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Speaker 2: Let's stay on the zone of retail sales and what
Speaker 2: it means then for retail stocks. Joining us now is
Speaker 2: mari Sure, Senior Equity Analystic Columbia, Thread Needle Investments joining
Speaker 2: us from Boston. All right, Mariy, just talk about the
Speaker 2: broader landscape. It is your takeaway for retail sales.
Speaker 3: Hi, thanks again for having me. Yes. When looking at
Speaker 3: the adjusted.
Speaker 4: Numbers for February up slightly versus January, I think the results.
Speaker 3: Overall were solid.
Speaker 4: We saw the strength led by non store retail, while
Speaker 4: most of the other categor gory slowed versus January. But again,
Speaker 4: this was very much expected and I think the key
Speaker 4: question here is is this slow down transitory or more structural?
Speaker 4: And while I do acknowledge the political turmoil and rising
Speaker 4: inflation expectations, I think when you listen to a lot
Speaker 4: of the companies as they reported earnings over the past
Speaker 4: few weeks. Listening to the large credit card companies and
Speaker 4: large banks, it does seem that most of the pressure
Speaker 4: that we saw in February was weather driven, and that
Speaker 4: there has been some improvement in March to date. So
Speaker 4: I actually believe a lot of the pressure that we're
Speaker 4: seeing is more transitory. But I acknowledge that the backdrop
Speaker 4: is still, you know, very tumultuous and makes it difficult
Speaker 4: for investors to really stick their necks out here.
Speaker 5: So, Mary, what are the you know, the companies we
Speaker 5: saw Col's just last week gave a I guess a
Speaker 5: disappointing for cast. How representative is that of companies actually
Speaker 5: seeing some weakness or maybe just we need to be
Speaker 5: cautious here in our outlook.
Speaker 3: I think it's a little bit of both.
Speaker 4: I mean, when I look at the results today, I
Speaker 4: think we are back to a lot of the same
Speaker 4: category and channel trends that we saw in twenty twenty four.
Speaker 4: So that would include relative outperformance and categories like food,
Speaker 4: personal care, clothing, and general merchandise, and then weakness in
Speaker 4: other areas like home electronics, sporting goods, and department stores.
Speaker 4: So to your question about coals, I mean the department
Speaker 4: stores continue to lose share, and at the end of
Speaker 4: the day, retail is a low single digit growth category
Speaker 4: and it's all about who's winning and who's losing share.
Speaker 4: And so our playbook is to really stick with the
Speaker 4: companies that are gaining share. And I think there's a
Speaker 4: couple of ways to do that, but I would not
Speaker 4: take Coal's results and extract the life those across a
Speaker 4: much broader group.
Speaker 1: So what do you guys like?
Speaker 4: So I think, you know, looking at different ways to
Speaker 4: play that share gain opportunity.
Speaker 3: I think there's really two buckets.
Speaker 4: Number one is the companies that offer value, convenience and
Speaker 4: a broad assortment. And within that bucket, I would put
Speaker 4: the mass merchants like Walmart, Warehouse Clubs, and the off pricers,
Speaker 4: and I think that bucket remains very well positioned, especially
Speaker 4: in a weaker Macro backdrop. Then on the other hand,
Speaker 4: you have best in class global brands which are executing
Speaker 4: very well from a product and marketing standpoint and gaining share.
Speaker 3: So within that.
Speaker 4: Bucket, I would put companies like Gap, Ralph, Lauren, Tapestry
Speaker 4: and even Contour brands.
Speaker 6: Mark.
Speaker 5: What are your companies saying about tariffs and their ability
Speaker 5: to how they're thinking about passing that along or taking
Speaker 5: that in their margin. What do you hearing from the companies.
Speaker 3: It's a great question.
Speaker 4: This is very top of mind, of course for investors,
Speaker 4: and most companies that at this point have included the
Speaker 4: impact of the tariffs that have already been announced in
Speaker 4: their guidance. However, there is the risk that you know,
Speaker 4: the tariff headlines continue to worsen and that is not
Speaker 4: included in the company's guidance. So I think that does
Speaker 4: create some risk as we look forward. I think, you know,
Speaker 4: the companies are looking at various ways to mitigate the impact.
Speaker 3: Some of it is moving production around, some of.
Speaker 4: It is pushing back on their sourcing partners, and we
Speaker 4: saw Walmart in the headlines last week along those lines.
