1 00:00:01,520 --> 00:00:03,880 Speaker 1: Thank you so much for joining us for this President's 2 00:00:03,920 --> 00:00:07,840 Speaker 1: Day edition of Bloomberg Daybreak. I'm Nathan Hagar. Coming up 3 00:00:07,880 --> 00:00:10,160 Speaker 1: this hour. We'll look at what's ahead for the economy 4 00:00:10,200 --> 00:00:14,120 Speaker 1: and the Federal Reserve with PIMCA Chief US Economist Tiffany Wilding. 5 00:00:14,440 --> 00:00:17,360 Speaker 1: Plus we'll turn the focus to retail. Both Walmart and 6 00:00:17,520 --> 00:00:21,400 Speaker 1: Home Depot report their earnings. Tomorrow we'll preview with Bloomberg 7 00:00:21,400 --> 00:00:24,919 Speaker 1: Intelligence Senior analyst Jennifer Bartashes. But first we want to 8 00:00:24,960 --> 00:00:28,680 Speaker 1: start with the stock market has gotten off to a 9 00:00:28,840 --> 00:00:31,840 Speaker 1: pretty good start if you're a bull, so is the 10 00:00:31,840 --> 00:00:35,159 Speaker 1: worst behind us? For equities, Let's bring in Lorie Calvacina 11 00:00:35,280 --> 00:00:38,560 Speaker 1: for some analysis, head of US Equity Strategy at RBC 12 00:00:38,760 --> 00:00:41,760 Speaker 1: Capital Markets. It has been quite the rally, and it 13 00:00:41,840 --> 00:00:44,640 Speaker 1: seems like stocks are holding onto it in the month 14 00:00:44,640 --> 00:00:47,720 Speaker 1: of February. How do you see equities position, Lorie as 15 00:00:47,760 --> 00:00:49,960 Speaker 1: we moved through the rest of this quarter. Well, thanks 16 00:00:50,000 --> 00:00:52,000 Speaker 1: for having me, and look, I think that you know, 17 00:00:52,000 --> 00:00:55,760 Speaker 1: we're sort of an interesting spot. I've got a target 18 00:00:55,840 --> 00:00:58,320 Speaker 1: for year end and I still very much like that number. 19 00:00:58,360 --> 00:01:00,320 Speaker 1: I think of it as a December thirty one number, 20 00:01:00,320 --> 00:01:03,600 Speaker 1: but at times earlier this year we've traded above that, UM, 21 00:01:03,640 --> 00:01:06,720 Speaker 1: and so I find myself feeling quite neutral. I do 22 00:01:06,840 --> 00:01:11,280 Speaker 1: think that the barish case for equities has been overstated. Um. 23 00:01:11,560 --> 00:01:13,680 Speaker 1: You know, I've been accused of being a bull. Um. 24 00:01:13,800 --> 00:01:15,640 Speaker 1: You know. Again, I feel more neutral, but I do 25 00:01:15,760 --> 00:01:17,759 Speaker 1: have certain models that tell us we could hit forty 26 00:01:17,800 --> 00:01:19,720 Speaker 1: fred by the end of the year. So perhaps I 27 00:01:19,720 --> 00:01:22,119 Speaker 1: guess that that puts me in the bullish camp. UM. 28 00:01:22,200 --> 00:01:24,119 Speaker 1: But I will say this, I think that we are 29 00:01:24,160 --> 00:01:28,720 Speaker 1: still in a period of messy normalization post the COVID crisis, 30 00:01:28,920 --> 00:01:33,319 Speaker 1: very similar to very similar to two thousand to two 31 00:01:33,319 --> 00:01:35,640 Speaker 1: thousand three, and so I do think things are going 32 00:01:35,680 --> 00:01:37,840 Speaker 1: to continue to be choppy this year. And I think 33 00:01:37,840 --> 00:01:41,040 Speaker 1: October was probably the low UM for kind of this 34 00:01:42,000 --> 00:01:45,320 Speaker 1: three period of economic challenge, recession weakness, whatever we end 35 00:01:45,360 --> 00:01:48,240 Speaker 1: up calling it. UM. And I do think that equities 36 00:01:48,280 --> 00:01:50,920 Speaker 1: perhaps do need to sort of exhale, right and or 37 00:01:50,960 --> 00:01:52,760 Speaker 1: maybe a little bit over do for a breather in 38 00:01:52,760 --> 00:01:55,559 Speaker 1: the short term. UM. So I think, you know, things 39 00:01:55,560 --> 00:01:57,360 Speaker 1: are going to continue to be choppy for a while, 40 00:01:57,360 --> 00:01:59,680 Speaker 1: But that doesn't mean I'm feeling terrible about things. Well, 41 00:01:59,760 --> 00:02:02,480 Speaker 1: let's breakdown a little bit of your view here. You 42 00:02:02,600 --> 00:02:06,440 Speaker 1: said that the bear case may be overstated. Talk a 43 00:02:06,440 --> 00:02:08,600 Speaker 1: little bit more about that. Why do you think that is? So? 44 00:02:08,880 --> 00:02:10,760 Speaker 1: You know, I think there's been this view right that 45 00:02:10,919 --> 00:02:13,560 Speaker 1: earnings forecast still have to come down. We're in the 46 00:02:13,600 --> 00:02:16,079 Speaker 1: middle of doing that right now. UM, and that that's 47 00:02:16,120 --> 00:02:18,320 Speaker 1: got a pummel stocks. And you know, I think even 48 00:02:18,400 --> 00:02:22,359 Speaker 1: we were worried about the onset of more challenging economic conditions, UM, 49 00:02:22,440 --> 00:02:24,160 Speaker 1: kind of taking some of the window out of sales 50 00:02:24,200 --> 00:02:26,200 Speaker 1: of stocks. But I will tell you, Nathan, you know, 51 00:02:26,480 --> 00:02:28,239 Speaker 1: as I think back to kind of my December and 52 00:02:28,280 --> 00:02:32,120 Speaker 1: early January meeting, UM, I found that, you know, every 53 00:02:32,160 --> 00:02:34,640 Speaker 1: strategist was sort of making the same kind of call. 54 00:02:34,760 --> 00:02:36,920 Speaker 1: And if you look back at the December weakness, I 55 00:02:36,919 --> 00:02:39,440 Speaker 1: think a lot of that was getting filtered into stock 56 00:02:39,480 --> 00:02:43,320 Speaker 1: prices already. So maybe that weakness that we deserve to see, UM, 57 00:02:43,360 --> 00:02:46,080 Speaker 1: I think just simply got pulled forward. So we have 58 00:02:46,240 --> 00:02:50,320 Speaker 1: gotten through the bulk of this current earning season. How 59 00:02:50,360 --> 00:02:53,840 Speaker 1: do you view what companies have told us so far 60 00:02:54,080 --> 00:02:56,760 Speaker 1: and how does that position us as we head through 61 00:02:56,800 --> 00:02:59,040 Speaker 1: the better part of the first half of this year. 62 00:02:59,440 --> 00:03:02,320 Speaker 1: So I think it's been very muddled messaging. If you 63 00:03:02,320 --> 00:03:04,880 Speaker 1: read through the artiens called transcripts, which my team and 64 00:03:04,919 --> 00:03:06,799 Speaker 1: I are trying our best to read as money as 65 00:03:06,800 --> 00:03:09,720 Speaker 1: we can UM, and what we have found is that, 66 00:03:09,919 --> 00:03:11,520 Speaker 1: you know, there's some good and there's some bad. From 67 00:03:11,560 --> 00:03:13,919 Speaker 1: a macro perspective, I think that one of the things 68 00:03:13,919 --> 00:03:16,280 Speaker 1: we noticed that and one of the sectors I'm reading 69 00:03:16,360 --> 00:03:19,440 Speaker 1: is tech UM is that you know, we have started 70 00:03:19,440 --> 00:03:21,960 Speaker 1: to see the onset of slowing start to show up 71 00:03:21,960 --> 00:03:23,959 Speaker 1: in a lot of the company commentary, and that perhaps 72 00:03:24,000 --> 00:03:26,520 Speaker 1: it's most no more noteworthy in the tech sector than 73 00:03:26,560 --> 00:03:28,920 Speaker 1: other areas. At the same time, a lot of the 74 00:03:28,960 --> 00:03:32,240 Speaker 1: consumer companies are still talking about resiliency, so you know, 75 00:03:32,280 --> 00:03:34,639 Speaker 1: there's good news and that whatever this is is starting, 76 00:03:34,920 --> 00:03:38,480 Speaker 1: there's also you know, kind of good news in that UM. 77 00:03:38,600 --> 00:03:40,680 Speaker 1: Some of that resiliency on the consumer side of the 78 00:03:40,720 --> 00:03:43,560 Speaker 1: economy is still being seen by the corpus, which should 79 00:03:43,560 --> 00:03:45,640 Speaker 1: limit some of the economic carnage that we have to 80 00:03:45,800 --> 00:03:48,600 Speaker 1: endure this year. I've also been hardened to see that 81 00:03:48,640 --> 00:03:51,080 Speaker 1: when companies are talking about guidance, that a lot of 82 00:03:51,080 --> 00:03:53,800 Speaker 1: them are referring to a mild or short recessions. So 83 00:03:53,880 --> 00:03:55,680 Speaker 1: even if the numbers may still feel a little bit 84 00:03:55,680 --> 00:03:57,560 Speaker 1: too high, I do think a lot of companies are 85 00:03:57,640 --> 00:04:01,560 Speaker 1: baking in that software economic scenario into their thinking. Um, 86 00:04:01,560 --> 00:04:03,280 