WEBVTT - Disappointing Retail Sales Add to Concerns About US Outlook

0:00:02.720 --> 0:00:10.520
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. You're listening to the

0:00:10.560 --> 0:00:14.480
<v Speaker 1>Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

0:00:14.560 --> 0:00:17.800
<v Speaker 1>Eastern on Apple, Cocklay and Android Auto with the Bloomberg

0:00:17.880 --> 0:00:21.000
<v Speaker 1>Business App. Listen on demand wherever you get your podcasts,

0:00:21.320 --> 0:00:23.040
<v Speaker 1>or watch us live on YouTube.

0:00:24.079 --> 0:00:26.279
<v Speaker 2>Let's stay on the zone of retail sales and what

0:00:26.320 --> 0:00:28.680
<v Speaker 2>it means then for retail stocks. Joining us now is

0:00:28.800 --> 0:00:32.560
<v Speaker 2>mari Sure, Senior Equity Analystic Columbia, Thread Needle Investments joining

0:00:32.640 --> 0:00:35.960
<v Speaker 2>us from Boston. All right, Mariy, just talk about the

0:00:36.000 --> 0:00:39.839
<v Speaker 2>broader landscape. It is your takeaway for retail sales.

0:00:41.600 --> 0:00:44.479
<v Speaker 3>Hi, thanks again for having me. Yes. When looking at

0:00:44.520 --> 0:00:46.120
<v Speaker 3>the adjusted.

0:00:45.880 --> 0:00:52.280
<v Speaker 4>Numbers for February up slightly versus January, I think the results.

0:00:51.880 --> 0:00:53.159
<v Speaker 3>Overall were solid.

0:00:53.640 --> 0:00:58.600
<v Speaker 4>We saw the strength led by non store retail, while

0:00:58.920 --> 0:01:02.520
<v Speaker 4>most of the other categor gory slowed versus January. But again,

0:01:02.600 --> 0:01:06.280
<v Speaker 4>this was very much expected and I think the key

0:01:06.360 --> 0:01:11.160
<v Speaker 4>question here is is this slow down transitory or more structural?

0:01:11.680 --> 0:01:15.919
<v Speaker 4>And while I do acknowledge the political turmoil and rising

0:01:16.000 --> 0:01:19.840
<v Speaker 4>inflation expectations, I think when you listen to a lot

0:01:19.880 --> 0:01:23.000
<v Speaker 4>of the companies as they reported earnings over the past

0:01:23.040 --> 0:01:26.360
<v Speaker 4>few weeks. Listening to the large credit card companies and

0:01:26.480 --> 0:01:29.960
<v Speaker 4>large banks, it does seem that most of the pressure

0:01:30.040 --> 0:01:33.759
<v Speaker 4>that we saw in February was weather driven, and that

0:01:33.800 --> 0:01:37.560
<v Speaker 4>there has been some improvement in March to date. So

0:01:37.840 --> 0:01:40.240
<v Speaker 4>I actually believe a lot of the pressure that we're

0:01:40.240 --> 0:01:45.200
<v Speaker 4>seeing is more transitory. But I acknowledge that the backdrop

0:01:45.280 --> 0:01:50.720
<v Speaker 4>is still, you know, very tumultuous and makes it difficult

0:01:50.760 --> 0:01:53.200
<v Speaker 4>for investors to really stick their necks out here.

0:01:53.760 --> 0:01:56.120
<v Speaker 5>So, Mary, what are the you know, the companies we

0:01:56.120 --> 0:01:58.800
<v Speaker 5>saw Col's just last week gave a I guess a

0:01:58.880 --> 0:02:04.040
<v Speaker 5>disappointing for cast. How representative is that of companies actually

0:02:04.080 --> 0:02:06.160
<v Speaker 5>seeing some weakness or maybe just we need to be

0:02:06.160 --> 0:02:07.280
<v Speaker 5>cautious here in our outlook.

0:02:08.320 --> 0:02:09.640
<v Speaker 3>I think it's a little bit of both.

0:02:09.680 --> 0:02:12.400
<v Speaker 4>I mean, when I look at the results today, I

0:02:12.480 --> 0:02:14.320
<v Speaker 4>think we are back to a lot of the same

0:02:14.440 --> 0:02:18.000
<v Speaker 4>category and channel trends that we saw in twenty twenty four.

0:02:18.480 --> 0:02:22.840
<v Speaker 4>So that would include relative outperformance and categories like food,

0:02:23.280 --> 0:02:28.120
<v Speaker 4>personal care, clothing, and general merchandise, and then weakness in

0:02:28.160 --> 0:02:33.079
<v Speaker 4>other areas like home electronics, sporting goods, and department stores.