Speaker 4: And then some of it will you know, the higher
Speaker 4: prices getting passed through to the consumer. And you know,
Speaker 4: I would say to that, I think that the price
Speaker 4: increases for the most part would be modern. But there
Speaker 4: are some categories like consumer electronics, which would need to
Speaker 4: take significant pricing to offset worst case China tariffs, and
Speaker 4: I think that will be very difficult to engineer in
Speaker 4: this macro backdrop.
Speaker 2: Yeah, absolutely, Mari thanks a lot. We really appreciate. Thank
Speaker 2: you so much. Marie Shore, Senior equity analyst, Columbia, Threadneedle Investments,
Speaker 2: joining us a firm Boston.
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Speaker 2: Equities in the Green just a touch because volume also
Speaker 2: is quite light. Fill Orlando, chief equity market strategist and
Speaker 2: ahead of client portfolio management at Federiate Hermes joins us. Now, Hey, Phil,
Speaker 2: every note that I get on my desk is it's
Speaker 2: a tricky, trarating environment. No one's coming out and saying
Speaker 2: buy the dip. Yet it's all TBD. It's all question
Speaker 2: marks surrounding eventual growth, margins and earnings. How do you
Speaker 2: look at it?
Speaker 6: So we don't materially disagree with that, but we did
Speaker 6: think that the market was ahead of itself in terms
Speaker 6: of the dramatic outperformance of the mag seven versus the
Speaker 6: Forgotten four ninety three. And so you know, our call
Speaker 6: has been that we were hoping for a move down
Speaker 6: in the S and P five hundred. That would take
Speaker 6: the market back to about the two hundred day moving average.
Speaker 6: Now for the S and P that's about fifty seven hundred,
Speaker 6: or was about fifty seven hundred. The stocks got down
Speaker 6: on about the fifty five hundred level on Thursday, and
Speaker 6: then we had, you know, Friday's nights bounce, and then
Speaker 6: we're doing a little better this morning. So the question is,
Speaker 6: all right, so we've achieved the move down below the
Speaker 6: two hundred day moving average or in correction territory, you know,
Speaker 6: is this the point we ought to be stepping in.
Speaker 6: It's in a relatively sharp decline, about eleven percent in
Speaker 6: a relatively short amount of time, you know, about four weeks. Generally,
Speaker 6: these things need a little bit more seasoning before the
Speaker 6: bottom sort of establishes itself. So I guess that's a
Speaker 6: long way of saying we're getting interesting here, you know, I,
Speaker 6: if you're a long term investor, I couldn't disagree with
Speaker 6: you starting to nibble here. But in terms of getting
Speaker 6: an all out full blown market capitulation signal, I don't
Speaker 6: know that we're quite there just yet.
Speaker 5: So Phil, to the extent that this market's pullback has
Speaker 5: been generated in large brought by uncertainty about some economic
Speaker 5: policies coming out of the Trump administration, where it relates
Speaker 5: to the tariffs or whatever that doesn't seem to be
Speaker 5: changing anytime soon. Does that continue to be a headwind
Speaker 5: do you think for this market?
Speaker 6: Well, you know, that's a really good question, Paul, because
Speaker 6: if you if you ask the the average strategist or whatever,
Speaker 6: that continues to be a significant headwind. You asked that
Speaker 6: question to Federated Hermes, We've got somewhat different view, you know,
Speaker 6: based upon you know, listening to what the President was
Speaker 6: talking about during the campaign last year. Looking at the
Speaker 6: economic data right now, we've got a one point two
Speaker 6: trillion dollar balance of trade goods deficit at the end
Speaker 6: of last year. GDP in the fourth quarter on a
Speaker 6: chain dollar basis was twenty three and a half trillion dollars,
Speaker 6: which means that that we've got about a one half
Speaker 6: of one percent deficit in terms of GDP growth last
Speaker 6: year for no reason other than than what was going
Speaker 6: on with with trade. So so you look at the
Speaker 6: quote unquote trade war that that that you know, Trump
Speaker 6: is waging here in some ways, it's reciprocal that these
Speaker 6: countries are waging tariffs against US, and and to some degree,
Speaker 6: the president is trying to you know, neutralize or level
Speaker 6: of the playing field. And if he's able to successfully
Speaker 6: do that, that represents the potential for half a percent
Speaker 6: more GDP growth. Now, one of the President's goals and
Speaker 6: one of Treasury Secretary Scott Defense goals, is that we
Speaker 6: want to generate trend line GDP growth to three percent
Speaker 6: or higher on a sustainable basis. Well, if you could
Speaker 6: figure out a way to neutralize this one point two
Speaker 6: trillion dollar trade deficit, that that significant step in that direction.