Speaker 1: they're just telling us that, you know, they think that 87 00:04:03,320 --> 00:04:05,520 Speaker 1: they can get through it pretty well. Um. And I've 88 00:04:05,520 --> 00:04:07,320 Speaker 1: also been intrigued with me that a lot of companies 89 00:04:07,360 --> 00:04:10,800 Speaker 1: when they're talking about the forward look are talking about recovery, 90 00:04:10,880 --> 00:04:13,720 Speaker 1: whether it's later this year on certain metrics or whether 91 00:04:13,720 --> 00:04:17,160 Speaker 1: it's four on earnings. And I think that's very important 92 00:04:17,160 --> 00:04:20,200 Speaker 1: because I think that markets have just been pricing everything 93 00:04:20,320 --> 00:04:24,159 Speaker 1: in very very early. I think the economic challenges of 94 00:04:25,040 --> 00:04:28,159 Speaker 1: got price then back in um. And so I think 95 00:04:28,200 --> 00:04:32,160 Speaker 1: investors themselves are ready to start looking ahead too and recovery, 96 00:04:32,160 --> 00:04:35,000 Speaker 1: and the companies are giving the client an excuse to 97 00:04:35,040 --> 00:04:38,320 Speaker 1: do that. Speaking with Lori calvacin ahead of US Equity 98 00:04:38,360 --> 00:04:41,880 Speaker 1: strategy at RBC Capital Markets, of course it's a long 99 00:04:41,920 --> 00:04:45,920 Speaker 1: way before we get to Lori. So in the meantime, 100 00:04:45,960 --> 00:04:49,680 Speaker 1: given what you're telling me, are you sticking with value 101 00:04:50,080 --> 00:04:53,680 Speaker 1: as a strategy as opposed to growth at least in 102 00:04:53,680 --> 00:04:56,560 Speaker 1: the medium term. So we've got our our feet in 103 00:04:56,560 --> 00:04:59,000 Speaker 1: in both pools, so to speak. Um, you know, I 104 00:04:59,080 --> 00:05:02,440 Speaker 1: do think that growth is appealing in the context of 105 00:05:03,120 --> 00:05:05,960 Speaker 1: after we get through this period of economic challenge. I 106 00:05:06,000 --> 00:05:09,200 Speaker 1: think there's sluggish growth economically waiting us. On the other side, 107 00:05:09,200 --> 00:05:10,880 Speaker 1: I think that's the price we pay for a short, 108 00:05:10,920 --> 00:05:13,120 Speaker 1: shallow recession, is not having much in the way of 109 00:05:13,160 --> 00:05:16,440 Speaker 1: exciting GP GDP growth for a while, And traditionally that's 110 00:05:16,440 --> 00:05:18,560 Speaker 1: an environment which you want to be in growth stocks. 111 00:05:18,600 --> 00:05:20,960 Speaker 1: So we like areas like technology. We think it's sort 112 00:05:21,000 --> 00:05:22,400 Speaker 1: of the best of the bunch. If you're kind of 113 00:05:22,400 --> 00:05:25,800 Speaker 1: looking at the growth sectors, I think you've evaluations never 114 00:05:25,839 --> 00:05:28,240 Speaker 1: looked great there, but you've got high quality. A lot 115 00:05:28,279 --> 00:05:30,359 Speaker 1: of the industries and you know, sort of within that 116 00:05:30,400 --> 00:05:32,400 Speaker 1: space look like they're pretty washed out in terms of 117 00:05:32,440 --> 00:05:35,599 Speaker 1: earning sentiment and are starting to recover. Um, So we 118 00:05:35,640 --> 00:05:38,720 Speaker 1: want to keep some exposure there. Um. I do think 119 00:05:38,760 --> 00:05:41,359 Speaker 1: on the value side, they'll um. You do want to 120 00:05:41,360 --> 00:05:43,800 Speaker 1: have some exposure there as well, because one of the 121 00:05:43,839 --> 00:05:46,200 Speaker 1: things that we see about, you know, big kind of 122 00:05:46,279 --> 00:05:49,640 Speaker 1: challenging periods, whether it's the financial crisis, the tech bubble, 123 00:05:50,120 --> 00:05:53,960 Speaker 1: these are all things that esure in big changes in leadership, 124 00:05:53,960 --> 00:05:56,240 Speaker 1: and I think kind of this pandemic era should be 125 00:05:56,279 --> 00:05:58,320 Speaker 1: thought of in that regard as well. So that would 126 00:05:58,360 --> 00:06:01,440 Speaker 1: suggest moving away from growth and back of value. UM. 127 00:06:01,480 --> 00:06:03,600 Speaker 1: I think that on the value side, we continue to 128 00:06:03,640 --> 00:06:06,839 Speaker 1: see the best valuations in financials and energy. I do 129 00:06:06,920 --> 00:06:09,200 Speaker 1: think that they have a short term problem in that 130 00:06:09,520 --> 00:06:12,440 Speaker 1: they were resilient on earnings expectations last year, so they've 131 00:06:12,480 --> 00:06:14,200 Speaker 1: got to take their lumps right now in terms of 132 00:06:14,200 --> 00:06:16,880 Speaker 1: getting some earnings down grades in. But I think the 133 00:06:16,880 --> 00:06:19,640 Speaker 1: good news is the valuations are pretty appealing. We think 134 00:06:19,720 --> 00:06:22,240 Speaker 1: energy is a more investible sector, and financials is an 135 00:06:22,279 --> 00:06:24,880 Speaker 1: area that typically does well once markets are convinced a 136 00:06:24,960 --> 00:06:26,960 Speaker 1: recession low has been put in place, so it's a 137 00:06:27,000 --> 00:06:29,560 Speaker 1: good rebound area to be in. UM. So I think 138 00:06:29,560 --> 00:06:32,240 Speaker 1: you want to maintain exposure to both buckets, but really 139 00:06:32,240 --> 00:06:35,080 Speaker 1: be selective within each of those. Yeah, it's interesting to 140 00:06:35,120 --> 00:06:39,760 Speaker 1: think as well about financials potentially doing well in this 141 00:06:39,960 --> 00:06:44,400 Speaker 1: kind of Federal Reserve central bank policy environment where we're 142 00:06:44,440 --> 00:06:47,880 Speaker 1: seeing rates moving higher, the potential for that as well. 143 00:06:47,920 --> 00:06:52,480 Speaker 1: It's interesting as well to think about tech potentially outperforming 144 00:06:52,640 --> 00:06:56,359 Speaker 1: given that tighter policy environment. How much could the Fed 145 00:06:56,600 --> 00:06:59,400 Speaker 1: have an impact on where stocks go from here? I 146 00:06:59,440 --> 00:07:01,560 Speaker 1: think that we need to get to the pause. UM. 147 00:07:01,800 --> 00:07:03,839 Speaker 1: You know, I've become less convinced that we need the 148 00:07:03,920 --> 00:07:06,120 Speaker 1: actual cuts. But I think if you look at how 149 00:07:06,240 --> 00:07:08,919 Speaker 1: sectors performed to start the year, they're really starting to 150 00:07:08,960 --> 00:07:12,320 Speaker 1: bake in that idea the FED pause um historically, and 151 00:07:12,360 --> 00:07:14,720 Speaker 1: we did a study where we look at what sectors 152 00:07:14,760 --> 00:07:17,280 Speaker 1: tend to do well after your final FED hikes going 153 00:07:17,320 --> 00:07:19,760 Speaker 1: back to the mid nineties, and it was interesting because 154 00:07:19,800 --> 00:07:22,480 Speaker 1: you do tend to see the growth sectors like technology, 155 00:07:22,520 --> 00:07:26,160 Speaker 1: like communication, services like consumer discretionary do quite well. So 156 00:07:26,240 --> 00:07:28,360 Speaker 1: the fact that those three sectors had such a nice 157 00:07:28,360 --> 00:07:30,400 Speaker 1: start to the year in January, it was really telling 158 00:07:30,440 --> 00:07:32,960 Speaker 1: us markets were starting to try to price in that pause. 159 00:07:33,280 --> 00:07:35,920 Speaker 1: Financials is another area for you know that act interestingly 160 00:07:35,960 --> 00:07:37,960 Speaker 1: does well after the final hikes, not as well as 161 00:07:37,960 --> 00:07:40,400 Speaker 1: the growth sectors um, but does tend to do pretty 162 00:07:40,400 --> 00:07:44,200 Speaker 1: well afterwards. UM. I think that you know, the market 163 00:07:44,520 --> 00:07:47,240 Speaker 1: needs to know and needs to remain convinced that we're 164 00:07:47,280 --> 00:07:50,160 Speaker 1: closer to the end than the beginning. I think that 165 00:07:50,680 --> 00:07:52,520 Speaker 1: you know, where the FED ends up at the end 166 00:07:52,560 --> 00:07:54,400 Speaker 1: of the year is going to have a big determinant 167 00:07:54,440 --> 00:07:57,680 Speaker 1: on the pe multiple um that we pay for this market. 