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Speaker 2: We're talking about Target and looking at that Stott j
Speaker 2: TGT is to tick her to load into your Bloomberg terminal.
Speaker 2: Up eleven point seven percent today, So a nice move here.
Speaker 3: Jen Bartash just joins us.
Speaker 2: She covers all the retail industries for Bloomberg Intelligence. She's
Speaker 2: coming to us via zoom from our office down in Princeton. Jen,
Speaker 2: the street likes Target. What did Targets say to get
Speaker 2: the stock up so much today?
Speaker 4: Well, first, I had a good quarter, but they're also
Speaker 4: giving an investor update today and so they've really revealed
Speaker 4: their plan for growth over the next several years and
Speaker 4: that has been resonating well with investors. And it's all
Speaker 4: about recapturing top playing growth, traffic, market share, and they're
Speaker 4: a little bit more upbeat on where they see the
Speaker 4: consumer right now.
Speaker 5: And when we look at inventory being an issue that
Speaker 5: was such a big problem for Target back in the
Speaker 5: pandemic or during the pandemic. It does seem like that's
Speaker 5: being worked through. Kind of what's your expectation with how
Speaker 5: Target is handling their inventory ahead of schedule or not
Speaker 5: ahead schedule.
Speaker 4: Yeah, they've done a major pivot with inventory, and obviously
Speaker 4: they had huge issues a couple of years ago with markdowns,
Speaker 4: and they've really been able to write size inventory that's
Speaker 4: shown up where inventory right now is actually lower than
Speaker 4: it was last year, and yet in stocks are better
Speaker 4: than they've been. And so that focus on those retail
Speaker 4: fundamentals of making sure that you have things in the
Speaker 4: stores and in stock has really been playing through and
Speaker 4: driving some of the results that they've seen and a
Speaker 4: lot of that stems from inventory. And so right now
Speaker 4: they're very well positioned going into twenty twenty four and
Speaker 4: that should hopefully be a tailwind for them for for
Speaker 4: the rest of this fiscal year.
Speaker 3: An affinity card, can you explain what's going on there?
Speaker 4: Yeah, So they're they're they're kind of reimagining their loyalty program. So,
Speaker 4: so the baseline was Target Circle, which was free to join.
Speaker 4: They have one hundred million users that have have joined it,
Speaker 4: and that's where you can go in and save different
Speaker 4: offers and you get an extra ten percent off your
Speaker 4: your your paper towels, you know, that week and that brand.
Speaker 4: What they're doing is they're taking that, They're making it
Speaker 4: so you don't have to search and save. You get
Speaker 4: the things automatically when you when you scan, when you
Speaker 4: when you check out. And if you're a Red Card holder,
Speaker 4: for forty nine dollars, you know, you can get unlimited
Speaker 4: free delivery, same day free delivery to your house, and
Speaker 4: they're calling this Target three sixty. You can also subscribe
Speaker 4: to just that if you're not a Red Card holder.
Speaker 4: Also an introductory price of forty nine, but it will
Speaker 4: go up over time, although they didn't say to what.
Speaker 4: So it's a move where they're trying to get, you know,
Speaker 4: a little bit deeper into consumers' lives, you know, doing
Speaker 4: more home delivery. There's some additional perks in there where
Speaker 4: you can access all of what Ship does, which is
Speaker 4: their same day delivery service, and that includes being able
Speaker 4: to shop at other retailers. So that's kind of the
Speaker 4: differentiator here with regards to the membership program that once
Speaker 4: you have it, you could also have your your target
Speaker 4: run include something from Crossco for example. But it's early
Speaker 4: days and we'll see how much appetite consumers have for
Speaker 4: yet another membership that they have to pay for.
Speaker 6: Well, what are your expectations on that?
Speaker 5: Because I feel like everyone pays for Amazon Prime and
Speaker 5: Walmart Plus, I know has had a strong roll out
Speaker 5: and has partnerships with different credit cards. Like, what can
Speaker 5: Target really do to get people to pay another annual
Speaker 5: fee when it seems like, at least looking at the
Speaker 5: streaming platforms, they're struggling to maintain users.
Speaker 4: It's a great question, and I think that's one of
Speaker 4: the big questions that we're going to need to see
Speaker 4: they really talk about what differentiates this program because you know,
Speaker 4: forty nine dollars is cheap, but it is an introductory,
Speaker 4: introductory price, and there are a lot of people out
Speaker 4: there that do delivery, and so it's you know, when
Speaker 4: I look at it, I think in order for it
Speaker 4: to be a successful program, they're going to have to
Speaker 4: really do something extraordinary that appeals to people to prompt
Speaker 4: them to pay extra And historically, you know, Target's formula
Speaker 4: for success has never been mimicking others. It's been about
Speaker 4: kind of forging their own path. And I think This
Speaker 4: is an example where it's going to be very very
Speaker 4: important for them to do that, but it's not clear
Speaker 4: yet how that's going to fold, how that's going to
Speaker 4: be you know, realized.
Speaker 5: And we had Brent Shooty of Northwestern Mutual earlier on
Speaker 5: the show talking about a potential recession.
Speaker 6: How does Target play into a recession.
Speaker 5: Are they one of the companies that can weather the
Speaker 5: storm because of their loyalty or how does that play
Speaker 5: out just given their typical demographics.