Speaker 6: And so we're looking at what's going on right now
Speaker 6: as sort of a necessary step to try to achieve
Speaker 6: that economic goal. Neutralize the trade deficit, boost GDP growth.
Speaker 2: It's just a matter of phase one versus phase two
Speaker 2: and how long the difference between the two lasts, right,
Speaker 2: because in theory should also be a growth incentives like
Speaker 2: deregulation and tax cuts. Does the longer that gap persist,
Speaker 2: does that worry you or no?
Speaker 6: Well, again, we've we're taking a long term view here
Speaker 6: and that when you when a new president comes in office,
Speaker 6: typically you'll want to implement the more difficult policies early,
Speaker 6: you know, swallow the bitter medicine in year one. That way,
Speaker 6: the positivity associated with those fiscal policy initiatives will begin
Speaker 6: to bear fruit in year two and beyond. So as
Speaker 6: we're modeling all of this out, you know, we're saying, Okay, yeah,
Speaker 6: we're gonna we're gonna have a hit to GDP growth
Speaker 6: in the back half of twenty four, in the first
Speaker 6: half of twenty five. But as some of this stuff
Speaker 6: actually occurs when we get the tax cuts later in
Speaker 6: the year, and then you know, as this grows into
Speaker 6: economic growth in calendar twenty six, in calendar twenty seven,
Speaker 6: we're then saying, okay, based upon our now that suggests
Speaker 6: we've got a seventy five hundred s and t five
Speaker 6: hundred two years from now. Discount that back a year.
Speaker 6: That's a seven thousand forecast discount that back a year.
Speaker 6: We thought we'd end last year at about sixty two hundred.
Speaker 6: We got up to about sixty one fifty. So I
Speaker 6: think we've figured out the trajectory in terms of fair valuation.
Speaker 6: But you've got this air pocket that's occurred because of
Speaker 6: the volatility and uncertainty associated with how is this policy
Speaker 6: going to be implemented. What are the near term impacts?
Speaker 6: So we're taking the longer term view, saying, Okay, we've
Speaker 6: just had an eleven percent correction. That's pretty attractive. If
Speaker 6: we're a long term holder or a long term buyer
Speaker 6: and are looking out two years, this is very attractive.
Speaker 6: If I'm looking out how is the market going to
Speaker 6: return over the next week or the next month, It's
Speaker 6: highly uncertain, and you've got two completely different scenarios to
Speaker 6: consider whether or not you're investing long term short term.
Speaker 5: Hey Phil, thanks as always for joining us. Really appreciate it.
Speaker 5: Phil Orlando, chief equity market Strategists ahead of Client Portfolio
Speaker 5: Management at Federator at Hearmeys joining us there with his
Speaker 5: market call.
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Speaker 5: Looking at the i go function on the Bloomberg terminal
Speaker 5: gives you the indexes and the performance for the fixed
Speaker 5: income space. The Bloomberg US AG fixed Income indexes up
Speaker 5: about two point zero eight percent this year. The best
Speaker 5: performance has been in the mortgage backed securities business. So
Speaker 5: a little bit more on the risky profile there. Let's
Speaker 5: talk about the fixed income markets and how they're dealing
Speaker 5: with a lot of this uncertainty policy uncertainty coming out
Speaker 5: of Washington, DC. Steve perty Joints is co head of
Speaker 5: Global Credit at TCW based in Los Angeles. Steve, uncertainty
Speaker 5: has kind of been the words so far here in
Speaker 5: twenty twenty five. How the fixed income market's been dealing
Speaker 5: with it.
Speaker 7: He first of all, thanks so much for having me.
Speaker 7: Really appreciate doing it back on.
Speaker 8: You know, it's funny if Don Trump told us when
Speaker 8: you campaign that tariffs were in his favorite or in dictionary,
Speaker 8: and now that we've gotten tariffs, the market is reacting
Speaker 8: prey dramatically, and I think there's an assumption that a
Speaker 8: lot is with with bluff and that there wouldn't be
Speaker 8: dramatic policy shifts. But as all these headlines keep hitting us,
Speaker 8: that is where our market is focused right now.
Speaker 7: It's occupying the minds and not only investors but.
Speaker 8: Management team as well as they try to navigate from
Speaker 8: what the headline to the next and define what the
Speaker 8: next path looks like for their capex spend and really earning.
Speaker 2: Something as an investor, what's the path of least resistance
Speaker 2: right now? As the equity market kind of struggles for direction,
Speaker 2: how does that wind up impacting the credit market? Do
Speaker 2: we get more inflows outflows? Has that work?
Speaker 8: Yeah?