168 00:07:58,200 --> 00:08:00,160 Speaker 1: And you know, when I sort of talk of out 169 00:08:00,400 --> 00:08:03,120 Speaker 1: potential upside to undred, that's baking in kind of a 170 00:08:03,160 --> 00:08:06,400 Speaker 1: twenty two plus trailing PE multiple on my earnings number, 171 00:08:07,080 --> 00:08:08,920 Speaker 1: and I'll share you all the details that that's based 172 00:08:08,920 --> 00:08:11,920 Speaker 1: on a model that has a couple FED cut baked 173 00:08:11,920 --> 00:08:14,200 Speaker 1: into the end of the year. I think FED around 174 00:08:14,200 --> 00:08:17,160 Speaker 1: four seven five ten year treasury yield at three four. 175 00:08:17,480 --> 00:08:19,640 Speaker 1: If I take those assumptions up a little bit and 176 00:08:19,720 --> 00:08:22,120 Speaker 1: raise those interest rate levels, I come out there's something 177 00:08:22,160 --> 00:08:24,560 Speaker 1: that's a little closer to my target of forty one DRED, 178 00:08:24,600 --> 00:08:27,880 Speaker 1: which implies something more like a twenty times PE multiple. 179 00:08:28,360 --> 00:08:31,160 Speaker 1: Um So I think that you know the short answer, 180 00:08:31,200 --> 00:08:33,800 Speaker 1: here's those interest rate levels. What happens with inflation is 181 00:08:33,800 --> 00:08:36,640 Speaker 1: going to dictate the PE multiple, But a higher for 182 00:08:36,760 --> 00:08:39,840 Speaker 1: longer FED may not be as disastrous for the PE 183 00:08:39,920 --> 00:08:41,600 Speaker 1: multiple as a lot of the bears on the street 184 00:08:41,640 --> 00:08:44,760 Speaker 1: have been trying to imply. Since it is President stay, Laura, 185 00:08:44,760 --> 00:08:46,400 Speaker 1: I want to ask you about something I know you've 186 00:08:46,400 --> 00:08:50,320 Speaker 1: been keeping your eye on that the president President Biden 187 00:08:50,520 --> 00:08:52,360 Speaker 1: is going to be embroiled in over the next few months, 188 00:08:52,400 --> 00:08:56,000 Speaker 1: and that's the debt ceiling debate. Is this something investors 189 00:08:56,240 --> 00:08:59,640 Speaker 1: should be concerned about at this point? A potential default 190 00:08:59,679 --> 00:09:01,680 Speaker 1: in the last the next couple of months, you know, 191 00:09:01,840 --> 00:09:04,720 Speaker 1: it's you hear varying opinions on this, and you know, 192 00:09:04,880 --> 00:09:07,960 Speaker 1: from my from my state of mind, you know, I 193 00:09:08,000 --> 00:09:09,960 Speaker 1: think that the risks are starting to a morge more 194 00:09:10,000 --> 00:09:11,680 Speaker 1: in the back half of the year. And I think 195 00:09:11,679 --> 00:09:15,240 Speaker 1: that markets never like uncertainty, um and particularly don't like 196 00:09:15,440 --> 00:09:18,240 Speaker 1: uncertainty with some of these throning political issues. And I 197 00:09:18,280 --> 00:09:21,160 Speaker 1: think one of the impacts of the mid terms and 198 00:09:21,240 --> 00:09:23,839 Speaker 1: having that you know, sort of very precarious balance of 199 00:09:23,880 --> 00:09:27,040 Speaker 1: power for Republicans in the House, um, you know, and 200 00:09:27,200 --> 00:09:30,560 Speaker 1: and the split Congress, I think the implications for the 201 00:09:30,600 --> 00:09:33,319 Speaker 1: depth seeling negotiations, you know, are probably one of the 202 00:09:33,360 --> 00:09:35,680 Speaker 1: most meaningful things we have coming out of that. In 203 00:09:35,720 --> 00:09:37,880 Speaker 1: the short term, I just think it's going to be 204 00:09:38,000 --> 00:09:40,600 Speaker 1: very difficult, um you know, based on that that that 205 00:09:40,640 --> 00:09:42,959 Speaker 1: balance of power for a deal to get struck. And 206 00:09:43,040 --> 00:09:45,679 Speaker 1: so if we assume that, you know, everyone down in 207 00:09:45,760 --> 00:09:48,760 Speaker 1: DC has uh the economy's best interests at heart, and 208 00:09:48,840 --> 00:09:50,280 Speaker 1: we'll find a way to get it done, you know, 209 00:09:50,440 --> 00:09:52,440 Speaker 1: I hope that's true, but it feels like it's going 210 00:09:52,520 --> 00:09:54,679 Speaker 1: to be more difficult to get to that point than 211 00:09:54,720 --> 00:09:57,160 Speaker 1: it has in the past. And if we look at 212 00:09:57,200 --> 00:09:58,880 Speaker 1: markets and we're sort of you know, kind of done 213 00:09:58,880 --> 00:10:01,240 Speaker 1: a year's worth, um, you know, of what I think 214 00:10:01,280 --> 00:10:03,360 Speaker 1: is a deserved move in the first month plus of 215 00:10:03,400 --> 00:10:06,560 Speaker 1: the year, a month and a half of the year. Um, 216 00:10:06,600 --> 00:10:09,760 Speaker 1: you know, sentiment is rebounding very very quickly. We could 217 00:10:09,840 --> 00:10:12,760 Speaker 1: get to a point by midyear when those negotiations are 218 00:10:12,760 --> 00:10:15,880 Speaker 1: really coming into the forefront where it doesn't take a 219 00:10:15,960 --> 00:10:18,520 Speaker 1: lot to knock the market down. So, you know, I 220 00:10:18,559 --> 00:10:21,080 Speaker 1: am worried about. It's something we're keeping an eye on. 221 00:10:21,160 --> 00:10:22,959 Speaker 1: We're not seeing a ton of chatter of it about 222 00:10:23,000 --> 00:10:25,599 Speaker 1: it from companies yet, but we expect to see it 223 00:10:25,640 --> 00:10:28,720 Speaker 1: pick up. Yeah with Meg and so since the time 224 00:10:28,760 --> 00:10:32,319 Speaker 1: for it to run out potentially could be early this summer. 225 00:10:32,360 --> 00:10:35,080 Speaker 1: Thanks for this as always, Lorie, great speaking with you. 226 00:10:35,480 --> 00:10:38,800 Speaker 1: Thanks for having me our Thanks to Lorie Calvacina, head 227 00:10:38,800 --> 00:10:44,440 Speaker 1: of US Equity Strategy at RBC Capital Markets. Welcome back 228 00:10:44,440 --> 00:10:47,640 Speaker 1: to this special edition of Bloomberg Daybreak. I'm Nathan Hager. 229 00:10:47,679 --> 00:10:51,120 Speaker 1: The US stock market is closed on this President's Day holiday. 230 00:10:51,280 --> 00:10:53,479 Speaker 1: We now want to turn our focus to the economy. 231 00:10:53,679 --> 00:10:56,920 Speaker 1: Inflation and interest rates continue to be top of mind 232 00:10:56,960 --> 00:11:00,240 Speaker 1: for investors in so what's in store for the rest 233 00:11:00,320 --> 00:11:03,640 Speaker 1: of this year. Let's bring in Tiffany Wilding for some insights, 234 00:11:03,679 --> 00:11:07,000 Speaker 1: the chief US economist at Pimcope. Tiffany, it's great to 235 00:11:07,000 --> 00:11:09,280 Speaker 1: speak with you on this holiday, and I guess it's 236 00:11:09,320 --> 00:11:13,199 Speaker 1: great to keep seeing signs of resilience in this economy. 237 00:11:13,240 --> 00:11:16,240 Speaker 1: What does that tell you about the path ahead for 238 00:11:16,320 --> 00:11:19,320 Speaker 1: the Fed? Yeah, well, first, thanks for having me, Nathan, 239 00:11:19,360 --> 00:11:21,160 Speaker 1: It's great to be on the show. UM. I think 240 00:11:21,160 --> 00:11:23,880 Speaker 1: it's a little bit of good news, UM, but also 241 00:11:24,280 --> 00:11:27,240 Speaker 1: a little bit of bad news in the sense that, yes, 242 00:11:27,320 --> 00:11:30,200 Speaker 1: the U. S economy has been much more resilient, you know, 243 00:11:30,240 --> 00:11:34,520 Speaker 1: than we and many forecasters were expecting. Um. But but nevertheless, 244 00:11:34,520 --> 00:11:37,960 Speaker 1: as a result of that, um, you know, inflationary pressures 245 00:11:38,000 --> 00:11:42,079 Speaker 1: could remain high for longer than expected, and that ultimately 246 00:11:42,160 --> 00:11:46,079 Speaker 1: requires the Federal Reserve to to raise rates more UM. 247 00:11:46,160 --> 00:11:49,040 Speaker 1: And so that um you obviously will will continue to 248 00:11:49,160 --> 00:11:52,560 Speaker 1: put downward pressure on economic activity to get inflation down. 249 00:11:52,840 --> 00:11:54,599 Speaker 1: You know. So even though the the economy is a 250 00:11:54,640 --> 00:11:57,400 Speaker 1: little bit more resilient now, you know, that doesn't really 251 00:11:57,520 --> 00:11:59,839 Speaker 1: change the outlook, because that just means the Fed has 252 00:11:59,880 --> 00:12:02,400 Speaker 1: to do a little bit more work. That sounds a 253 00:12:02,440 --> 00:12:05,880 Speaker 1: lot like the message we keep hearing from a parade 254 00:12:06,000 --> 00:12:11,280 