Speaker 4: Well, if there is a recession, you know, with their
Speaker 4: typical demographics, Target's customer base is extremely loyal but Target's
Speaker 4: you know, product mix does skew two more discretionary items,
Speaker 4: and so whenever there's a pullback and spending, it tends
Speaker 4: to have an outsized impact on Target versus other big
Speaker 4: box retailers. Now, Target has been really focused in the
Speaker 4: last eighteen months, especially on value. They've launched some new
Speaker 4: private label brands that are you know, meant to be
Speaker 4: the cheapest option in every category in the store. So
Speaker 4: they're trying to respond to that. So, you know, they
Speaker 4: have the breadth of category and they have the loyalty
Speaker 4: of consumers that they can weather a recession. But it
Speaker 4: will make it harder for them to get back to
Speaker 4: that top line growth and that expansion of margin that
Speaker 4: they're talking about today if we find ourselves in the
Speaker 4: midst of a recession.
Speaker 2: Hey, Jen, how do I differentiate how much shopper between
Speaker 2: Target and Walmart?
Speaker 4: It's all about perception, right when you think about Walmart
Speaker 4: is usually about lowest price. Walmart is a is an
Speaker 4: d l P. Every every day you get the lowest
Speaker 4: possible price. They've got a very big assortment, and you
Speaker 4: know it's uh and they have, you know, some some
Speaker 4: perks with regards to their Walmart Plus program. When people
Speaker 4: think of Target, they think a little bit more of discovery,
Speaker 4: they think a little bit more about inspiration versus function
Speaker 4: you know, than than functionality. And and that's where you
Speaker 4: really see the divergence between those two retailers.
Speaker 5: I will say, when I go to Target, I always
Speaker 5: end up buying more than I want, where if I
Speaker 5: go to Walmart, I'm kind of.
Speaker 6: In and out.
Speaker 5: Jen, question off of that comparison, I always talk up
Speaker 5: the fact that Walmart owned Sam's Club. When you look
Speaker 5: at the company, makeup, how much does that differentiate Walmart
Speaker 5: versus some of the other peers just given as you mentioned,
Speaker 5: Target potentially partnering with Costco if you're using their membership card.
Speaker 4: Yeah, so you know, obviously there's a there's a great
Speaker 4: benefit to Walmart of having both It's It's US Walmart
Speaker 4: stores as well as the Sam's Club stores because they
Speaker 4: really can capture they can capture spending by by different
Speaker 4: groups of people and for different shopping reasons. Now, when
Speaker 4: I talked about shipped, it's not so much that you
Speaker 4: get the benefits of a Costco membership, for example, with Target,
Speaker 4: it's just more that you can have your delivery person
Speaker 4: pick up purchases from other retailers, which is something that
Speaker 4: isn't embedded in a Walmart program for example. But you
Speaker 4: know that that Target membership fee is going to be
Speaker 4: competing with your Costco membership fee. It'll be you know,
Speaker 4: competing with a bja's membership fee along with all of
Speaker 4: your streaming services and everything else out there. So you know,
Speaker 4: Walmart definitely benefits from the scale of having both the
Speaker 4: Core stores and Sam's Club. But you know, it is
Speaker 4: a little bit of a different business model than what
Speaker 4: we're talking about with Target.
Speaker 2: Just for what's worth I put up the comp function
Speaker 2: c o MP for the last five years S and
Speaker 2: P five hundreds compound and annual growth rate about fourteen
Speaker 2: point six percent, So we all did pretty well there.
Speaker 2: Walmart's right spot online there fourteen point eight percent. Target
Speaker 2: a little bit better, just under twenty percent, So Target
Speaker 2: out performing Walmart over.
Speaker 3: The last five years a little bit.
Speaker 2: Jen Bartashas, thanks so much for joining us. Jenny is
Speaker 2: a senior retail annaly say. She has a very long title,
Speaker 2: but I just call her senior retail analys. I'm going
Speaker 2: with that. Bloomberg Intelligence joining us on zoom from the
Speaker 2: BI headquarters in Princeton, New Jersey's talking about Tarja had
Speaker 2: some some good numbers, got their inventory kind of in
Speaker 2: line here, and the stocks up about her eleven percent today,
Speaker 2: so a good move there.
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Speaker 3: It's my data come in today.
Speaker 2: Services side a little bit weaker than expect although the
Speaker 2: new orders will hire. Let's break it down with Anthony
Speaker 2: Nievi's Chair of Ism Services Committee, joining us via zoom
Speaker 2: from Los Angeles. So, Anthony, I'm looking at the is
Speaker 2: some services data come in a little bit lower than
Speaker 2: last period, a little bit below expectations.
Speaker 3: What are your takeaways?
Speaker 7: Well, when you look at the composite index at fifty
Speaker 7: two point six, it's actually up slightly from the twelve
Speaker 7: month running total of fifty two point four. And what's
Speaker 7: actually dragging down the composite index is the contraction we're
Speaker 7: experiencing from the employment index as well as supplier deliveries,
Speaker 7: and that's attributed to deliveries. We have improved capacity, some
Speaker 7: logistical challenges, but overall less backlog than what we've seen
Speaker 7: in the past. Just improvements all across the supply chain.
Speaker 7: And the employment continues to be a mixed bag, with
Speaker 7: companies managing that variable expense as well as having difficulty
Speaker 7: in backfilling some of the open positions that have been
Speaker 7: within their specific companies. Respective companies, and.
Speaker 6: Anthony, I'm looking at it.
Speaker 5: Some demand measures those strengthening, So gauge of new orders
Speaker 5: placed with service providers increasing to fifty six point one
Speaker 5: that's the highest since August. When you look at that
Speaker 5: data point in some of the trends underlying it, What
Speaker 5: can we make from demanding those orders being placed with
Speaker 5: service providers.
Speaker 7: Yes, when you look at new orders and it tells
Speaker 7: us what's in the pipeline. The one thing we have
Speaker 7: to keep in mind is that the cycle time for
Speaker 7: orders on services is it's less than what you would
Speaker 7: see on the manufacturing time just from the nature of
Speaker 7: the different businesses that make up the industries and the
Speaker 7: industries that comprise the sector. But overall it does tell
Speaker 7: us going forward. It is a leading indicator that we'll
Speaker 7: see this continued trend. We've seen this composite index stay
Speaker 7: in the middle to low fifties over the last twelve months,
Speaker 7: and it's just that sustainable levels and we've not seen
Speaker 7: any head fakes or anything that might distort the picture
Speaker 7: going far forward.