0:02:33.400 --> 0:02:36.600
<v Speaker 4>So to your question about coals, I mean the department

0:02:36.639 --> 0:02:39.920
<v Speaker 4>stores continue to lose share, and at the end of

0:02:39.919 --> 0:02:43.359
<v Speaker 4>the day, retail is a low single digit growth category

0:02:43.919 --> 0:02:47.959
<v Speaker 4>and it's all about who's winning and who's losing share.

0:02:48.360 --> 0:02:51.320
<v Speaker 4>And so our playbook is to really stick with the

0:02:51.400 --> 0:02:54.400
<v Speaker 4>companies that are gaining share. And I think there's a

0:02:54.440 --> 0:02:56.920
<v Speaker 4>couple of ways to do that, but I would not

0:02:57.120 --> 0:03:01.440
<v Speaker 4>take Coal's results and extract the life those across a

0:03:01.560 --> 0:03:02.400
<v Speaker 4>much broader group.

0:03:02.680 --> 0:03:03.520
<v Speaker 1>So what do you guys like?

0:03:05.280 --> 0:03:08.080
<v Speaker 4>So I think, you know, looking at different ways to

0:03:08.160 --> 0:03:11.600
<v Speaker 4>play that share gain opportunity.

0:03:11.760 --> 0:03:13.480
<v Speaker 3>I think there's really two buckets.

0:03:13.840 --> 0:03:17.880
<v Speaker 4>Number one is the companies that offer value, convenience and

0:03:17.960 --> 0:03:21.840
<v Speaker 4>a broad assortment. And within that bucket, I would put

0:03:21.880 --> 0:03:26.720
<v Speaker 4>the mass merchants like Walmart, Warehouse Clubs, and the off pricers,

0:03:27.040 --> 0:03:30.480
<v Speaker 4>and I think that bucket remains very well positioned, especially

0:03:30.600 --> 0:03:33.680
<v Speaker 4>in a weaker Macro backdrop. Then on the other hand,

0:03:33.680 --> 0:03:38.960
<v Speaker 4>you have best in class global brands which are executing

0:03:39.200 --> 0:03:43.400
<v Speaker 4>very well from a product and marketing standpoint and gaining share.

0:03:43.520 --> 0:03:44.280
<v Speaker 3>So within that.

0:03:44.160 --> 0:03:48.600
<v Speaker 4>Bucket, I would put companies like Gap, Ralph, Lauren, Tapestry

0:03:48.680 --> 0:03:50.200
<v Speaker 4>and even Contour brands.

0:03:51.200 --> 0:03:51.440
<v Speaker 6>Mark.

0:03:51.440 --> 0:03:55.040
<v Speaker 5>What are your companies saying about tariffs and their ability

0:03:55.160 --> 0:03:58.840
<v Speaker 5>to how they're thinking about passing that along or taking

0:03:58.840 --> 0:04:01.000
<v Speaker 5>that in their margin. What do you hearing from the companies.

0:04:02.160 --> 0:04:02.960
<v Speaker 3>It's a great question.

0:04:03.080 --> 0:04:06.560
<v Speaker 4>This is very top of mind, of course for investors,

0:04:06.840 --> 0:04:12.120
<v Speaker 4>and most companies that at this point have included the

0:04:12.200 --> 0:04:15.080
<v Speaker 4>impact of the tariffs that have already been announced in

0:04:15.200 --> 0:04:19.839
<v Speaker 4>their guidance. However, there is the risk that you know,

0:04:19.920 --> 0:04:24.840
<v Speaker 4>the tariff headlines continue to worsen and that is not

0:04:25.040 --> 0:04:27.760
<v Speaker 4>included in the company's guidance. So I think that does

0:04:27.880 --> 0:04:31.400
<v Speaker 4>create some risk as we look forward. I think, you know,

0:04:31.480 --> 0:04:35.640
<v Speaker 4>the companies are looking at various ways to mitigate the impact.

0:04:36.000 --> 0:04:39.560
<v Speaker 3>Some of it is moving production around, some of.

0:04:39.480 --> 0:04:43.920
<v Speaker 4>It is pushing back on their sourcing partners, and we

0:04:43.960 --> 0:04:48.240
<v Speaker 4>saw Walmart in the headlines last week along those lines.