Speaker 1: of FED speakers, including Federal Reserve Chairman Jerome Powell. In fact, 255 00:12:11,360 --> 00:12:14,439 Speaker 1: earlier this month, he was talking about just that with 256 00:12:14,559 --> 00:12:18,440 Speaker 1: David Rubinstein at the Economic Club of Washington. Let's play 257 00:12:18,480 --> 00:12:20,000 Speaker 1: a little bit of what he had to say. We 258 00:12:20,080 --> 00:12:23,680 Speaker 1: have a significant road ahead to get inflation down to 259 00:12:23,679 --> 00:12:27,320 Speaker 1: two percent, and I think there's been an expectation that 260 00:12:27,360 --> 00:12:30,280 Speaker 1: it will that will go away quickly and painlessly, and 261 00:12:30,440 --> 00:12:32,520 Speaker 1: I don't think that's it all guaranteed. That's not the 262 00:12:32,520 --> 00:12:34,320 Speaker 1: base case. The base cases it will t for me 263 00:12:34,440 --> 00:12:37,280 Speaker 1: is that it will take some time, and we will 264 00:12:37,320 --> 00:12:39,080 Speaker 1: have to do more rate increases, and then we'll have 265 00:12:39,080 --> 00:12:41,120 Speaker 1: to look around to see whether we've done enough. It's 266 00:12:41,160 --> 00:12:44,560 Speaker 1: a pretty broad base case, isn't it. Tiffany, how much 267 00:12:44,640 --> 00:12:48,320 Speaker 1: time do you think is some time for this FED 268 00:12:48,400 --> 00:12:51,760 Speaker 1: to get inflation back to target? Well, I mean, that's 269 00:12:51,800 --> 00:12:55,880 Speaker 1: clearly the key question here, As Powell noted, you know, 270 00:12:56,000 --> 00:13:00,439 Speaker 1: ultimately our forecast for for core CPI inflation, for example, 271 00:13:00,520 --> 00:13:02,959 Speaker 1: is that it will get down to three percent by 272 00:13:03,000 --> 00:13:05,480 Speaker 1: the end of this year. You know, so that's down 273 00:13:05,520 --> 00:13:08,679 Speaker 1: from six Obviously that is not in line with the 274 00:13:08,679 --> 00:13:12,040 Speaker 1: fence target. We have said, you know, from a headline 275 00:13:12,040 --> 00:13:15,040 Speaker 1: inflation perspective that getting from eight to four will be 276 00:13:15,080 --> 00:13:19,040 Speaker 1: relatively easy because there is still some pandemic related effects 277 00:13:19,080 --> 00:13:22,199 Speaker 1: that are impacting the year of your rate of headline inflation. 278 00:13:22,240 --> 00:13:25,360 Speaker 1: But getting from four to two, that'll take a little 279 00:13:25,400 --> 00:13:29,119 Speaker 1: bit more time, um, you know. And again, as you suggested, 280 00:13:29,160 --> 00:13:31,640 Speaker 1: exactly how much time is, there's a lot of uncertainty 281 00:13:31,640 --> 00:13:34,720 Speaker 1: around that, and I would say incrementally, we've actually recently 282 00:13:34,760 --> 00:13:37,720 Speaker 1: gotten some not so great news on that. Um you know, 283 00:13:37,760 --> 00:13:41,000 Speaker 1: this is maybe a little bit wonky, but the statistical agencies, 284 00:13:41,040 --> 00:13:45,400 Speaker 1: the cp I, the BLS that releases the CPI recently, um, 285 00:13:45,440 --> 00:13:49,559 Speaker 1: you know, revised their their measure and it suggests that 286 00:13:49,600 --> 00:13:52,760 Speaker 1: actually some of the disinflation that we thought we were 287 00:13:52,800 --> 00:13:56,520 Speaker 1: seeing at your end actually didn't happen. It was revised away. Um, 288 00:13:56,559 --> 00:13:59,000 Speaker 1: And so that suggests that maybe inflation could come down 289 00:13:59,000 --> 00:14:01,240 Speaker 1: even a little bit more slowly than many were expecting. 290 00:14:01,280 --> 00:14:03,880 Speaker 1: So that's obviously not very good news. Is it making 291 00:14:03,920 --> 00:14:07,200 Speaker 1: it more difficult than to see the impact that the 292 00:14:07,520 --> 00:14:10,640 Speaker 1: tightening that we've gotten from this Federal Reserve over the 293 00:14:10,760 --> 00:14:13,880 Speaker 1: last few months of like four hundred basis points in 294 00:14:14,280 --> 00:14:18,440 Speaker 1: rate increases whether that's actually having an effect on the 295 00:14:18,480 --> 00:14:22,000 Speaker 1: inflationary re pressures that are in this economy. Yeah, So 296 00:14:22,080 --> 00:14:26,000 Speaker 1: I think that the reaction to the pandemic as well 297 00:14:26,200 --> 00:14:28,880 Speaker 1: from the fiscal authority, you know, from the government's UH 298 00:14:29,080 --> 00:14:33,880 Speaker 1: as well as UM, the supply chain bottlenecks actually are creating, 299 00:14:34,200 --> 00:14:37,280 Speaker 1: you know, somewhat different relationships with how monetary policy affects 300 00:14:37,280 --> 00:14:39,840 Speaker 1: the economy these days. In other words, it's actually making 301 00:14:39,920 --> 00:14:43,160 Speaker 1: monetary policy impact the economy with a little bit longer 302 00:14:43,200 --> 00:14:45,680 Speaker 1: of a lag potentially than what we're normally used to. 303 00:14:45,880 --> 00:14:48,320 Speaker 1: And that's because you know, the post you know, the 304 00:14:48,320 --> 00:14:54,560 Speaker 1: pandemic related government spending, increased consumer UH you know, increased 305 00:14:54,560 --> 00:14:57,200 Speaker 1: consumer savings, and they have a buffer, and then the 306 00:14:57,240 --> 00:15:00,840 Speaker 1: supply chain bottlenecks resulted in major backlaw hugs for for 307 00:15:00,920 --> 00:15:03,800 Speaker 1: various companies, which they're still working through. So as a 308 00:15:03,840 --> 00:15:07,520 Speaker 1: result of these buffers, we are still having very resilient 309 00:15:07,560 --> 00:15:10,280 Speaker 1: and very strong activity UM you know. But of course, 310 00:15:10,320 --> 00:15:12,400 Speaker 1: as we work through them, you know, the story will 311 00:15:12,440 --> 00:15:14,240 Speaker 1: be a bit different, you know. And I think that's 312 00:15:14,280 --> 00:15:16,960 Speaker 1: why we're seeing some greater lag and the monetary policy 313 00:15:17,000 --> 00:15:20,400 Speaker 1: transmission mechanism because we still have those buffers. So does 314 00:15:20,440 --> 00:15:22,760 Speaker 1: that raise the possibility then that we could get an 315 00:15:22,800 --> 00:15:26,000 Speaker 1: overshoot from the Federal Reserve if they haven't given themselves 316 00:15:26,040 --> 00:15:30,800 Speaker 1: the time to see whether the lag is allowing the 317 00:15:30,880 --> 00:15:34,320 Speaker 1: policy that's already been put out to have that effect. Yeah, 318 00:15:34,360 --> 00:15:37,960 Speaker 1: I mean certainly, And I think that the obviously the 319 00:15:37,960 --> 00:15:41,080 Speaker 1: Photo Reserve and with monetary policy, they have to balance 320 00:15:41,120 --> 00:15:43,600 Speaker 1: the various risks that are out there. You know. Not 321 00:15:43,880 --> 00:15:46,600 Speaker 1: there's an obvious one of the fact they maybe are 322 00:15:46,640 --> 00:15:49,960 Speaker 1: doing too much um and and then they will send 323 00:15:49,960 --> 00:15:54,000 Speaker 1: the economy sort of needlessly into a weaker state. UM. 324 00:15:54,000 --> 00:15:56,200 Speaker 1: But obviously the other risk that they're trying to balance 325 00:15:56,280 --> 00:15:58,640 Speaker 1: is is that, you know, as we discussed, inflation may 326 00:15:58,680 --> 00:16:01,680 Speaker 1: prove to be a bit sticky than expected. It may 327 00:16:01,720 --> 00:16:03,720 Speaker 1: need more work from them in order to bring it down. 328 00:16:03,760 --> 00:16:07,240 Speaker 1: So I think, you know, currently their balancing act has 329 00:16:07,280 --> 00:16:10,240 Speaker 1: basically led them to slow down the pace of rate hikes. 330 00:16:10,280 --> 00:16:12,680 Speaker 1: For example, we're now at a more you know, at 331 00:16:12,760 --> 00:16:16,400 Speaker 1: least kind of more historically somewhat more normal rate of 332 00:16:16,440 --> 00:16:19,720 Speaker 1: twenty five basis point rate hikes per meeting UM, and 333 00:16:19,720 --> 00:16:21,760 Speaker 1: the Photo Reserve has has said, you know, we're going 334 00:16:21,800 --> 00:16:24,160 Speaker 1: to continue at that pace basically until we see more 335 00:16:24,160 --> 00:16:26,320 Speaker 1: progress on inflation, you know. So I think that's the 336 00:16:26,360 --> 00:16:29,240 Speaker 1: kind of balance that they've reached right now. So where 337 00:16:29,240 --> 00:16:32,400 Speaker 1: do you think the FED needs to get when it 338 00:16:32,720 --> 00:16:37,240 Speaker 1: comes to restrictive territory? Have they gotten there at this point? 