Speaker 2: So, Anthony, we know services are critical to this US economy,
Speaker 2: probably approximately seventy percent of the US economy. Here are
Speaker 2: there regional differences that you see in your data.
Speaker 7: We don't measure it regionally, but we can tell by
Speaker 7: the companies that comprise our survey committee. So we can
Speaker 7: see the different areas, and we know that certain things
Speaker 7: will impact demand as well as the throughput, and it's
Speaker 7: based on the geographic location and the effects of weather
Speaker 7: and different variables such as that. But overall, the way
Speaker 7: that we comprise this survey, it's based on contribution to
Speaker 7: GDP percentage wise, and it's small, medium, and large companies
Speaker 7: across all of the eighteen industries, so we really mirror
Speaker 7: what we see on the trailing GDP figures, so it
Speaker 7: maps closely over a time How about.
Speaker 2: That services employment data. The employment data came in at
Speaker 2: forty eight on the index. The consensus was fifty one
Speaker 2: point four. Last period was fifty point five, so noticeably lower.
Speaker 3: What do you make of that?
Speaker 7: Yeah, I look at it, and I see that we
Speaker 7: had decent number in November. It pulled back in December.
Speaker 7: To me, that was more about cycle time and the
Speaker 7: holiday season and things kind of slowed down traditionally there historically,
Speaker 7: and we had a nice little pop up in January.
Speaker 7: Now it looks like it's a combination of wariness. And
Speaker 7: I'm getting this from responding comments. They're saying they're a
Speaker 7: bit wary as to what's going on, and so they're
Speaker 7: managing that expense, and others are saying they're just having
Speaker 7: difficulty finding applicable workers to their open positions.
Speaker 5: And the individual data points are important, but the underlying
Speaker 5: trends are really what kind of drive expectations? What are
Speaker 5: you keeping an eye on, and what trends stand out
Speaker 5: to you when you put this February data point batch
Speaker 5: of February data points into context.
Speaker 7: The key things are and looking at the four indexes
Speaker 7: that make up the composite, and we know that employment
Speaker 7: also drives this sector. But I also look at some
Speaker 7: of the specific industries the top four as well as
Speaker 7: the wholesale trade because this sector is so reliant on
Speaker 7: the intermodal as well as the distribution channel, so it
Speaker 7: tells me what kind of activity. So looking at the
Speaker 7: leading indicator of new orders and everything else, And to
Speaker 7: your point earlier when you set out the demand, the
Speaker 7: demand is still there and we're still seeing this sustainable
Speaker 7: growth moving forward here for this sector.
Speaker 2: All right, Anthony, thanks so much for joining us. Appreciate
Speaker 2: getting your thoughts here. Anthony Niavis he's the chair for
Speaker 2: im Services Business Committee, joining us from Los Angeles via zoom.
Speaker 2: And again, the ISM Services index came in at fifty
Speaker 2: two point six and put that into context. The consensus
Speaker 2: was fifty three, so a little bit below consensus, and
Speaker 2: it was about fifty three point four last period, so
Speaker 2: below last period. Although it was Anthony, it's pointed out
Speaker 2: it's higher than the twelve month trailing average of fifty
Speaker 2: two point four, so staring some consistency of nothing else.
Speaker 2: And again the key point, it's above fifty, showing that
Speaker 2: the services economy is growing. So so breaking down the
Speaker 2: news there.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: I'm gonna talk about global shipping it's impact on the economy,
Speaker 2: and man, we've got a good guest for that. Chris
Speaker 2: Williamson JOINANTCE is chief business Economists for S and P
Speaker 2: Global Market Intelligence, based in London, but we got them
Speaker 2: here in the States.
Speaker 3: Chris, what brings you to the USA? You were at
Speaker 3: a conference, right?
Speaker 6: We did?
Speaker 1: Yeah down in La.
Speaker 3: The CPM we say out in La, out in La.
Speaker 3: That's how you do it.
Speaker 8: Sure foreigner in this land. Yeah yeah, out in La
Speaker 8: the GM conference, the big annual shipping conference that the
Speaker 8: General Commerce which smones is holding. So fantastic opportunity to
Speaker 8: speak to the shippers and the shipping companies about what's
Speaker 8: happening right now in the world.
Speaker 1: In the Red Sea.
Speaker 2: Boy, let's start right there, because I mean, Bailey and
Speaker 2: I have been talking about, you know, just over the
Speaker 2: less several months, that what's happening in the Red Sea
Speaker 2: and it's impact on shipping on the Bloomberg Terminal. We
Speaker 2: have a function called map go map and you can
Speaker 2: link it to shoe where all the container ships are
Speaker 2: and oil tankers are around the world.
Speaker 3: I could take where they're not. They're not in the
Speaker 3: Red Sea, they're not in the Zeez Canal. Where are
Speaker 3: we with that whole situation? How's that impacting the economy?
Speaker 8: Well, it seems that a lot of the IMPACT's already gone.
Speaker 8: It's been and gone, So late December January was the
Speaker 8: peak impact really, because what you've got to remember here
Speaker 8: is there's no capacity been taken out of global shipping.
Speaker 1: It just had a delay.
Speaker 3: So it's one One.
Speaker 8: Shipping company told me that their clients when all this hit,
Speaker 8: they missed one week's delivery. Everything was re routed. But
Speaker 8: now they're getting deliveries every week again. So yeah, it's
Speaker 8: costing a little bit more, so it slight inflationary impact,
Speaker 8: but it's not huge. And the impact is it's kind
Speaker 8: of been and gone, it seems. And we saw this
Speaker 8: with our the Global Manufacturing Peermise Supplies Delivery Times Index.