0:04:48.480 --> 0:04:50.719
<v Speaker 4>And then some of it will you know, the higher

0:04:50.760 --> 0:04:55.359
<v Speaker 4>prices getting passed through to the consumer. And you know,

0:04:55.440 --> 0:04:57.480
<v Speaker 4>I would say to that, I think that the price

0:04:57.560 --> 0:05:00.880
<v Speaker 4>increases for the most part would be modern. But there

0:05:00.880 --> 0:05:04.960
<v Speaker 4>are some categories like consumer electronics, which would need to

0:05:05.040 --> 0:05:10.839
<v Speaker 4>take significant pricing to offset worst case China tariffs, and

0:05:10.920 --> 0:05:15.120
<v Speaker 4>I think that will be very difficult to engineer in

0:05:15.120 --> 0:05:16.720
<v Speaker 4>this macro backdrop.

0:05:17.000 --> 0:05:20.240
<v Speaker 2>Yeah, absolutely, Mari thanks a lot. We really appreciate. Thank

0:05:20.240 --> 0:05:24.440
<v Speaker 2>you so much. Marie Shore, Senior equity analyst, Columbia, Threadneedle Investments,

0:05:24.520 --> 0:05:26.160
<v Speaker 2>joining us a firm Boston.

0:05:27.920 --> 0:05:31.640
<v Speaker 1>You're listening to the Bloomberg Intelligence Podcast. Catch us live

0:05:31.720 --> 0:05:34.799
<v Speaker 1>weekdays at ten am Eastern on Apple, Cocklay and Android

0:05:34.800 --> 0:05:38.120
<v Speaker 1>Auto with the Bloomberg Business App. Listen on demand wherever

0:05:38.160 --> 0:05:41.279
<v Speaker 1>you get your podcasts, or watch us live on YouTube.

0:05:41.920 --> 0:05:44.479
<v Speaker 2>Equities in the Green just a touch because volume also

0:05:44.839 --> 0:05:47.719
<v Speaker 2>is quite light. Fill Orlando, chief equity market strategist and

0:05:48.000 --> 0:05:52.599
<v Speaker 2>ahead of client portfolio management at Federiate Hermes joins us. Now, Hey, Phil,

0:05:53.640 --> 0:05:56.120
<v Speaker 2>every note that I get on my desk is it's

0:05:56.160 --> 0:05:59.080
<v Speaker 2>a tricky, trarating environment. No one's coming out and saying

0:05:59.120 --> 0:06:02.080
<v Speaker 2>buy the dip. Yet it's all TBD. It's all question

0:06:02.160 --> 0:06:05.800
<v Speaker 2>marks surrounding eventual growth, margins and earnings. How do you

0:06:05.839 --> 0:06:06.280
<v Speaker 2>look at it?

0:06:07.400 --> 0:06:12.720
<v Speaker 6>So we don't materially disagree with that, but we did

0:06:12.760 --> 0:06:17.159
<v Speaker 6>think that the market was ahead of itself in terms

0:06:17.160 --> 0:06:20.320
<v Speaker 6>of the dramatic outperformance of the mag seven versus the

0:06:20.960 --> 0:06:25.160
<v Speaker 6>Forgotten four ninety three. And so you know, our call

0:06:25.400 --> 0:06:28.559
<v Speaker 6>has been that we were hoping for a move down

0:06:28.600 --> 0:06:31.240
<v Speaker 6>in the S and P five hundred. That would take

0:06:31.640 --> 0:06:34.320
<v Speaker 6>the market back to about the two hundred day moving average.

0:06:34.560 --> 0:06:37.320
<v Speaker 6>Now for the S and P that's about fifty seven hundred,

0:06:37.880 --> 0:06:41.360
<v Speaker 6>or was about fifty seven hundred. The stocks got down

0:06:41.360 --> 0:06:44.880
<v Speaker 6>on about the fifty five hundred level on Thursday, and

0:06:44.920 --> 0:06:47.280
<v Speaker 6>then we had, you know, Friday's nights bounce, and then

0:06:47.320 --> 0:06:50.240
<v Speaker 6>we're doing a little better this morning. So the question is,

0:06:50.279 --> 0:06:53.520
<v Speaker 6>all right, so we've achieved the move down below the

0:06:53.520 --> 0:06:56.880
<v Speaker 6>two hundred day moving average or in correction territory, you know,

0:06:57.040 --> 0:07:00.119
<v Speaker 6>is this the point we ought to be stepping in.