339 00:16:37,280 --> 00:16:42,280 Speaker 1: Do they have further to go? What's your view? Yeah? Well, well, so, um, 340 00:16:42,320 --> 00:16:46,840 Speaker 1: you know, the a tailor rule would would suggest that 341 00:16:47,000 --> 00:16:50,960 Speaker 1: they need to get the FED funds rate above wherever 342 00:16:51,040 --> 00:16:54,080 Speaker 1: they think the underlying trended inflation is. So I mentioned before, 343 00:16:54,120 --> 00:16:57,480 Speaker 1: there's still pandemic related effects that will go away that 344 00:16:57,600 --> 00:17:00,560 Speaker 1: are impacting inflation. So really the tricky thing right now, 345 00:17:00,680 --> 00:17:03,680 Speaker 1: so try to figure out, excluding those effects, where is 346 00:17:03,720 --> 00:17:06,080 Speaker 1: the underlying trend and inflation, and you know, to us 347 00:17:06,119 --> 00:17:07,639 Speaker 1: it kind of looks like it's between three and a 348 00:17:07,640 --> 00:17:09,760 Speaker 1: half and four, you know, so they need to at 349 00:17:09,800 --> 00:17:13,160 Speaker 1: a minimum get the Fed funds rate above that level, um, 350 00:17:13,160 --> 00:17:17,480 Speaker 1: And their recent projections from the SEP and December suggested 351 00:17:17,480 --> 00:17:19,520 Speaker 1: they would get up to around five percent a little 352 00:17:19,520 --> 00:17:23,080 Speaker 1: bit above that. So that's obviously above that kind of 353 00:17:23,160 --> 00:17:24,480 Speaker 1: you know, three to four three and a half to 354 00:17:24,520 --> 00:17:27,359 Speaker 1: four percent trend that we mentioned, you know, but more recently, 355 00:17:28,600 --> 00:17:32,479 Speaker 1: the communications that we've gotten from from them maybe suggest 356 00:17:32,520 --> 00:17:34,720 Speaker 1: that they maybe even will go a little bit above that, 357 00:17:34,880 --> 00:17:36,960 Speaker 1: so maybe closer to three and a half excuse me, 358 00:17:37,000 --> 00:17:39,720 Speaker 1: five and a half percent. But but ultimately, you know, 359 00:17:39,880 --> 00:17:42,480 Speaker 1: where they ultimately end up the terminal rate of this 360 00:17:42,560 --> 00:17:45,080 Speaker 1: hiking cycle. You know, obviously it's very uncertain. They're going 361 00:17:45,119 --> 00:17:47,680 Speaker 1: to be probing for that, you know, trying to understand 362 00:17:47,680 --> 00:17:50,639 Speaker 1: how much is too much, um, you know, and ultimately 363 00:17:50,720 --> 00:17:53,280 Speaker 1: they will will sort of continue to assess the data 364 00:17:53,560 --> 00:17:55,920 Speaker 1: to try to figure that out, um and continue to 365 00:17:55,920 --> 00:17:59,000 Speaker 1: balance those risks that I mentioned before. You also mentioned 366 00:17:59,040 --> 00:18:02,960 Speaker 1: before that you're projecting that inflation is going to get 367 00:18:02,960 --> 00:18:05,160 Speaker 1: down to three percent by the end of this year. 368 00:18:05,200 --> 00:18:08,080 Speaker 1: Obviously that's just a little bit higher than the FEDS 369 00:18:08,160 --> 00:18:11,760 Speaker 1: target of two Does a two percent inflation target still 370 00:18:11,800 --> 00:18:15,000 Speaker 1: makes sense? Is it realistic? Yeah? I think that's a 371 00:18:15,080 --> 00:18:18,440 Speaker 1: really great question, you know, And obviously right now, when 372 00:18:18,440 --> 00:18:22,560 Speaker 1: inflation is elevated, you know, Chair Pal has to be 373 00:18:22,720 --> 00:18:27,800 Speaker 1: very resolute in his communication to you know, I'm bringing 374 00:18:27,800 --> 00:18:30,560 Speaker 1: inflation down. So I think recently he's suggested that they're 375 00:18:30,560 --> 00:18:34,560 Speaker 1: not revisiting the two percent inflation target. Um. You know, 376 00:18:34,600 --> 00:18:37,480 Speaker 1: that's completely off the table right now. Nevertheless, though, you know, 377 00:18:37,480 --> 00:18:41,119 Speaker 1: when inflation has come down, um, you know, to three percent, 378 00:18:41,520 --> 00:18:43,760 Speaker 1: you know that I think, you know, is reason for 379 00:18:43,800 --> 00:18:46,160 Speaker 1: a little bit of victory, uh, you know, a bit 380 00:18:46,160 --> 00:18:48,840 Speaker 1: of a victory lab from Federal Reserve officials, um, and 381 00:18:48,920 --> 00:18:51,840 Speaker 1: three percent, you know, even though they say their inflation 382 00:18:51,880 --> 00:18:55,040 Speaker 1: target is at to three percent, might be you know, okay, 383 00:18:55,080 --> 00:18:57,960 Speaker 1: at least for for a time. Um, you know. Now, 384 00:18:58,080 --> 00:19:02,280 Speaker 1: there's really no magic around on that two percent level. Um. 385 00:19:02,320 --> 00:19:05,040 Speaker 1: That two percent level you know, kind of came from 386 00:19:05,359 --> 00:19:07,919 Speaker 1: uh you know, the Central Bank of New Zealand, you know, 387 00:19:08,080 --> 00:19:10,879 Speaker 1: several several decades ago, and it sounded like a level 388 00:19:10,920 --> 00:19:13,600 Speaker 1: that was was pretty good. Um, you know, but there's 389 00:19:13,680 --> 00:19:16,840 Speaker 1: no real magic around that level. It could be three percent, 390 00:19:16,920 --> 00:19:18,560 Speaker 1: it could be one percent, you know. And so I 391 00:19:18,600 --> 00:19:20,680 Speaker 1: think that you know, given that, you know, there probably 392 00:19:20,680 --> 00:19:23,480 Speaker 1: will be some room once inflation comes down it's getting 393 00:19:23,480 --> 00:19:25,560 Speaker 1: close to target, there will be a little bit of 394 00:19:25,600 --> 00:19:28,120 Speaker 1: wiggle room there that the Federal Reserve will say, Okay, 395 00:19:28,160 --> 00:19:31,440 Speaker 1: maybe it's not exactly a target yet, but that's okay. 396 00:19:31,440 --> 00:19:33,600 Speaker 1: Thanks for this, Tiffany, great having you on with us, 397 00:19:33,760 --> 00:19:38,200 Speaker 1: Thanks for having me. That's PIMCA Chief US economist Tiffany Wilding. 398 00:19:40,040 --> 00:19:43,320 Speaker 1: Welcome back to this special President's Day edition of Bloomberg Daybreak. 399 00:19:43,400 --> 00:19:46,320 Speaker 1: I'm Nathan Hagar. Let's turn our focus now to earnings 400 00:19:46,359 --> 00:19:48,320 Speaker 1: because we're gonna hear from a couple of giants in 401 00:19:48,359 --> 00:19:52,879 Speaker 1: the retail sector tomorrow. Walmart and Home Depot report their 402 00:19:52,960 --> 00:19:56,240 Speaker 1: latest quarterly results before the opening bell of the holiday 403 00:19:56,320 --> 00:19:59,840 Speaker 1: short and trading week. For more policed welcome Bloomberg Intelligence 404 00:20:00,000 --> 00:20:02,679 Speaker 1: in your analyst, Jennifer Bartash is great to have you 405 00:20:02,720 --> 00:20:05,600 Speaker 1: on with us, jen Thanks for being here. So for Walmart, 406 00:20:05,640 --> 00:20:07,639 Speaker 1: this is going to be our first look at the 407 00:20:07,680 --> 00:20:11,959 Speaker 1: holiday quarter for them, right, what's the expectation That's correct, Nathan, Um. 408 00:20:12,000 --> 00:20:15,320 Speaker 1: When we're looking at Walmart, what we're really expecting to 409 00:20:15,320 --> 00:20:17,560 Speaker 1: see is that they had a very solid holiday quarter 410 00:20:18,040 --> 00:20:20,240 Speaker 1: UM in terms of the top line. So we're expecting 411 00:20:20,280 --> 00:20:22,720 Speaker 1: same store sales to be up. We expect top line 412 00:20:22,760 --> 00:20:25,640 Speaker 1: growth to be up. UM. We do think that traffic 413 00:20:25,680 --> 00:20:29,399 Speaker 1: into stores maybe have maybe contracted just a little bit UM. 414 00:20:29,400 --> 00:20:32,119 Speaker 1: But the real issue with Walmart for this quarter is 415 00:20:32,160 --> 00:20:36,080 Speaker 1: margins UM. They really struggled lest during the course of 416 00:20:36,080 --> 00:20:39,399 Speaker 1: the entire year on right sizing their inventory UM and 417 00:20:39,440 --> 00:20:41,959 Speaker 1: we're really looking at what kind of signal if they 418 00:20:42,000 --> 00:20:44,720 Speaker 1: are sending about the markdowns and the impact that will 419 00:20:44,760 --> 00:20:48,359 Speaker 1: have on margins after the holiday season. Yeah, it's something 420 00:20:48,359 --> 00:20:51,640 Speaker 1: we've been hearing a lot about from many of these retailers. 