Speaker 7: No, that's excellent question. I mean, clearly, we've had an
Speaker 7: unbelievable run in equities for the last few years.
Speaker 8: It's been the only game in town, and particularly the
Speaker 8: mag seven people have kind of ignored our asset last seas.
Speaker 8: I think this last change and sentiments really widened people's
Speaker 8: perspectives as so where else they can put their capital,
Speaker 8: including the credit markets, are going to be a big
Speaker 8: beneficiary that as people look at the income to stabilize
Speaker 8: the overal portfolios. And we agree at the same time
Speaker 8: some of the real challenges that are being addressed in
Speaker 8: the equity market are also play being the credit markets.
Speaker 8: And what that really comes down to is, you know,
Speaker 8: what do future earnings look like? And we have this
Speaker 8: strange you know, there's a strange relationship between the stock.
Speaker 7: Market and the real economy.
Speaker 8: Typically the real economy drives the stock market, but we
Speaker 8: feel like over the last year or so, it's almost
Speaker 8: become the reverse, and a lot of the spending we've
Speaker 8: been seeing, particularly the wealthy co work, is driven by
Speaker 8: the wealth effect, meaning whole prices are up, and more importantly, equity.
Speaker 7: Prices are not.
Speaker 8: So Our concern is as investors look at their equit performance,
Speaker 8: it starts to actually impact what they're doing on a
Speaker 8: spending basis.
Speaker 7: And that's where we hear it from companies right now
Speaker 7: is people are getting.
Speaker 9: A little scooped by policy, a little scooped by the
Speaker 9: price action in the equity market, and that is fugiant
Speaker 9: to change their behaviors, which we think will actually flow
Speaker 9: through to earnings as we look forward to.
Speaker 7: The next few quarters.
Speaker 5: Steve, you know, for the longest time, when Alex and
Speaker 5: I would speak to fixed income pros like you, we
Speaker 5: would hear discussion about how tight credit spreads are in
Speaker 5: this time of I guess growing uncertainty. Are those spreads
Speaker 5: widening at all?
Speaker 8: Yeah? You know, the narrative over the last year has
Speaker 8: been what could possibly move spreads wider? And we've been
Speaker 8: kind of underweight credit spreads on the narrative that credit
Speaker 8: spreads on that equity are.
Speaker 7: A meaner birding asset class. They don't go up into
Speaker 7: the right.
Speaker 8: They tend to rotate and gyrate around a baseline.
Speaker 7: It happens tight levels.
Speaker 8: The narrative was there's just nothing that could break out
Speaker 8: from the economic growth, particularly the United States or America,
Speaker 8: and that has been changed. Spreads rallied from kind of
Speaker 8: October when it looked like Trump was going to be
Speaker 8: elected all the way through inauguration there. All that was
Speaker 8: when the optimism of animal spirits and how that would
Speaker 8: continue to keep the economy chugging and.
Speaker 7: Cred spreads compressed.
Speaker 8: Once we saw this administration and action, however, we've seen
Speaker 8: a move wider and so you know, credspreads have gone
Speaker 8: on the investment grate side from kind of the high seventies,
Speaker 8: which will be all time lows for the last decade
Speaker 8: plus and wid that out about fifteen to twenty bases points.
Speaker 7: So to us, that feels healthy. It also feels like the.
Speaker 8: Direction of travel will continue in our lines over the
Speaker 8: course this year.
Speaker 2: But if the underlying issue is that we don't know
Speaker 2: what the economic growth outlook will be for the United
Speaker 2: States economy. Look at the OECD downgrading growth and upgrading inflation.
Speaker 2: I mean, doesn't that wind up hitting credits in some capacity?
Speaker 7: It really does. I mean we're not very very sophisticated
Speaker 7: in bond land. We dis like cash flows. That is
Speaker 7: the most important.
Speaker 3: Days I see.
Speaker 2: So it's like a safety play, even with the risks correct.
Speaker 8: You know, we still think that this is a good
Speaker 8: place for investors to be compared to where the lost
Speaker 8: and valuations are on the equity land. Even still after
Speaker 8: a ten percent pullback, we think this is a much
Speaker 8: better place for investors to kind of really rely on
Speaker 8: some of the stronger parts of the economy while not
Speaker 8: leading into full evaluations.
Speaker 5: Steve, thanks so much for joining us. Really appreciate it.
Speaker 5: Steve Perdy. He's co head of Global Credit at TCWT
Speaker 5: there in La TCW Trust Company of the West, huge,
Speaker 5: huge asset manager, both in fixed income and equities.
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