0:06:59.640 --> 0:07:05.560
<v Speaker 6>It's in a relatively sharp decline, about eleven percent in

0:07:05.600 --> 0:07:10.240
<v Speaker 6>a relatively short amount of time, you know, about four weeks. Generally,

0:07:10.320 --> 0:07:14.560
<v Speaker 6>these things need a little bit more seasoning before the

0:07:14.600 --> 0:07:17.920
<v Speaker 6>bottom sort of establishes itself. So I guess that's a

0:07:17.920 --> 0:07:22.920
<v Speaker 6>long way of saying we're getting interesting here, you know, I,

0:07:23.280 --> 0:07:28.440
<v Speaker 6>if you're a long term investor, I couldn't disagree with

0:07:28.520 --> 0:07:31.840
<v Speaker 6>you starting to nibble here. But in terms of getting

0:07:31.880 --> 0:07:37.880
<v Speaker 6>an all out full blown market capitulation signal, I don't

0:07:37.920 --> 0:07:39.600
<v Speaker 6>know that we're quite there just yet.

0:07:41.120 --> 0:07:45.280
<v Speaker 5>So Phil, to the extent that this market's pullback has

0:07:45.440 --> 0:07:49.360
<v Speaker 5>been generated in large brought by uncertainty about some economic

0:07:49.400 --> 0:07:51.680
<v Speaker 5>policies coming out of the Trump administration, where it relates

0:07:51.720 --> 0:07:55.800
<v Speaker 5>to the tariffs or whatever that doesn't seem to be

0:07:55.880 --> 0:07:58.680
<v Speaker 5>changing anytime soon. Does that continue to be a headwind

0:07:58.680 --> 0:07:59.720
<v Speaker 5>do you think for this market?

0:07:59.800 --> 0:08:03.840
<v Speaker 6>Well, you know, that's a really good question, Paul, because

0:08:03.960 --> 0:08:07.760
<v Speaker 6>if you if you ask the the average strategist or whatever,

0:08:07.880 --> 0:08:11.640
<v Speaker 6>that continues to be a significant headwind. You asked that

0:08:11.800 --> 0:08:15.600
<v Speaker 6>question to Federated Hermes, We've got somewhat different view, you know,

0:08:15.680 --> 0:08:18.600
<v Speaker 6>based upon you know, listening to what the President was

0:08:18.600 --> 0:08:21.840
<v Speaker 6>talking about during the campaign last year. Looking at the

0:08:21.920 --> 0:08:25.760
<v Speaker 6>economic data right now, we've got a one point two

0:08:26.520 --> 0:08:30.400
<v Speaker 6>trillion dollar balance of trade goods deficit at the end

0:08:30.440 --> 0:08:35.760
<v Speaker 6>of last year. GDP in the fourth quarter on a

0:08:35.840 --> 0:08:39.040
<v Speaker 6>chain dollar basis was twenty three and a half trillion dollars,

0:08:39.360 --> 0:08:43.079
<v Speaker 6>which means that that we've got about a one half

0:08:43.080 --> 0:08:47.000
<v Speaker 6>of one percent deficit in terms of GDP growth last

0:08:47.080 --> 0:08:50.120
<v Speaker 6>year for no reason other than than what was going

0:08:50.160 --> 0:08:53.880
<v Speaker 6>on with with trade. So so you look at the

0:08:54.240 --> 0:08:57.800
<v Speaker 6>quote unquote trade war that that that you know, Trump

0:08:57.920 --> 0:09:03.480
<v Speaker 6>is waging here in some ways, it's reciprocal that these

0:09:03.679 --> 0:09:10.560
<v Speaker 6>countries are waging tariffs against US, and and to some degree,

0:09:10.600 --> 0:09:13.959
<v Speaker 6>the president is trying to you know, neutralize or level

0:09:13.960 --> 0:09:17.200
<v Speaker 6>of the playing field. And if he's able to successfully

0:09:17.280 --> 0:09:21.040
<v Speaker 6>do that, that represents the potential for half a percent

0:09:21.160 --> 0:09:24.040
<v Speaker 6>more GDP growth. Now, one of the President's goals and

0:09:24.080 --> 0:09:28.120
<v Speaker 6>one of Treasury Secretary Scott Defense goals, is that we

0:09:28.160 --> 0:09:31.880
<v Speaker 6>want to generate trend line GDP growth to three percent

0:09:32.000 --> 0:09:35.040
<v Speaker 6>or higher on a sustainable basis. Well, if you could

0:09:35.120 --> 0:09:38.480
<v Speaker 6>figure out a way to neutralize this one point two

0:09:38.600 --> 0:09:42.800
<v Speaker 6>trillion dollar trade deficit, that that significant step in that direction.

0:09:43.200 --> 0:09:46.640
<v Speaker 6>And so we're looking at what's going on right now

0:09:46.880 --> 0:09:50.040
<v Speaker 6>as sort of a necessary step to try to achieve

0:09:50.559 --> 0:09:55.000
<v Speaker 6>that economic goal. Neutralize the trade deficit, boost GDP growth.