Speaker 8: Now that was an index that joined the pandemic, was
Speaker 8: one of the real worrying signals. Its spiked higher unprecedented levels,
Speaker 8: pushing prices higher. So that rose again in January for
Speaker 8: the first time in the year, signaling longer shipping times,
Speaker 8: but then it fell back in January again, so another
Speaker 8: sign that this is kind of it's all over, really yep.
Speaker 5: And working through that, were there regions that were more
Speaker 5: impacted than others, like in terms of US, Europe.
Speaker 8: UK indeed indeed, yeah, yeah, So when I say it's
Speaker 8: all over, it's all over on a global basis, but
Speaker 8: there are some impacts still. Obviously in Europe. The UK's
Speaker 8: is by far the biggest hit. It's an island, right,
Speaker 8: so there's lots of research from the pandemic showing islands
Speaker 8: have always been bigger hit by this sort of So
Speaker 8: the UK has got quite severe delays and that's feeding
Speaker 8: through to quite a bigger price spike in goods in
Speaker 8: the UK and also the Mediterranean countries because they're they're
Speaker 8: fed less by land than the likes of Germany for example.
Speaker 5: Are there goods or industries that are more impacted in
Speaker 5: terms of looking at the UK, like, are their products
Speaker 5: that have faced longer delays or have had kind of
Speaker 5: greater hurdles or greater inflationary impact.
Speaker 8: Yeah, there is, but again it's it fits the sort
Speaker 8: of narrative of what you normally ship. So these are
Speaker 8: you know, the big expensive goods to move, so they're
Speaker 8: not moved by air, they're moved by ship. It's the lumber,
Speaker 8: it's the construction materials. There's lots of big white goods
Speaker 8: and so forth. So those are the sectors that have
Speaker 8: been hard hit. But again I would urge some caution
Speaker 8: into reading too much into this because while the UK
Speaker 8: has been disproportionately hit and there was quite a significant
Speaker 8: lengthening of delivery times in the UK and in the
Speaker 8: likes of Italy and Greece, these are you know, it's
Speaker 8: likely to be short lived, it should fade.
Speaker 2: So what you're with the shut industry, what are they
Speaker 2: seeing in terms of the global economy, because there's a rule,
Speaker 2: as you well know, there's a lot of folks that
Speaker 2: are just unsure where this economy is going on a
Speaker 2: global scale.
Speaker 3: What are they seeing just from their perspective.
Speaker 8: Yeah, Well, it's interesting because at this conference is where
Speaker 8: a lot of people do their deals, fixing the prices
Speaker 8: of shipping for the next year. So everyone seems to
Speaker 8: fix their rates in the next month or so. And
Speaker 8: the last two years it's very much been a sort
Speaker 8: of buyer's market that we've had low shipping volumes because
Speaker 8: of the manufacturing malaise we've had. We've had two years
Speaker 8: now of virtually no growth in global manufacturing, we had
Speaker 8: two years of falling exports. So this has led to
Speaker 8: some really quite soft shipping rates. But this year seems
Speaker 8: to be the first time where things are coming more
Speaker 8: into balance, So you're seeing some hardening of those shipping rates,
Speaker 8: and the consumer goods companies in particular, I think bracing
Speaker 8: themselves for some tough negotiations this year.
Speaker 5: And was that just a dumb question in person before?
Speaker 5: Like in terms of of getting back out of COVID.
Speaker 5: Were you in l A last year, No.
Speaker 1: I wasn't.
Speaker 8: No, No, that's this is the first time that I've
Speaker 8: been there, so no, but it's yeah, fascinating conference.
Speaker 2: What are they saying about China because that's also in
Speaker 2: the news again, just people really concerned about that economy
Speaker 2: and sort of the shippers. I mean, obviously, you know,
Speaker 2: in Gene Succora from the Port of Los Angeles, we
Speaker 2: have as a guest all the time, and he's a
Speaker 2: good read for us on ship you know, shipping and
Speaker 2: volume and experts out of China to the rest of
Speaker 2: the world.
Speaker 3: What do some of the shippers say about.
Speaker 8: China, Well, in the most broadest context, really you when
Speaker 8: you talk about China, very soon the words come to
Speaker 8: diversification and resilience in the same conversation, right, So the
Speaker 8: focus is very much on diversify your supply chains to
Speaker 8: ensure that you maintain a constant supply and the ability
Speaker 8: to switch suppliers quickly if one country or one shipping
Speaker 8: route becomes a problem, then you've got other options where
Speaker 8: you've already got contracts and relationships in place. And obviously
Speaker 8: China is really at the forefront of that diversification away
Speaker 8: from China towards especially the other Asian economies, and closer
Speaker 8: to home towards Mexico.
Speaker 5: So I was going to ask just in terms of
Speaker 5: diversification away, it does seem like a lot of that
Speaker 5: would be in South and Central America, which, in turn,
Speaker 5: if an event like the Red Sea, everything that's going
Speaker 5: on with the Red Sea, you would be able to kind.
Speaker 6: Of bypass that.
Speaker 1: Yeah.
Speaker 8: Absolutely, So you know, being caught once is one thing,
Speaker 8: but being caught twice is another.
Speaker 4: You know.
Speaker 8: So we had the pandemic and now with this Red Sea,
Speaker 8: so you know, you really don't want to be living
Speaker 8: your life like this going forward. And there's the whole
Speaker 8: area of protectionism and climate change which add additional risks
Speaker 8: to shipping and supply chain. So diversification is and resilience
Speaker 8: is everything.
