MW Why the Apollo economist who coined 'no-landing' now sees intensifying risks to the U.S. economy

By Jamie Chisholm

Policy uncertainty is no friend to animal spirits

The new week looks like starting on the front foot for stocks. But the putative rebound is a fraction of Friday's tumble, when the the S&P 500 SPX shed 1.7%.

While concerns about high valuations linger, it was anxiety over the direction of the U.S. economy that seemed to mostly fuel the latest swoon. The yield on the 10-year Treasury BX:TMUBMUSD10Y dropped 8 basis points in the previous session after a services sector survey pointed to contraction and a gauge of consumer sentiment dipped.

It appears some investors may be coming round to the thinking of Ken Griffin, the billionaire founder of hedge fund Citadel, who recently warned that the "uncertainty and chaos" created by President Donald Trump's tariff moves against the U.S.'s allies will prove "an impediment to growth."

For now such fears are intangible. More real are the swathes of government layoffs enacted by Elon Musk's Department of Government Efficiency. But combine these two issues and there is a danger that downside risks to the U.S. economy are intensifying, according to Torsten Slok, Apollo chief economist, who was the first on Wall Street to coin the term "no landing" in reference to an economy that continued to grow at a healthy rate.

In a note published over the weekend, Slok accepts that much U.S. economic data "remains strong" but "we are starting to worry about the downside risks to the economy and markets" from the impact of DOGE layoffs and policy uncertainty.

He says that analysts' consensus expects 300,000 total DOGE-related job cuts, and as the chart below shows there has already been a pick up in people filing for unemployment benefits in Washington DC.

With total U.S. employment of 160 million, 7 million unemployed and about 5 million people changing jobs every month, the 300,000 federal jobs lost is not statistically very much. But studies show that for every federal employee there are two contractors, according to Slok, and so layoffs could be closer to 1 million.

"Any increase in layoffs will push jobless claims higher over the coming weeks, and such a rise in the unemployment rate is likely to have consequences for rates, equities, and credit," he says.

The next chart from Slok suggests that while there has been increasing chatter about policy uncertainty there are parts of the market that remain seemingly oblivious to the dangers.

Credit spreads - the extra yield above Treasurys that investors demand to lend to companies - tend to move up during periods of economic policy uncertainty. But there is a clear disconnect at the moment, with uncertainty spiking but spreads hugging historic lows.

"The question is if persistently elevated policy uncertainty will begin to have a negative impact on capex spending and hiring decisions," says Slok.

Morgan Stanley strategist Mike Wilson is also becoming more wary about U.S. economic growth and "stickier" interest rates amid tariff uncertainty, and reckons they are the reasons why the S&P 500 has struggled to decisively break above the 6,100 level.

"Soft retail sales data from last month and tariff uncertainty suggest that a durable rebound in consumer discretionary goods' [stocks] relative performance remains elusive for now. Bottom line, continue to favor consumer services [stocks]," says Wilson.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher while benchmark Treasury yields rise.

The dollar index DXY is down from Friday's close, while oil prices (CL.1) gain and gold (GC00) is trading around $2,937 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6013.13    -1.66%  -1.44%  2.24%   18.16% 
   Nasdaq Composite                                                     19,524.01  -2.51%  -2.16%  1.10%   22.05% 
   10-year Treasury                                                     4.441      -3.90   -10.00  -13.50  15.85 
   Gold                                                                 2956.2     2.16%   7.77%   12.01%  44.84% 
   Oil                                                                  70.5       -0.10%  -3.56%  -1.91%  -9.15% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

The euro $(EURUSD.FOREX)$ and DAX equity index DX:DAX jumped after conservatives won Germany's election.

Warren Buffett's Berkshire Hathaway $(BRK.A)$ $(BRK.B)$ published its latest quarterly results and annual report on Saturday, showing cash and equivalents at a record $334.2 billion in the fourth quarter.

Microsoft $(MSFT)$ is reportedly cancelling data-center leases, according to a research note from TD Cowen.

Federal agencies bristle at Elon Musk's latest DOGE order to justify their jobs.

Domino's Pizza $(DPZ)$ will report earnings before the bell, and Hims & Hers Health $(HIMS)$, a favorite of the wallstreetbets crowd, will deliver results after the close.

The U.S. Treasury will announce the result of a $69 billion auction of 2-year notes at 1:00 p.m. Eastern.

Shares in European food delivery companies rose after Prosus (NL:PRX) said it would buy Just Eat Takeaway (NL:TKWY) for $4.3 billion, with analysts pointing to a potential increase in merger activity in the sector.

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The chart

Friday's stock market swoon coincided with a large expiration of stock and index options. Jonathan Krinsky, technical strategist at BTIG, delivers the chart below and notes what he calls these VIXperation events (red arrows) often presage a marker retreat.

"[O]ur concern was a marginal new high above 6100 before a deeper pullback into March. We got that new high into VIX-expiration, and then the rug-pull. That is a classic 'false breakout' and creates the set-up for weakness into March consistent with the typical seasonal pattern," says Krinsky.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Tickers  Security name 
   NVDA     Nvidia 
   TSLA     Tesla 
   HOLO     MicroCloud Hologram 
   PLTR     Palantir Technologies 
   SMCI     Super Micro Computer 
   MLGO     MicroAlgo 
   GME      GameStop 
   BABA     Alibaba 
   TSM      Taiwan Semiconductor Manufacturing 
   AAPL     Apple 

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February 24, 2025 06:30 ET (11:30 GMT)

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