0:09:55.160 --> 0:09:57.280
<v Speaker 2>It's just a matter of phase one versus phase two

0:09:57.320 --> 0:09:59.559
<v Speaker 2>and how long the difference between the two lasts, right,

0:09:59.559 --> 0:10:02.960
<v Speaker 2>because in theory should also be a growth incentives like

0:10:03.000 --> 0:10:06.559
<v Speaker 2>deregulation and tax cuts. Does the longer that gap persist,

0:10:06.960 --> 0:10:08.200
<v Speaker 2>does that worry you or no?

0:10:09.920 --> 0:10:13.400
<v Speaker 6>Well, again, we've we're taking a long term view here

0:10:13.559 --> 0:10:17.080
<v Speaker 6>and that when you when a new president comes in office,

0:10:17.120 --> 0:10:21.720
<v Speaker 6>typically you'll want to implement the more difficult policies early,

0:10:21.880 --> 0:10:25.880
<v Speaker 6>you know, swallow the bitter medicine in year one. That way,

0:10:25.960 --> 0:10:31.360
<v Speaker 6>the positivity associated with those fiscal policy initiatives will begin

0:10:31.400 --> 0:10:34.400
<v Speaker 6>to bear fruit in year two and beyond. So as

0:10:34.440 --> 0:10:38.240
<v Speaker 6>we're modeling all of this out, you know, we're saying, Okay, yeah,

0:10:38.520 --> 0:10:40.920
<v Speaker 6>we're gonna we're gonna have a hit to GDP growth

0:10:41.200 --> 0:10:43.319
<v Speaker 6>in the back half of twenty four, in the first

0:10:43.320 --> 0:10:46.280
<v Speaker 6>half of twenty five. But as some of this stuff

0:10:46.800 --> 0:10:49.199
<v Speaker 6>actually occurs when we get the tax cuts later in

0:10:49.240 --> 0:10:52.400
<v Speaker 6>the year, and then you know, as this grows into

0:10:52.520 --> 0:10:55.800
<v Speaker 6>economic growth in calendar twenty six, in calendar twenty seven,

0:10:56.320 --> 0:11:01.400
<v Speaker 6>we're then saying, okay, based upon our now that suggests

0:11:01.440 --> 0:11:04.000
<v Speaker 6>we've got a seventy five hundred s and t five

0:11:04.080 --> 0:11:07.640
<v Speaker 6>hundred two years from now. Discount that back a year.

0:11:07.720 --> 0:11:11.520
<v Speaker 6>That's a seven thousand forecast discount that back a year.

0:11:11.559 --> 0:11:14.400
<v Speaker 6>We thought we'd end last year at about sixty two hundred.

0:11:14.600 --> 0:11:17.080
<v Speaker 6>We got up to about sixty one fifty. So I

0:11:17.080 --> 0:11:21.000
<v Speaker 6>think we've figured out the trajectory in terms of fair valuation.

0:11:21.480 --> 0:11:25.280
<v Speaker 6>But you've got this air pocket that's occurred because of

0:11:25.280 --> 0:11:30.200
<v Speaker 6>the volatility and uncertainty associated with how is this policy

0:11:30.240 --> 0:11:32.960
<v Speaker 6>going to be implemented. What are the near term impacts?

0:11:33.200 --> 0:11:36.360
<v Speaker 6>So we're taking the longer term view, saying, Okay, we've

0:11:36.400 --> 0:11:39.920
<v Speaker 6>just had an eleven percent correction. That's pretty attractive. If

0:11:39.960 --> 0:11:43.320
<v Speaker 6>we're a long term holder or a long term buyer

0:11:43.600 --> 0:11:46.520
<v Speaker 6>and are looking out two years, this is very attractive.

0:11:46.840 --> 0:11:49.199
<v Speaker 6>If I'm looking out how is the market going to

0:11:49.240 --> 0:11:51.840
<v Speaker 6>return over the next week or the next month, It's

0:11:51.920 --> 0:11:56.400
<v Speaker 6>highly uncertain, and you've got two completely different scenarios to

0:11:57.040 --> 0:12:01.160
<v Speaker 6>consider whether or not you're investing long term short term.

0:12:01.559 --> 0:12:04.520
<v Speaker 5>Hey Phil, thanks as always for joining us. Really appreciate it.