421 00:20:51,680 --> 00:20:55,240 Speaker 1: The glut of inventory and the idea that they're being 422 00:20:55,280 --> 00:20:58,840 Speaker 1: forced to put in deep discounts to unload all this 423 00:20:59,040 --> 00:21:02,320 Speaker 1: extra stuff they've got. Is that something that could potentially 424 00:21:02,400 --> 00:21:05,399 Speaker 1: eat into the margins that we get from Walmart. We 425 00:21:05,440 --> 00:21:08,280 Speaker 1: think that there is a possibility of that. Early in 426 00:21:08,280 --> 00:21:10,840 Speaker 1: the year, Walmart had a huge inventory problem. They sort 427 00:21:10,880 --> 00:21:13,639 Speaker 1: of cleared that out, but because of all the supply 428 00:21:13,720 --> 00:21:16,240 Speaker 1: chain issues that we saw over the course of the year, 429 00:21:16,600 --> 00:21:19,639 Speaker 1: they brought inventory in early, and they brought an inventory 430 00:21:19,760 --> 00:21:21,760 Speaker 1: in terms of extra to make sure that they would 431 00:21:21,800 --> 00:21:24,240 Speaker 1: have enough fun hand for holiday. UM. And with the 432 00:21:24,280 --> 00:21:26,320 Speaker 1: holiday season, it was a good season, but it wasn't 433 00:21:26,359 --> 00:21:29,520 Speaker 1: a fabulous season UM, which means that they likely didn't 434 00:21:29,560 --> 00:21:32,080 Speaker 1: sell through all of that inventory that they had, and 435 00:21:32,160 --> 00:21:35,879 Speaker 1: so that creates the necessity from markdowns UM and the 436 00:21:36,160 --> 00:21:39,120 Speaker 1: steeper the markdown to tempt people to to spend, which 437 00:21:39,160 --> 00:21:41,840 Speaker 1: is hard in this environment, UM is what could drive 438 00:21:41,840 --> 00:21:45,280 Speaker 1: the margin margin issues that we're expecting. Yeah, something else 439 00:21:45,320 --> 00:21:47,160 Speaker 1: we've been hearing for a lot of these companies going 440 00:21:47,200 --> 00:21:50,440 Speaker 1: into this earning season is the need to cut costs 441 00:21:50,600 --> 00:21:54,960 Speaker 1: against the tough economic headwinds that we've been seeing signs of. 442 00:21:55,160 --> 00:21:57,560 Speaker 1: Is that something you're expecting to get from Walmart as 443 00:21:57,600 --> 00:22:00,520 Speaker 1: well in terms of perhaps having to get rid of 444 00:22:00,560 --> 00:22:05,000 Speaker 1: some of the overhead for the company. Well, generally Walmart 445 00:22:05,080 --> 00:22:08,639 Speaker 1: is is pretty efficient I meant, containing costs and are 446 00:22:08,920 --> 00:22:12,440 Speaker 1: pretty systematic at being a low cost operator. Um. But 447 00:22:12,560 --> 00:22:15,159 Speaker 1: we you know, there are certainly going to be opportunities 448 00:22:15,320 --> 00:22:18,200 Speaker 1: to to sort of, you know, be strategic in ways 449 00:22:18,240 --> 00:22:20,880 Speaker 1: to cut costs. And whether that isn't closing a couple 450 00:22:20,920 --> 00:22:24,440 Speaker 1: of stores, or whether that's in using automation to help 451 00:22:25,000 --> 00:22:28,399 Speaker 1: improve efficiency. Um. Those are the types of actions that 452 00:22:28,440 --> 00:22:31,600 Speaker 1: we would expect. Um. But we're not expecting any huge 453 00:22:31,600 --> 00:22:34,520 Speaker 1: announcements in terms of layoffs. You know that that has 454 00:22:34,560 --> 00:22:37,960 Speaker 1: already sort of happened during the course of the year earlier. Yeah. 455 00:22:37,960 --> 00:22:42,520 Speaker 1: What about the possibility of continued wage pressures from Walmart? 456 00:22:42,560 --> 00:22:45,439 Speaker 1: I think I recalled them making some kind of announcement 457 00:22:45,520 --> 00:22:48,040 Speaker 1: that they were at least raising some of the minimum 458 00:22:48,040 --> 00:22:50,320 Speaker 1: wage for many of the workers as well. Is that 459 00:22:50,440 --> 00:22:54,160 Speaker 1: something that could play into the results? Well, it could, Um, 460 00:22:54,520 --> 00:22:56,159 Speaker 1: We're at a point now that where all of the 461 00:22:56,240 --> 00:23:00,760 Speaker 1: retailers are sort of systematically gradually raising UM wages, kind 462 00:23:00,800 --> 00:23:03,000 Speaker 1: of in competition with each other in that bid for 463 00:23:03,080 --> 00:23:06,560 Speaker 1: talent um. And so I don't expect that we'll see 464 00:23:06,600 --> 00:23:09,760 Speaker 1: a big wave of increases UM. It's sort of become 465 00:23:09,800 --> 00:23:12,159 Speaker 1: more of a normal course of business that that wage 466 00:23:12,160 --> 00:23:15,560 Speaker 1: pressure is going to remain persistent over the next few quarters, 467 00:23:15,600 --> 00:23:20,080 Speaker 1: for sure. And how about inflation overall potentially playing into 468 00:23:20,080 --> 00:23:24,119 Speaker 1: Walmart's nominal results. Obviously, we're continuing to see signs that 469 00:23:24,440 --> 00:23:28,479 Speaker 1: price pressures are elevated throughout the economy. Does that factor 470 00:23:28,520 --> 00:23:32,119 Speaker 1: in it all? It does, um, because of the of 471 00:23:32,359 --> 00:23:35,840 Speaker 1: you know, Walmart's merchandise mix and the customer base that 472 00:23:35,880 --> 00:23:39,080 Speaker 1: they have, you know, you know, they are certainly positioned 473 00:23:39,119 --> 00:23:42,359 Speaker 1: to do well in a higher inflation environment because people 474 00:23:42,359 --> 00:23:45,080 Speaker 1: are seeking to stretch their budgets as far as they can. 475 00:23:45,480 --> 00:23:48,040 Speaker 1: But what's happening is that Walmart is seeing a mix 476 00:23:48,080 --> 00:23:50,400 Speaker 1: shift in what they're selling, and they're selling way more 477 00:23:50,440 --> 00:23:52,800 Speaker 1: groceries than they used to sell, in a lot less 478 00:23:53,240 --> 00:23:56,080 Speaker 1: general merchandise than they used to sell UM, and that 479 00:23:56,200 --> 00:23:59,199 Speaker 1: has a big impact on the actual profitability of the 480 00:23:59,240 --> 00:24:02,760 Speaker 1: business because the margins on general merchandise are much much 481 00:24:02,840 --> 00:24:05,800 Speaker 1: higher than they are on grocery. So as long as 482 00:24:05,800 --> 00:24:09,000 Speaker 1: we have inflationary pressure that's sort of affecting the consumer 483 00:24:09,480 --> 00:24:12,840 Speaker 1: UM as well as affecting Walmart's cost of goods. UM 484 00:24:13,400 --> 00:24:15,439 Speaker 1: will continue to see that play out in a in 485 00:24:15,480 --> 00:24:18,760 Speaker 1: a very interesting dynamic. Although I'd imagine that that's something 486 00:24:18,840 --> 00:24:22,520 Speaker 1: that could potentially provide something of a tailwind for Walmart, 487 00:24:22,520 --> 00:24:24,440 Speaker 1: couldn't it. That's just the fact that they have such 488 00:24:24,480 --> 00:24:29,119 Speaker 1: a diversified portfolio of products that they offer to customers 489 00:24:29,119 --> 00:24:31,880 Speaker 1: that that could, you know, put them in a better 490 00:24:31,920 --> 00:24:35,800 Speaker 1: foundation perhaps than some of the competition. That definitely does 491 00:24:35,840 --> 00:24:38,639 Speaker 1: play in their favor. And we often see in times 492 00:24:38,640 --> 00:24:42,160 Speaker 1: where consumers are under pressure that they consolidate trips. They 493 00:24:42,200 --> 00:24:45,439 Speaker 1: prefer stores where they can shop across multiple categories UM. 494 00:24:45,520 --> 00:24:47,639 Speaker 1: So for Walmart, the only thing is making sure that 495 00:24:47,680 --> 00:24:51,160 Speaker 1: they have the right items for customers UM and that 496 00:24:51,200 --> 00:24:53,880 Speaker 1: then there's demand for them and that they sell through them. 497 00:24:54,040 --> 00:24:56,520 Speaker 1: I'm curious as well to get your view on how 498 00:24:56,520 --> 00:24:59,159 Speaker 1: Walmart stacks up against some of them it's major competitors. 