Corporate borrowers are coming under stress even as the rest of the economy looks strong, top Apollo exec says

People walk along Fifth Avenue during the Open Streets program on December 18, 2022 in New York City.

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• There are "pockets of stress" within an otherwise strong US economy, Apollo's co-president Jim Zelter said.
• Many corporate borrowers are grappling with high debt and a slow recovery from the pandemic. 
• Zelter said he sees signs of "hardening of economic conditions" coming. 

Corporate borrowers represent "pockets of stress" within an otherwise robust economy, according to Apollo Global Management co-president Jim Zelter. 

Against a backdrop of the surprisingly robust US economy, some companies are struggling with high debt loads and a slow recovery from the COVID-19 pandemic, Zelter told Bloomberg TV on Tuesday. 

"You're seeing some signs of challenge and weakness, but there's been a tremendous amount of private equity activity and financing activity the last five to seven years," Zelter said, adding that borrowers would have "stray challenges around the edges."

The top private equity executive said the ongoing economic resilience has "befuddled" many economists as the corporate default rate hit 5% at the end of last year while equity markets surged over 20%. Despite this apparent resilience, Zelter warned that there are signs of "hardening of economic conditions" forming. 

When it comes to the Federal Reserve's rate-cutting trajectory, Zelter said the so-called Fed put is back, and the central bank is in an interesting position as it's got a lot of "bullets" left with which it can fight volatility. 

As the Fed pushed back on its timelines for rate cuts, many Wall Street experts and analysts are pinning their hopes on the first rate cut in May. 

A string of strong economic indicators has been released in recent weeks. The fourth quarter of last year saw a GDP surge of 3.3%, accompanied by a lower-than-expected unemployment rate of 3.7%. The conundrum for investors has been that strong economic data pushes back on expectations for rate cuts in the near-term. 

January consumer price index data released on Tuesday showed that inflation clocked in at 3.1% on an annualized basis in January, higher than estimates of 2.9% and down only slightly from 3.4% reported in December. 

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