0:12:04.559 --> 0:12:07.680
<v Speaker 5>Phil Orlando, chief equity market Strategists ahead of Client Portfolio

0:12:07.679 --> 0:12:10.960
<v Speaker 5>Management at Federator at Hearmeys joining us there with his

0:12:11.280 --> 0:12:11.880
<v Speaker 5>market call.

0:12:13.600 --> 0:12:17.280
<v Speaker 1>You're listening to the Bloomberg Intelligence Podcast. Catch us live

0:12:17.360 --> 0:12:20.760
<v Speaker 1>weekdays at ten am Eastern on Applecarclay, and Android Auto

0:12:20.880 --> 0:12:23.920
<v Speaker 1>with the Bloomberg Business App. Listen on demand wherever you

0:12:23.960 --> 0:12:27.160
<v Speaker 1>get your podcasts, or watch us live on YouTube.

0:12:27.640 --> 0:12:29.960
<v Speaker 5>Looking at the i go function on the Bloomberg terminal

0:12:30.000 --> 0:12:32.640
<v Speaker 5>gives you the indexes and the performance for the fixed

0:12:32.640 --> 0:12:36.560
<v Speaker 5>income space. The Bloomberg US AG fixed Income indexes up

0:12:36.600 --> 0:12:40.160
<v Speaker 5>about two point zero eight percent this year. The best

0:12:40.160 --> 0:12:43.000
<v Speaker 5>performance has been in the mortgage backed securities business. So

0:12:43.040 --> 0:12:45.200
<v Speaker 5>a little bit more on the risky profile there. Let's

0:12:45.200 --> 0:12:47.320
<v Speaker 5>talk about the fixed income markets and how they're dealing

0:12:47.320 --> 0:12:50.360
<v Speaker 5>with a lot of this uncertainty policy uncertainty coming out

0:12:50.360 --> 0:12:53.000
<v Speaker 5>of Washington, DC. Steve perty Joints is co head of

0:12:53.000 --> 0:12:57.280
<v Speaker 5>Global Credit at TCW based in Los Angeles. Steve, uncertainty

0:12:57.320 --> 0:12:59.679
<v Speaker 5>has kind of been the words so far here in

0:13:00.040 --> 0:13:03.480
<v Speaker 5>twenty twenty five. How the fixed income market's been dealing

0:13:03.520 --> 0:13:03.840
<v Speaker 5>with it.

0:13:05.160 --> 0:13:06.920
<v Speaker 7>He first of all, thanks so much for having me.

0:13:06.960 --> 0:13:08.319
<v Speaker 7>Really appreciate doing it back on.

0:13:09.040 --> 0:13:11.840
<v Speaker 8>You know, it's funny if Don Trump told us when

0:13:11.840 --> 0:13:14.800
<v Speaker 8>you campaign that tariffs were in his favorite or in dictionary,

0:13:15.200 --> 0:13:18.200
<v Speaker 8>and now that we've gotten tariffs, the market is reacting

0:13:18.280 --> 0:13:20.760
<v Speaker 8>prey dramatically, and I think there's an assumption that a

0:13:20.800 --> 0:13:23.040
<v Speaker 8>lot is with with bluff and that there wouldn't be

0:13:23.160 --> 0:13:27.480
<v Speaker 8>dramatic policy shifts. But as all these headlines keep hitting us,

0:13:28.040 --> 0:13:29.920
<v Speaker 8>that is where our market is focused right now.

0:13:30.200 --> 0:13:33.240
<v Speaker 7>It's occupying the minds and not only investors but.

0:13:33.400 --> 0:13:35.960
<v Speaker 8>Management team as well as they try to navigate from

0:13:35.960 --> 0:13:39.320
<v Speaker 8>what the headline to the next and define what the

0:13:39.400 --> 0:13:43.320
<v Speaker 8>next path looks like for their capex spend and really earning.

0:13:43.000 --> 0:13:49.720
<v Speaker 2>Something as an investor, what's the path of least resistance

0:13:49.800 --> 0:13:52.640
<v Speaker 2>right now? As the equity market kind of struggles for direction,

0:13:52.800 --> 0:13:55.480
<v Speaker 2>how does that wind up impacting the credit market? Do

0:13:55.520 --> 0:13:58.160
<v Speaker 2>we get more inflows outflows? Has that work?

0:13:59.160 --> 0:13:59.360
<v Speaker 8>Yeah?

0:13:59.440 --> 0:14:02.439
<v Speaker 7>No, that's excellent question. I mean, clearly, we've had an

0:14:02.520 --> 0:14:05.320
<v Speaker 7>unbelievable run in equities for the last few years.

0:14:05.320 --> 0:14:08.040
<v Speaker 8>It's been the only game in town, and particularly the

0:14:08.120 --> 0:14:10.480
<v Speaker 8>mag seven people have kind of ignored our asset last seas.

