The market is still pricing in a Fed rate hike later this year: Apollo's Torsten Slok

Summary

Torsten Slok discusses the AI investment cycle, noting that the market is repricing the timing of AI returns while profit margins remain concentrated in the Magnificent Seven. He highlights inflation risks from rising oil and delayed tariff pass-through, and warns that the market is underpricing the potential for a Fed rate hike later this year, expecting rates to stay higher for longer.

• AI-driven market correction reflects demand for faster ROI on AI spending
• Profit margins for S&P 493 have been stagnant, diverging from Magnificent Seven
• Oil prices and unfinished tariff pass-through keep inflation stubbornly elevated
• FOMC split with many members leaning hawkish, complicating forward guidance
• Torsten Slok believes the market underestimates the risk of a Fed rate hike
• He argues rates will stay higher for longer, and the peak in yields has not been reached
• Short-end yields (2-year) have declined but this move may reverse if the Fed turns hawkish