499 00:24:59,160 --> 00:25:02,280 Speaker 1: I'm thinking particular early of Amazon in the e commerce 500 00:25:02,320 --> 00:25:07,720 Speaker 1: space and Costco in the sort of wholesale retail space. 501 00:25:07,800 --> 00:25:10,240 Speaker 1: With Sam's Club as part of Walmart or a lot 502 00:25:10,240 --> 00:25:13,119 Speaker 1: of Walmart's mix. Yeah, Sam's Club has actually been a 503 00:25:13,119 --> 00:25:16,359 Speaker 1: real bright spot for Walmart. UM. They've had incredibly strong 504 00:25:16,400 --> 00:25:20,680 Speaker 1: sales growth UM, their membership bases growing. UM. If you remember, 505 00:25:20,760 --> 00:25:22,800 Speaker 1: a couple of years ago, they closed a lot of 506 00:25:22,800 --> 00:25:25,359 Speaker 1: Sam's Clubs that were sort of underperforming or were in 507 00:25:25,440 --> 00:25:29,640 Speaker 1: poor locations, And since then they've really adjusted the business 508 00:25:29,680 --> 00:25:32,760 Speaker 1: and it has got a lot of momentum behind it. UM. 509 00:25:32,800 --> 00:25:36,680 Speaker 1: They are competing well against Costco. UM. The customer base 510 00:25:36,760 --> 00:25:39,159 Speaker 1: is still a little bit different between Sam's Club and 511 00:25:39,359 --> 00:25:41,719 Speaker 1: and Costco, so there seems to be enough room for 512 00:25:41,760 --> 00:25:45,199 Speaker 1: both players. UM. But Sam's Club does continue to be 513 00:25:45,359 --> 00:25:48,160 Speaker 1: a real bright spot for Walmart. UM. When it comes 514 00:25:48,200 --> 00:25:52,199 Speaker 1: to Amazon, UM, it's been interesting to watch, especially in 515 00:25:52,280 --> 00:25:55,280 Speaker 1: recent weeks, how Amazon is has sort of backed away 516 00:25:55,320 --> 00:25:58,440 Speaker 1: from their grocery business. UM. You know that I think 517 00:25:58,480 --> 00:26:01,320 Speaker 1: in part is attributable to how much of a powerhouse 518 00:26:01,359 --> 00:26:05,480 Speaker 1: Walmart is in grocery. UM. But on the e commerce side, UM, 519 00:26:05,520 --> 00:26:09,400 Speaker 1: there's still a large gap obviously between the two companies. UM. 520 00:26:09,440 --> 00:26:13,000 Speaker 1: You know, Walmart continues to expand its online offering by 521 00:26:13,160 --> 00:26:15,840 Speaker 1: its marketplace and how many items it has and how 522 00:26:15,840 --> 00:26:19,280 Speaker 1: many different sellers it has. UM. It's it's growing its 523 00:26:19,320 --> 00:26:23,040 Speaker 1: businesses in terms of fulfillment services. So it's it's doing 524 00:26:23,080 --> 00:26:25,400 Speaker 1: the right things. UM, but it's still at a much 525 00:26:25,480 --> 00:26:29,720 Speaker 1: much smaller size than Amazon overall. Speaking with Jennifer Bartasha, 526 00:26:29,840 --> 00:26:33,359 Speaker 1: senior analyst at Bloomberg Intelligence, of course, the other major 527 00:26:33,440 --> 00:26:36,359 Speaker 1: retailer we're looking to hear from tomorrow is in a 528 00:26:36,560 --> 00:26:40,880 Speaker 1: different category than Walmart and the home improvement sector. That's 529 00:26:41,000 --> 00:26:45,640 Speaker 1: Home Depot. What's the team at Bloomberg Intelligence expecting there? Yeah, 530 00:26:45,680 --> 00:26:48,520 Speaker 1: when when when we look at home Depot, UM, it's 531 00:26:48,520 --> 00:26:51,400 Speaker 1: an interesting story because you know, home you know, home 532 00:26:51,520 --> 00:26:55,280 Speaker 1: was such a hot uh segment for such a long time. UM. 533 00:26:55,320 --> 00:26:58,119 Speaker 1: We are expecting same store sales for Home Depot to 534 00:26:58,200 --> 00:27:02,080 Speaker 1: moderate this quarter. UM and And really that's because last 535 00:27:02,119 --> 00:27:05,520 Speaker 1: quarter they sort of outperformed, but the company didn't change 536 00:27:05,560 --> 00:27:07,919 Speaker 1: its full year guidance, and so that really implies that 537 00:27:07,960 --> 00:27:11,919 Speaker 1: the company was expecting a slowdown in the fourth quarter. UM. 538 00:27:11,960 --> 00:27:14,840 Speaker 1: And so we do think that that's gonna that's going 539 00:27:14,920 --> 00:27:17,640 Speaker 1: to play out now. We do think that the Home 540 00:27:17,680 --> 00:27:21,000 Speaker 1: Depot in particular UM will be able to support top 541 00:27:21,000 --> 00:27:24,080 Speaker 1: line growth just because of the relative strength of their 542 00:27:24,160 --> 00:27:27,480 Speaker 1: professional customers UM. And that's they have a much higher 543 00:27:27,520 --> 00:27:30,679 Speaker 1: density of professionals that use Home Depot than say, some 544 00:27:30,720 --> 00:27:34,080 Speaker 1: of their competitors like Lows UM. But it is possible 545 00:27:34,119 --> 00:27:35,879 Speaker 1: that when first quarter is going to be sort of 546 00:27:35,880 --> 00:27:38,280 Speaker 1: the peak of UM, the fourth quarter is going to 547 00:27:38,320 --> 00:27:39,840 Speaker 1: be kind of a peak and it's going to continue 548 00:27:39,840 --> 00:27:42,560 Speaker 1: to moderate from there. Well, it is interesting that we 549 00:27:42,880 --> 00:27:48,280 Speaker 1: have seen so much difficulty of late in the housing market, 550 00:27:48,760 --> 00:27:52,080 Speaker 1: UH in terms of economic data. Could that potentially be 551 00:27:52,200 --> 00:27:56,000 Speaker 1: reflected in what we get from home Depot tomorrow? Yes? Absolutely, UM. 552 00:27:56,080 --> 00:27:58,879 Speaker 1: You know, we we've seen that home improvement spending his 553 00:27:59,000 --> 00:28:03,160 Speaker 1: sort of decouple from existing home sales UM, and so 554 00:28:03,359 --> 00:28:05,800 Speaker 1: the challenges that we're seeing in the housing market are 555 00:28:05,960 --> 00:28:09,879 Speaker 1: likely to wait on that repair and remodeling spending. That 556 00:28:10,040 --> 00:28:13,800 Speaker 1: is a big component of what home Depot is all about, UM. 557 00:28:13,880 --> 00:28:16,639 Speaker 1: And the longer the housing market is challenged UM, the 558 00:28:16,680 --> 00:28:18,680 Speaker 1: more difficult things are going to get for Home Depot 559 00:28:18,760 --> 00:28:20,960 Speaker 1: long term. How do you look at Walmart and Home 560 00:28:21,000 --> 00:28:23,840 Speaker 1: Depot as proxies for the overall economy. What could the 561 00:28:23,880 --> 00:28:27,159 Speaker 1: earnings tell us in that context? Well, I think you know, 562 00:28:27,200 --> 00:28:29,879 Speaker 1: when you look at them together, it gives you a 563 00:28:29,920 --> 00:28:33,880 Speaker 1: really good sense of where the average consumer is today. Um. 564 00:28:33,920 --> 00:28:37,640 Speaker 1: You know, Walmart arguably has more exposure to the widest 565 00:28:37,680 --> 00:28:42,200 Speaker 1: swath of the typical American household than any other retailer. Um, 566 00:28:42,240 --> 00:28:46,560 Speaker 1: So it really is a good indication of where where 567 00:28:46,600 --> 00:28:49,800 Speaker 1: people's heads are and where their pocketbooks are today. UM. 568 00:28:49,800 --> 00:28:52,920 Speaker 1: With Home Depot, um, it really starts to give you 569 00:28:52,960 --> 00:28:57,760 Speaker 1: a sense of, you know, where that spending and that 570 00:28:57,840 --> 00:29:00,280 Speaker 1: tends to be more a little more discretionary and terms 571 00:29:00,320 --> 00:29:03,560 Speaker 1: of home is happening for the consumer. But we'll also 572 00:29:03,600 --> 00:29:06,960 Speaker 1: get a sense of how that professional, um, the professional 573 00:29:07,000 --> 00:29:09,360 Speaker 1: side of the business is holding up and what that 574 00:29:09,440 --> 00:29:11,560 Speaker 1: may mean for the housing market. Man, we'll be on 575 00:29:11,560 --> 00:29:14,600 Speaker 1: the lookout for those earnings before the opening bell tomorrow 576 00:29:14,640 --> 00:29:17,400 Speaker 1: from Walmart and Home Depot. Thanks for this, Jen, great 577 00:29:17,440 --> 00:29:19,680 Speaker 1: having on with us. Thank you so much, our thanks 578 00:29:19,680 --> 00:29:24,880 Speaker 1: to Bloomberg Intelligence Senior Analyst Jennifer Bartashes. Welcome back to 579 00:29:24,960 --> 00:29:28,040 Speaker 1: this special edition of Bloomberg Daybreak. I'm Nathan Hagar, the 580 00:29:28,160 --> 00:29:31,040 Speaker 