Speaker 2: All Right, We had some S ANDB global PMI data today.
Speaker 2: This came in better than expected, better than last month.
Speaker 2: What should we take away from that?
Speaker 8: Yeah, surprising resilience in the US economy, right, and the
Speaker 8: em data that come out as well, I've supported that.
Speaker 8: It looks like we're doing well. If you drill down
Speaker 8: into the data there's encouraging signs of this being broader
Speaker 8: based as well. Consumer spending seems to be reviving again
Speaker 8: on goods and services. So to maybe backtrack a little bit,
Speaker 8: if you go back a few months, this strength that
Speaker 8: we've had in the global economy and the US economy
Speaker 8: driven by financial services, right, this was the big acceleration
Speaker 8: we saw, and this is all predicated on lower interest
Speaker 8: rates in twenty twenty four. Remember back in December, they
Speaker 8: were pricing in one hundred and sixty paces points and cuts,
Speaker 8: and that spurred this big strength demand for new mortgage
Speaker 8: years and so forth. Our fastest growing sector that we
Speaker 8: had with our global pmis in January is realist state,
Speaker 8: followed by insurance, then banking, these sectors propelling it. And
Speaker 8: as those financial conditions loosened, you know, the stocking disease
Speaker 8: that we had rising, all that wealth effect coming through
Speaker 8: is feeding through to consumers now. And interestingly, in a
Speaker 8: difference to early twenty twenty three, when consumer spending was
Speaker 8: largely focused on services, as economies reopened, we all went
Speaker 8: and enjoyed more holidays and recreation. This time it's more
Speaker 8: balanced goods and services showing stronger growth. So this is
Speaker 8: an encouraging picture. Manufacturers are doing less inventory reduction now,
Speaker 8: in fact even switching around to restocking, so that's supporting
Speaker 8: this whole picture as well. And consumers see some real
Speaker 8: wage growth coming through as well as the prospect's lower
Speaker 8: interest rates. But it's the latter that is the concern
Speaker 8: because it's all predicated on those lower rates. And if
Speaker 8: we don't get them, what do.
Speaker 3: You think do you think the Fed's is going to
Speaker 3: do this year?
Speaker 8: Well, our base time because it's similar to everyone else,
Speaker 8: which is the first cut in May now with with
Speaker 8: maybe three four four cuts for the rest of the year,
Speaker 8: but as these days to come in, that's starting to
Speaker 8: look increasingly challenging to see that, right.
Speaker 5: We're function my favorite, Paul, right now, first cut with
Speaker 5: a real certainty is June, maybe July.
Speaker 6: So we saw that really.
Speaker 5: Pushed back from the beginning of the year where people
Speaker 5: were pound of the table for March as much to
Speaker 5: six this year.
Speaker 2: All right, Chris, thanks so much for joining us, Really
Speaker 2: appreciate it. Chris Williamson, chief business economist at SNP Global
Speaker 2: Market Intelligence, joining us here in our Bloomberg Interactive Broker
Speaker 2: Studio on his way back from La to New York
Speaker 2: and then off to London.
Speaker 3: Right, is that how we're going?
Speaker 8: Indeed?
Speaker 3: Thanks very good? Now are you going in the right direction?
Speaker 9: There?
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: say hey Alexa playing Bloomberg eleven.
Speaker 3: Look at this market here.
Speaker 2: You know what we were looking for towards the November
Speaker 2: December a little bit improvement and breadth and bailey. We
Speaker 2: saw some of the small cap names, you know, start
Speaker 2: to perform better. The SMP equal weighted outperforming closing the
Speaker 2: gap with the SPX a little bit not so much
Speaker 2: this year, kind of going back to the big guys,
Speaker 2: kind of leading the.
Speaker 5: Parade, driving the market, especially in a day like today.
Speaker 5: SMP down on zero point nine percent. Laggard's Microsoft, Apple
Speaker 5: and Video, Amazon, TESPLA, your main stocks that have really
Speaker 5: driven most of those games so far.
Speaker 6: You're to date Mac seven, Fab five, however.
Speaker 3: You want to call it exactly. Brett Shrudey joins a.
Speaker 2: He's a chief investment Officer Northwestern Mutual Wealth Management Company,
Speaker 2: joining us from that zoom thing from Milwaukee again pound
Speaker 2: for pound, Milwaukee, I think is some of the best
Speaker 2: portfolio managers anywhere.
Speaker 3: Brent, What do you make of this market here?
Speaker 2: Are you one of those folks that are concerned that
Speaker 2: maybe we don't have better breadth, better representation and the
Speaker 2: move higher in this market that it's kind of pretty narrow.
Speaker 3: At the top.
Speaker 9: I am concerned about that. You've had a small group
Speaker 9: of companies actually pushing the market higher. It reminds me
Speaker 9: a lot of the late nineteen nineties where you were
Speaker 9: later in an economic cycle like I think you are today,
Speaker 9: and a small group of companies drove the market higher,
Speaker 9: which eventually, as we all know, kind of unfolded in
Speaker 9: a way after a recession where they didn't do so
Speaker 9: well over the next time period in the next cycle.
Speaker 9: But I think there's still opportunities in those other parts
Speaker 9: of the market like there were that And so I
Speaker 9: think about those names that you mentioned. I think about
Speaker 9: small cap stocks, I think about mid cap stocks, I
Speaker 9: think about value stocks. Those stocks still trade at fairly
Speaker 9: low historical level levels, especially relative to their large cap friends,
Speaker 9: which I think sets them up well in the next
Speaker 9: economic cycle, which I think unfortunately happens after we have
Speaker 9: a recession. So I still think one is likely, But
Speaker 9: I think the downside in those even in the recession
Speaker 9: is pretty low, just given the fact that they haven't participated.