0:14:11.000 --> 0:14:13.840
<v Speaker 8>I think this last change and sentiments really widened people's

0:14:13.880 --> 0:14:16.280
<v Speaker 8>perspectives as so where else they can put their capital,

0:14:16.520 --> 0:14:18.800
<v Speaker 8>including the credit markets, are going to be a big

0:14:18.840 --> 0:14:21.840
<v Speaker 8>beneficiary that as people look at the income to stabilize

0:14:21.840 --> 0:14:25.160
<v Speaker 8>the overal portfolios. And we agree at the same time

0:14:25.640 --> 0:14:27.760
<v Speaker 8>some of the real challenges that are being addressed in

0:14:27.800 --> 0:14:31.360
<v Speaker 8>the equity market are also play being the credit markets.

0:14:31.640 --> 0:14:33.320
<v Speaker 8>And what that really comes down to is, you know,

0:14:33.440 --> 0:14:36.200
<v Speaker 8>what do future earnings look like? And we have this

0:14:36.320 --> 0:14:40.240
<v Speaker 8>strange you know, there's a strange relationship between the stock.

0:14:39.960 --> 0:14:41.600
<v Speaker 7>Market and the real economy.

0:14:42.080 --> 0:14:45.920
<v Speaker 8>Typically the real economy drives the stock market, but we

0:14:46.040 --> 0:14:48.000
<v Speaker 8>feel like over the last year or so, it's almost

0:14:48.040 --> 0:14:50.800
<v Speaker 8>become the reverse, and a lot of the spending we've

0:14:50.840 --> 0:14:54.320
<v Speaker 8>been seeing, particularly the wealthy co work, is driven by

0:14:54.320 --> 0:14:58.280
<v Speaker 8>the wealth effect, meaning whole prices are up, and more importantly, equity.

0:14:57.960 --> 0:14:58.440
<v Speaker 7>Prices are not.

0:14:59.000 --> 0:15:04.360
<v Speaker 8>So Our concern is as investors look at their equit performance,

0:15:04.880 --> 0:15:07.520
<v Speaker 8>it starts to actually impact what they're doing on a

0:15:07.560 --> 0:15:08.400
<v Speaker 8>spending basis.

0:15:08.560 --> 0:15:10.320
<v Speaker 7>And that's where we hear it from companies right now

0:15:10.440 --> 0:15:11.320
<v Speaker 7>is people are getting.

0:15:11.080 --> 0:15:13.400
<v Speaker 9>A little scooped by policy, a little scooped by the

0:15:13.440 --> 0:15:16.400
<v Speaker 9>price action in the equity market, and that is fugiant

0:15:16.440 --> 0:15:19.000
<v Speaker 9>to change their behaviors, which we think will actually flow

0:15:19.120 --> 0:15:21.440
<v Speaker 9>through to earnings as we look forward to.

0:15:21.440 --> 0:15:22.400
<v Speaker 7>The next few quarters.

0:15:22.880 --> 0:15:25.080
<v Speaker 5>Steve, you know, for the longest time, when Alex and

0:15:25.080 --> 0:15:27.480
<v Speaker 5>I would speak to fixed income pros like you, we

0:15:27.520 --> 0:15:32.400
<v Speaker 5>would hear discussion about how tight credit spreads are in

0:15:32.440 --> 0:15:35.560
<v Speaker 5>this time of I guess growing uncertainty. Are those spreads

0:15:35.600 --> 0:15:36.280
<v Speaker 5>widening at all?

0:15:37.640 --> 0:15:41.640
<v Speaker 8>Yeah? You know, the narrative over the last year has

0:15:41.720 --> 0:15:46.520
<v Speaker 8>been what could possibly move spreads wider? And we've been

0:15:46.640 --> 0:15:50.160
<v Speaker 8>kind of underweight credit spreads on the narrative that credit

0:15:50.200 --> 0:15:51.400
<v Speaker 8>spreads on that equity are.

0:15:51.280 --> 0:15:54.360
<v Speaker 7>A meaner birding asset class. They don't go up into

0:15:54.360 --> 0:15:54.720
<v Speaker 7>the right.

0:15:54.800 --> 0:15:59.160
<v Speaker 8>They tend to rotate and gyrate around a baseline.

0:15:59.400 --> 0:16:00.960
<v Speaker 7>It happens tight levels.

