariffs are "not a negotiation" but a "national emergency" is presented as a key factor.
• Slok argues that the combination of negative sentiment, tariffs, and a more than 10% sell-off in the S&P 500 raises the likelihood of a recession.

The Jobs Report and Market Reaction

• The discussion explores how the upcoming jobs report might influence market sentiment.
• A good jobs report (e.g., 150,000 jobs created) might be dismissed as "stale information" because it doesn't reflect the recent tariff increases and their impact on corporate earnings.
• A bad jobs report would indicate that economic problems existed even before the tariff news, potentially prompting the Fed to cut rates.
• A mediocre to slightly bad report might be the worst-case scenario for the market.
• Data from Challenger, Gray & Christmas indicates increasing layoffs, particularly in the federal government.
• The fear is that the unemployment rate will begin to creep higher, further contributing to negative sentiment and economic decline.

Conclusion

The main takeaway is that tariffs pose a significant threat to corporate earnings, particularly for tech companies with substantial international revenue. This, combined with declining corporate and consumer sentiment, increases the risk of a recession. The upcoming jobs report is unlikely to alleviate these concerns, as its interpretation is complicated by the recent tariff announcements. The overall outlook is pessimistic, with the potential for further economic deterioration in the coming months.