Speaker 9: They traded a cheap valuations, and I think the opposite
Speaker 9: side is going to be pretty powerful for those types
Speaker 9: of names.
Speaker 5: And Brent, with those names, are you talking about energy
Speaker 5: or banks? What are some of the bigger names that
Speaker 5: you see as better position given as we were mentioning
Speaker 5: the rally broadly for large tech.
Speaker 9: So I think of value more as a factor, and
Speaker 9: not necessarily industry by industry or sector bisector, but certainly
Speaker 9: those are areas are areas that typically have more value
Speaker 9: type of stocks. I think they will do well Historically
Speaker 9: if you look at every economic cycle, So if I
Speaker 9: go back to the nineteen eighty one economic cycle, the
Speaker 9: next economic cycle after that has had different market leadership,
Speaker 9: while whatever drove the last cycle typically doesn't do well.
Speaker 9: And so if I take you back to late late
Speaker 9: nineteen nineties, you did see obviously energy, you saw commodities
Speaker 9: do well in that next economic cycle as well as banks,
Speaker 9: and so I do think it's largely the same type
Speaker 9: of setup, but I think more broadly as just things
Speaker 9: that are cheaper versus things that are more expensive right now,
Speaker 9: which a lot of those names have certainly earned the
Speaker 9: right to be expensive, and they have good prospects going forward.
Speaker 9: But much like back then, you wonder how much of
Speaker 9: that is already priced, and I think the answer is
Speaker 9: quite a bit.
Speaker 2: So give us your recession scenario at Northwestern Mutual. How
Speaker 2: long do you guys think it'll be, how deep you
Speaker 2: think it'll be, and you have any sense of kind
Speaker 2: of timing because a lot of folks we've been talking
Speaker 2: about this for a while and we haven't seen anything.
Speaker 9: Yeah, I think it's always calling the exact time period
Speaker 9: of a recession is difficult. I think it's made more
Speaker 9: difficult by what happened during COVID with all the stimulus,
Speaker 9: all the excess savings, and the reality that the US
Speaker 9: economy is not that interest rate sensitive because people and
Speaker 9: corporations termed out their debt. This is where I think
Speaker 9: we're at the end of an economic cycle. You look
Speaker 9: at wages right now, wages look like they're at the
Speaker 9: end of an economic cycle. The unemployment rate is low,
Speaker 9: it's hard to find workers. We have about everything that
Speaker 9: looks end of the cycle. I think it's hard to
Speaker 9: time that because you haven't seen that penetrate the US
Speaker 9: economy as much because that debt has been turned out,
Speaker 9: has been fixed. The longer the fed lea's rates higher.
Speaker 9: As your prior guest, I think on Leaden said, the
Speaker 9: greater the chance there is an accident. To me, I
Speaker 9: put it differently, and I say, the greater the chances
Speaker 9: it works its way in to the economy. And you're
Speaker 9: seeing that happen now, as mortgage debt reprices, as credit
Speaker 9: card debt reprices, as auto loans repriced, and as access
Speaker 9: savings wear often. So I still think one is in
Speaker 9: the not too far offing, and I think it'll be
Speaker 9: more mild, just because we don't have large levels of
Speaker 9: excess like we have in past recessions that were longer.
Speaker 9: I don't think that necessarily means the market won't fall,
Speaker 9: especially some of those larger cap names, which I think
Speaker 9: are priced to perfection, and I don't think perfection is
Speaker 9: likely in the coming quarters.
Speaker 5: Well, that's my next question. If we do get a
Speaker 5: recession and you look at weakness in Nvidia, is that
Speaker 5: one of the stocks that falls. You would assume Apple
Speaker 5: would be one of the laggards though they've been underperforming.
Speaker 5: Ass have Tesla, which are I would say more consumer
Speaker 5: facing than the likes of a Nvidia and some of
Speaker 5: the other high flyers.
Speaker 9: I'll brun it out a bit more and just say
Speaker 9: that the top ten names, the S and P five
Speaker 9: hundred in the year thereafter haven't historically done all that
Speaker 9: well over longer periods of time. And now I even
Speaker 9: take you back to I think today's one of today's
Speaker 9: magnificent seven, Microsoft, which was in the top ten names
Speaker 9: back in nineteen nine and nine. Those who unfortunately about
Speaker 9: Microsoft in ninety ninety nin it took them seventeen years
Speaker 9: to get back to where it was in nineteen ninety nine.
Speaker 9: And so to me, this kind of takes you back
Speaker 9: to some common sense things and investing, like not concentrating
Speaker 9: in anyone part of the market and kind of basing
Speaker 9: your whole financial outcomes in the future on that leadership
Speaker 9: changes and typically what was in favor in the past
Speaker 9: economic cycle and kind of drove that economic cycle economically
Speaker 9: is also in favor in the markets and the next
Speaker 9: economic cycle. We typically cure our shortages, and so you know,
Speaker 9: I just think it's more likely than not we get
Speaker 9: different leadership. I think valuation matters over longer periods of time.
Speaker 9: It's an imperfect timing tool, but I think parts of
Speaker 9: the market that are cheap right now will do well
Speaker 9: as we kind of get past this hopefully mild and
Speaker 9: short recession.
Speaker 2: So the Federal Reserve, I guess the question is, you know,
Speaker 2: when are they going to start cutting, and maybe in
Speaker 2: to what degree will they cut. We started the year
Speaker 2: discounting maybe six rate cuts this year. Now I think
Speaker 2: I think we're down to like three or four here.
Speaker 2: How do you think the FED will will you know,
Speaker 2: execute for their men?