1: u s Stock market is closed for the President's Day holiday, 581 00:29:31,160 --> 00:29:34,160 Speaker 1: and this week will mark a year since Russia's invasion 582 00:29:34,200 --> 00:29:37,320 Speaker 1: of Ukraine, a moment that's set off the most devastating 583 00:29:37,360 --> 00:29:40,880 Speaker 1: ground war for Europe since World War Two. For more, 584 00:29:40,960 --> 00:29:46,440 Speaker 1: we're joined by Rosalind Mathieson, Bloomberg's senior executive editor for Government. Roz, 585 00:29:46,640 --> 00:29:48,880 Speaker 1: thanks for being with us as we get closer to 586 00:29:49,000 --> 00:29:51,720 Speaker 1: that milestone. Where do things stand now, as we get 587 00:29:51,720 --> 00:29:53,640 Speaker 1: closer to year two, well as we go into the 588 00:29:53,680 --> 00:29:56,400 Speaker 1: you Tube. The reality is that Russia is still pretty 589 00:29:56,440 --> 00:29:58,800 Speaker 1: bogged down on the ground in a war that, no 590 00:29:58,920 --> 00:30:01,920 Speaker 1: doubt laddim me a pretty envisage would last, perhaps even 591 00:30:02,400 --> 00:30:06,040 Speaker 1: just days. He saw his troops going into Kire, overtaking 592 00:30:06,040 --> 00:30:10,520 Speaker 1: the capital, perhaps the president Vladimir's Dlinsky fleeing the country, 593 00:30:10,520 --> 00:30:13,120 Speaker 1: and that he would have an easy result. And obviously 594 00:30:13,160 --> 00:30:15,840 Speaker 1: it's been anything but that. Over the past year, we've 595 00:30:15,880 --> 00:30:18,880 Speaker 1: seen Russia's troops pushed back from the north, away from 596 00:30:18,920 --> 00:30:22,720 Speaker 1: the capital, focusing now on the east and the southeastern 597 00:30:22,760 --> 00:30:25,320 Speaker 1: part of Ukraine. But really it's been a grinding war 598 00:30:25,520 --> 00:30:28,640 Speaker 1: the last few months, and as the casualties mount on 599 00:30:28,720 --> 00:30:30,800 Speaker 1: both sides, and as they burned through a lot of 600 00:30:31,040 --> 00:30:34,600 Speaker 1: ammunition and artillery as well. So the question really is 601 00:30:34,680 --> 00:30:37,880 Speaker 1: it can Russia make proper progress on the ground, can 602 00:30:38,200 --> 00:30:41,800 Speaker 1: Ukraine in turn push Russia further back and regain territory, 603 00:30:41,880 --> 00:30:44,400 Speaker 1: or are we really facing many, many months yet of 604 00:30:44,520 --> 00:30:47,360 Speaker 1: this kind of like continued grind on the ground in 605 00:30:47,400 --> 00:30:50,560 Speaker 1: the East. It is an interesting question to ponder as 606 00:30:50,600 --> 00:30:53,760 Speaker 1: we've been hearing these warnings over the last several weeks 607 00:30:53,800 --> 00:30:57,560 Speaker 1: that Russia's planning this new Spring offensive and it really 608 00:30:57,600 --> 00:31:01,160 Speaker 1: does see bras like the Kremlin has ramped up its attacks, 609 00:31:01,280 --> 00:31:05,160 Speaker 1: particularly on infrastructure, in just the last couple of weeks. Well, 610 00:31:05,160 --> 00:31:08,520 Speaker 1: that's right, they continue to fire barrages of rockets attacking 611 00:31:09,000 --> 00:31:13,400 Speaker 1: Ukrainian energy infrastructure. There's an argument perhaps that they're offensive 612 00:31:13,400 --> 00:31:16,200 Speaker 1: has already begun, that it won't be that big bang 613 00:31:16,280 --> 00:31:19,520 Speaker 1: moment when something dramatic happens, but rather will just be 614 00:31:19,560 --> 00:31:23,760 Speaker 1: a continued escalation over time of activity by Russia on 615 00:31:23,800 --> 00:31:26,480 Speaker 1: the ground. The question is, in all of that, will 616 00:31:26,520 --> 00:31:29,280 Speaker 1: they be able to do very much before Ukraine gets 617 00:31:29,280 --> 00:31:31,960 Speaker 1: the weapons that we know are coming its way. And 618 00:31:31,960 --> 00:31:34,440 Speaker 1: it raises the question as well as we wait for 619 00:31:34,640 --> 00:31:37,800 Speaker 1: those weapons to make their way to Ukraine, the bolstering 620 00:31:37,920 --> 00:31:40,320 Speaker 1: with the tanks, and that whether we could see even 621 00:31:40,480 --> 00:31:43,640 Speaker 1: further escalation to this war. Well, that's right and certainly, 622 00:31:43,760 --> 00:31:46,479 Speaker 1: and that's probably what Vladimir Putin is seeking to do, 623 00:31:46,600 --> 00:31:49,400 Speaker 1: is to use that window because he knows, come perhaps 624 00:31:49,480 --> 00:31:51,840 Speaker 1: June or July, Ukraine will be in a much stronger 625 00:31:51,880 --> 00:31:55,360 Speaker 1: position to push back his troops um, And does he 626 00:31:55,520 --> 00:31:59,000 Speaker 1: use the one year mark of the war to try 627 00:31:59,040 --> 00:32:01,720 Speaker 1: and rally not just his troops on the ground, but 628 00:32:01,840 --> 00:32:04,520 Speaker 1: his people at home. Of course, you're probably sort of 629 00:32:04,560 --> 00:32:06,920 Speaker 1: looking at this war with at least a sense of 630 00:32:07,000 --> 00:32:10,480 Speaker 1: dismay over the past year. How does he keep momentum 631 00:32:10,520 --> 00:32:13,000 Speaker 1: going there? That's really another big question for him. Are 632 00:32:13,040 --> 00:32:16,520 Speaker 1: you looking at signs that we could see escalation pointed 633 00:32:16,600 --> 00:32:21,760 Speaker 1: outside Ukraine toward NATO with these weapons coming in and 634 00:32:21,840 --> 00:32:26,400 Speaker 1: with President Zolensky of Ukraine calling for fighter jets to 635 00:32:26,440 --> 00:32:28,560 Speaker 1: be part of the arsenal as well. Well, that's been 636 00:32:28,560 --> 00:32:31,040 Speaker 1: the interesting thing over the past year, because there was 637 00:32:31,080 --> 00:32:34,520 Speaker 1: a lot of concern initially about sending in offensive weapons 638 00:32:34,560 --> 00:32:38,280 Speaker 1: because would Russia see that as a particular escalation by NATO. 639 00:32:38,640 --> 00:32:42,080 Speaker 1: But each time that the Western sent in more advanced weapons, 640 00:32:42,120 --> 00:32:45,120 Speaker 1: that promised retaliation has not come, so that kind of 641 00:32:45,160 --> 00:32:49,440 Speaker 1: concern about possible broader Russia retaliation seems to have faded. Also, 642 00:32:49,520 --> 00:32:53,680 Speaker 1: equally that the retoric around possibly using nuclear weapons has 643 00:32:53,760 --> 00:32:56,400 Speaker 1: also dissipated, And the reality is that Russian troops are 644 00:32:56,400 --> 00:32:59,200 Speaker 1: in no position to when you go further than Ukraine 645 00:32:59,560 --> 00:33:01,880 Speaker 1: at the moment. Really, the idea that any of this 646 00:33:01,960 --> 00:33:04,720 Speaker 1: can come out with really from Ukraine right now seems 647 00:33:04,760 --> 00:33:07,520 Speaker 1: highly unlikely. Finally, rose as we get closer to this 648 00:33:07,640 --> 00:33:10,640 Speaker 1: second year, are we seeing any signs on either side 649 00:33:10,800 --> 00:33:13,680 Speaker 1: that we're getting closer to a negotiated resolution between Russia 650 00:33:13,680 --> 00:33:16,080 Speaker 1: and Ukraine. Certainly not at this point in time. You 651 00:33:16,120 --> 00:33:19,920 Speaker 1: can see that Ukrainians are very dug in. President Zlynsky 652 00:33:19,960 --> 00:33:23,160 Speaker 1: has said that he won't negotiate unless all the territory 653 00:33:23,200 --> 00:33:26,320 Speaker 1: that Russia has taken over the years, including Crimeer which 654 00:33:26,360 --> 00:33:29,280 Speaker 1: had annexed in two thousand and fourteen, is on the table. 655 00:33:29,360 --> 00:33:31,640 Speaker 1: Russia has made clear that it won't agree to those 656 00:33:31,680 --> 00:33:34,160 Speaker 1: sorts of terms um and so there's sort of nowhere 657 00:33:34,160 --> 00:33:36,840 Speaker 1: at all at the moment to create an atmosphere for 658 00:33:36,920 --> 00:33:39,960 Speaker 1: talks to occur, negotiations to happen that we're nowhere near 659 00:33:40,000 --> 00:33:42,360 Speaker 1: that at this point. Thanks for rights. Appreciate you coming 660 00:33:42,440 --> 00:33:45,520 Speaker 1: on with us. That's Rosalind Mathison, Senior Executive editor for 661 00:33:45,600 --> 00:33:47,120 Speaker 1: Government at Bloomberg News.