With some economists anticipating the Federal Reserve to hold interest rates higher for longer, what does it mean for equity markets (^DJI,^GSPC, ^IXIC)?

Apollo Global Management (APO) chief economist Torsten Sløk joins Julie Hyman and Josh Lipton on Market Domination to share his market outlook if the Fed does ease its rate-cutting cycle in 2025.

"The challenge for the S&P 500 at the moment is that it's so highly concentrated," Sløk says, explaining that "roughly a third of the index is made up of the top ten companies in the S&P 500." He adds, "We all know how important Nvidia (NVDA) is and how critical it has been for returns this year."

The economist underlines the biggest problem components of the Russell 2000 small cap index (^RUT): 40% of them "have no earnings."

"So that means that if rates are higher for longer, that means that small-cap companies will continue to struggle with earnings and therefore not being able to service their debt servicing costs," he explains.

"That brings you to the conclusion that if you have to be in public equities, the mid-cap or S&P 400 (^SP400) still continues to look like the most interesting place to be, simply because the risk is too high when it comes to the large-cap companies because it's so focused on a handful of names and for the small-cap companies, again, in my view, the bubble in small caps is still growing and continues to be significant."

Catch Apollo Global Management's Torsten Sløk also weigh in on why the Fed should keep their rates higher for longer.

Disclosure: Yahoo Finance is owned by Apollo Global Management.

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This post was written by Naomi Buchanan.