Speaker 9: I mean, this is another common sense thing. We're't a
Speaker 9: difficult spot for the FED. If they cut too soon,
Speaker 9: they risk the nineteen sixty six to nineteen eighty two
Speaker 9: time period. If they cut too late, they risk job losses, which,
Speaker 9: as we've seen in the past, once job losses start,
Speaker 9: even if the FED starts cutting rates, they tend to trend.
Speaker 9: There is nothing between upo point five percent on the
Speaker 9: utterplant rate in cycles to being up one point nine
Speaker 9: percent and so it tends to trend, and I don't
Speaker 9: think they're going to be able to land an economy
Speaker 9: that is one hundred and sixty eight million labor market
Speaker 9: and twenty eight trillion big exactly, with just a little
Speaker 9: bit of growth, not too much, but not negative. And
Speaker 9: so right now, the reason why I don't believe there's
Speaker 9: going to be a soft landing is I don't think
Speaker 9: inflation pressures are gone, and I don't think they'll be
Speaker 9: gone until you actually see a recession, which has happened
Speaker 9: at the end of every other economic cycle. And so
Speaker 9: right now inflation is still moving back up. We saw
Speaker 9: that last week in PCEE. You saw the distribution of
Speaker 9: a inflation components rising five percent or more fifty seven percent.
Speaker 9: You see CPI, you see service is still too hot.
Speaker 9: And actually the median CPI, the meetiing PC they're moving
Speaker 9: in the wrong direction. And so to me, the FED
Speaker 9: leaves rates high until they see signs that the labor
Speaker 9: market is weakening and by then it's too late, which
Speaker 9: I think the good news is because that will kind
Speaker 9: of take the steam out of inflation altogether. They will
Speaker 9: be able to cut aggressively. On the opposite side, of this,
Speaker 9: but not until they actually see that. And so I
Speaker 9: don't think rate cuts are likely in the near term.
Speaker 9: And that's why I still think you're likely to see
Speaker 9: a recession as they leave rates high enough and that
Speaker 9: continues to bite in the economy.
Speaker 2: Well, a lot of folks would say, you know, given
Speaker 2: that and if you look at the real time data,
Speaker 2: inflation is in fact whipped, and that they should be
Speaker 2: cutting rates. Now, what do you think about that argument?
Speaker 9: I mean, I take you back to CPI. I invite
Speaker 9: you to look at CPI services. I invite you to
Speaker 9: look at the CPI, the Cleveland Fed median CPI which
Speaker 9: bottomed in July and is actually moving higher. I invite
Speaker 9: you to think about wage growth, which is running at
Speaker 9: four point three to four point eight percent. Pick your
Speaker 9: favorite metric which typically weaves into the end of an
Speaker 9: economic cycle. I invite you to look at one year
Speaker 9: inflation break evens, where the bond market is telling you
Speaker 9: that inflation may be a near term thing, as well
Speaker 9: as to your break evens. And so certainly, I think
Speaker 9: people have become a little bit too optimistic on inflation.
Speaker 9: As a reminder, I thought inflation would come down because
Speaker 9: it was tied to COVID. It was transitory, and that's
Speaker 9: what I think carried us through twenty twenty three. Unfortunately,
Speaker 9: I think now inflation is more tied to the economic cycle,
Speaker 9: where you run out of labor market slack, wages rise,
Speaker 9: Companies eventually try to raise prices. That gets squashed by
Speaker 9: the Federal Reserve. And eventually, if your wages are going
Speaker 9: up on your employees, so your expenses are going up,
Speaker 9: but you can't raise prices, your margins get hit. And
Speaker 9: that's where you begin letting you employees.
Speaker 3: Smart stuff as always you bring in every time. Brent
Speaker 3: really appreciate it.
Speaker 2: Chicago NBA folks, they're pretty smart. Brent Shredy joins US
Speaker 2: here a chief investment officer Northwestern Mutual Wealth Management Company,
Speaker 2: joining us on zoom from Milwaukee. That's a sobering view,
Speaker 2: cautious view, I guess, I'm not sure a reasonable view.
Speaker 3: I don't know.
Speaker 2: I guess it depends on your perspective. But he's not
Speaker 2: just diving in on this momentum trade keep buying him.
Speaker 6: No, And that's interesting. I mean, we have seen.
Speaker 5: Caution really kind of being a tone that's been struck.
Speaker 5: But again, it's interesting to see what different people who
Speaker 5: are actually putting money on the line are thinking and
Speaker 5: looking at and just given kind of again. Markets churning
Speaker 5: around near all time heisman.
Speaker 6: I know I hit it earlier. Yeah, Bitcoin at least
Speaker 6: on entryday basis hitting a record.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Apple down about two point eight percent today, about eleven
Speaker 2: and a half percent year to date. The news today
Speaker 2: Apple's iPhone wills in China deepen with a twenty four
Speaker 2: percent sales plunge.
Speaker 3: Let's break it down with Anurag Rana.
Speaker 2: He's a senior technology analyst to Bloomberg Intelligence, joining us
Speaker 2: via zoom Anurag what's causing this decline in the early
Speaker 2: part of twenty twenty four in iPhone sales for Apple
Speaker 2: in China?
Speaker 3: Is it market share lost? Is it a contraction in
Speaker 3: the market. What's going on?
Speaker 10: I think it's a bit of both for them, and
Speaker 10: this is the same story that's been going on for
Speaker 10: the last six to nine months, ever since Wawei released
Speaker 10: their higher end phone last year. So Apple's been losing
Speaker 10: market share there that has been you know, you could
Speaker 10: say deepened on coupled with consumer weakness in China, and
Speaker 10: it's all that's you know, driving these problems right now.
Speaker 5: And when I look at the PGeo function on the terminal,
Speaker 5: iPhone accounts for more than half of Apple's revenue China,
Speaker 5: call it a fifth of their sales anak. When you
Speaker 5: look at those numbers, what does this actually mean for
Speaker 5: Apple if they're going to see that competition eating into
Speaker 5: their sales, Yeah, I.