0:16:01.040 --> 0:16:03.680
<v Speaker 8>The narrative was there's just nothing that could break out

0:16:04.600 --> 0:16:07.680
<v Speaker 8>from the economic growth, particularly the United States or America,

0:16:08.240 --> 0:16:11.680
<v Speaker 8>and that has been changed. Spreads rallied from kind of

0:16:11.720 --> 0:16:13.960
<v Speaker 8>October when it looked like Trump was going to be

0:16:14.040 --> 0:16:17.880
<v Speaker 8>elected all the way through inauguration there. All that was

0:16:17.920 --> 0:16:20.680
<v Speaker 8>when the optimism of animal spirits and how that would

0:16:20.720 --> 0:16:23.000
<v Speaker 8>continue to keep the economy chugging and.

0:16:23.040 --> 0:16:24.239
<v Speaker 7>Cred spreads compressed.

0:16:24.800 --> 0:16:29.040
<v Speaker 8>Once we saw this administration and action, however, we've seen

0:16:29.040 --> 0:16:31.840
<v Speaker 8>a move wider and so you know, credspreads have gone

0:16:31.880 --> 0:16:34.840
<v Speaker 8>on the investment grate side from kind of the high seventies,

0:16:34.840 --> 0:16:37.000
<v Speaker 8>which will be all time lows for the last decade

0:16:37.040 --> 0:16:40.040
<v Speaker 8>plus and wid that out about fifteen to twenty bases points.

0:16:40.160 --> 0:16:43.240
<v Speaker 7>So to us, that feels healthy. It also feels like the.

0:16:43.200 --> 0:16:45.920
<v Speaker 8>Direction of travel will continue in our lines over the

0:16:45.920 --> 0:16:46.600
<v Speaker 8>course this year.

0:16:47.080 --> 0:16:49.480
<v Speaker 2>But if the underlying issue is that we don't know

0:16:49.720 --> 0:16:52.240
<v Speaker 2>what the economic growth outlook will be for the United

0:16:52.280 --> 0:16:56.240
<v Speaker 2>States economy. Look at the OECD downgrading growth and upgrading inflation.

0:16:56.720 --> 0:16:59.880
<v Speaker 2>I mean, doesn't that wind up hitting credits in some capacity?

0:17:01.680 --> 0:17:05.920
<v Speaker 7>It really does. I mean we're not very very sophisticated

0:17:05.920 --> 0:17:08.280
<v Speaker 7>in bond land. We dis like cash flows. That is

0:17:08.320 --> 0:17:09.400
<v Speaker 7>the most important.

0:17:09.119 --> 0:17:09.840
<v Speaker 3>Days I see.

0:17:09.840 --> 0:17:13.920
<v Speaker 2>So it's like a safety play, even with the risks correct.

0:17:13.600 --> 0:17:14.840
<v Speaker 8>You know, we still think that this is a good

0:17:14.840 --> 0:17:17.400
<v Speaker 8>place for investors to be compared to where the lost

0:17:17.440 --> 0:17:20.640
<v Speaker 8>and valuations are on the equity land. Even still after

0:17:20.680 --> 0:17:23.400
<v Speaker 8>a ten percent pullback, we think this is a much

0:17:23.400 --> 0:17:27.160
<v Speaker 8>better place for investors to kind of really rely on

0:17:27.160 --> 0:17:29.359
<v Speaker 8>some of the stronger parts of the economy while not

0:17:29.440 --> 0:17:31.200
<v Speaker 8>leading into full evaluations.

0:17:31.760 --> 0:17:33.760
<v Speaker 5>Steve, thanks so much for joining us. Really appreciate it.

0:17:33.800 --> 0:17:37.959
<v Speaker 5>Steve Perdy. He's co head of Global Credit at TCWT

0:17:37.960 --> 0:17:40.760
<v Speaker 5>there in La TCW Trust Company of the West, huge,

0:17:40.840 --> 0:17:45.320
<v Speaker 5>huge asset manager, both in fixed income and equities.

0:17:46.080 --> 0:17:50.800
<v Speaker 1>This is the Bloomberg Intelligence podcast, available on Apple, Spotify,

0:17:50.960 --> 0:17:54.440
<v Speaker 1>and anywhere else you get your podcasts. Listen live each

0:17:54.480 --> 0:17:58.240
<v Speaker 1>weekday ten am to noon Eastern on Bloomberg dot com,

0:17:58.359 --> 0:18:02.399
<v Speaker 1>the iHeartRadio app in and the Bloomberg Business app. You

0:18:02.400 --> 0:18:05.720
<v Speaker 1>can also watch us live every weekday on YouTube and

0:18:05.920 --> 0:18:07.880
<v Speaker 1>always on the Bloomberg terminal