Speaker 10: Think it's going to be a tough time for Apple
Speaker 10: in China for that at least this year and maybe
Speaker 10: into next year before they can, let's say, make some
Speaker 10: inroads in India and other markets. Emerging markets is the
Speaker 10: real growth driver for Apple, there is no two ways
Speaker 10: about it. And and you know iPhone is the big
Speaker 10: growth driver. So if phones are not selling in China,
Speaker 10: that's a problem for Apple. It means numbers need to
Speaker 10: come down even more for Apple this year. You know,
Speaker 10: we saw about double digit sales drop in China last quarter.
Speaker 10: I looked up this morning on MDL consensus is about
Speaker 10: seven percent drop in China for this quarter. I think
Speaker 10: that number needs to creep up to someone in the
Speaker 10: low double digit decline going forward.
Speaker 3: So it's good, it's it's a pain.
Speaker 10: It's a painful situation for Apple, and frankly, there aren't
Speaker 10: at many you know, rosy things looking forward at least
Speaker 10: for twenty twenty four.
Speaker 2: So I guess the biggest concern for Apple obviously is competition,
Speaker 2: because they haven't really had that robust of a competitor
Speaker 2: and they're part of the market. Are there any responses
Speaker 2: Apple can make here from a competitive landscape other than
Speaker 2: lowering the price point?
Speaker 10: Yeah, Paul, I think there is a little more hype
Speaker 10: in that competition news than reality only because Huawei didn't
Speaker 10: release a phone for many years, So that you can
Speaker 10: think about it. If you have an install base of
Speaker 10: Huawei phones, I mean, let's say you know that's X
Speaker 10: and that hasn't been updated for four or five six years,
Speaker 10: and you just certainly get a brand new phone. All
Speaker 10: of those people will we are going to go and
Speaker 10: refresh that. So I think you should take that as
Speaker 10: a bigger factor. Plus the subsidies they are getting in
Speaker 10: China from the local providers. So I think Apple will
Speaker 10: do okay in China over the long term. But I
Speaker 10: think that's not going to be a twenty twenty four story.
Speaker 6: And you mentioned emerging markets as the next driver.
Speaker 5: What countries, what regions are going to be able to
Speaker 5: pay up for what I would say is quite an
Speaker 5: expensive phone.
Speaker 10: Yeah, I think that's the most important question. And I
Speaker 10: think you know, just by the sheer size of it,
Speaker 10: India is the next one. But frankly speaking, right now,
Speaker 10: Apple doesn't even operate in you know, five percent of
Speaker 10: the entire market because of the price point of the phone.
Speaker 10: I think the strategy India is going to be a
Speaker 10: mix of the lower phone the se as well as
Speaker 10: the refurbished phone where the price point is even lower.
Speaker 10: But having said that, I think India is a developing country.
Speaker 10: The middle class is getting more richer, so I think
Speaker 10: that's going to be the next big growth catalyst. But
Speaker 10: this is it's not going to play out in twenty
Speaker 10: four to twenty five. That's more of a I would
Speaker 10: submit to long term story.
Speaker 2: So is there a thought for we've talked about this
Speaker 2: before that Apple might introduce a lower price phone into
Speaker 2: India for just that reason. Is that something they're still
Speaker 2: considering or will they just wait for the market to
Speaker 2: kind of move up to where the Apple phone price
Speaker 2: point is.
Speaker 10: I think it's going to be the latter. I've done
Speaker 10: a lot of analysis of how much share they can
Speaker 10: gain if they drop the se price by fifty dollars
Speaker 10: hundred dollars, and you know, when I publish that stuff,
Speaker 10: I think that year they actually raised the price by
Speaker 10: fifty bucks. So they don't leave in dropping prices. They
Speaker 10: are more on a margin story, you know, So think
Speaker 10: of Apple more on the long term basis right now,
Speaker 10: not on the short term. I don't think they're going
Speaker 10: to you know, I would say swap margins for market share.
Speaker 10: They've never done that in their history, whether it was
Speaker 10: on the mac side or on the phone side.
Speaker 5: And quickly anorak. I look at the news, there's no
Speaker 5: more Apple car, there's tepid reception to the vision pro
Speaker 5: What actually drives the stock, what drives sales in the
Speaker 5: next twelve to eighteen months.
Speaker 10: Yeah, I think that's the most important question for Apple investors.
Speaker 10: And I think there's going to be an event in
Speaker 10: June the World Wide Developers Conference, where they have pledged
Speaker 10: that they're going to show a lot of AI enhancements
Speaker 10: to the operating system. I think that really is the
Speaker 10: one wildcard that can completely change the sentiment of the company,
Speaker 10: both in terms of sales and the gloomy investor sentiment
Speaker 10: only because remember, Apple has a distribution network that stands,
Speaker 10: you know, next to nobody out there in terms of
Speaker 10: you know, affluent people using their phones. More than one
Speaker 10: billion device is connected just on the on the on
Speaker 10: the smartphone. I think that really is the big driver.
Speaker 10: One of the things I was thinking about was if
Speaker 10: you go back, you know, five years, seven years, there
Speaker 10: were apps such as trip advisors and Yelp where people
Speaker 10: used to go for their you know, specialized functions for
Speaker 10: restaurant advices and tourism. But when you look at somebody
Speaker 10: like Google, a lot of that traffic has moved on
Speaker 10: to them because they control the distribution. I think Apple
Speaker 10: has the same ability, but they have to show up
Speaker 10: with some AI products otherwise that's not going to flow
Speaker 10: all right.
Speaker 2: On rog Rana, thanks so much for joining us as
Speaker 2: always on rog Rana Senior technology analysts.
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