Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com Slash podcast. A couple of days ago,
Speaker 1: was driving by the Short Hills Mall in New Jersey
Speaker 1: and it was packed, leading me to think that consumers
Speaker 1: are out there spending. Let's get some more color on
Speaker 1: all of that, because I haven't done any holiday shopping.
Speaker 1: But Mary Shore, senior equity analysts for Columbia Thread Needle
Speaker 1: Investments Joints, is, Marie, how's this holiday shopping season shaping
Speaker 1: up for the retailers? Thanks so much for having me.
Speaker 1: The holiday shopping season has turned out very positive so far.
Speaker 1: We heard that from companies as they reported through November
Speaker 1: and over all of you on the consumer remains very positive.
Speaker 1: Um the headline trends over Black Friday were a little
Speaker 1: more mixed, but I think what we're seeing is that
Speaker 1: the shape of the season this year is smoother than
Speaker 1: what we've seen in the past as consumers have prioritized
Speaker 1: their shopping earlier. But this is not necessarily a bad
Speaker 1: thing because that does help maximize full price selling and
Speaker 1: reduces operational stress for the retailers. So are they getting
Speaker 1: all the stuff that consumers need, our consumers finding the
Speaker 1: stuff they're searching for, or is there really this um
Speaker 1: you know, lack of goods and a rise in prices.
Speaker 1: That's a great question because we've heard so much about
Speaker 1: the supply chain disruption and congestion that continues. But all
Speaker 1: things considered, I think the companies have done a very
Speaker 1: good job, except for a couple of companies with large
Speaker 1: exposure to Vietnam, companies have been able to build inventory
Speaker 1: into the holiday and they're confident in their ability to
Speaker 1: meet demand. Of course, this is all coming at a cost,
Speaker 1: and the companies have now built extended lead times and
Speaker 1: higher freight costs into their plans through the first half
Speaker 1: of the year. But I would say outside for a
Speaker 1: couple of key items like maybe some gaming consoles, consumers
Speaker 1: should still be able to find what they're looking for
Speaker 1: as we move into the final stretch. So Mari, am
Speaker 1: I going to get any deals when I start shopping here,
Speaker 1: How let's the promotional environment out there? That's another great question.
Speaker 1: Throughout the pandemic, we have seen the retailers reduce their
Speaker 1: overall promotional activity as they have planned inventory in a
Speaker 1: very detail, in a very discipline way. And now I
Speaker 1: think they all realize that they tend do more with
Speaker 1: less and actually drive higher margin dollars with less inventory.
Speaker 1: And so the net results of that will the lower
Speaker 1: promotional activity I believe for the foreseeable future, and that
Speaker 1: really should be across category, and it's a reflection of
Speaker 1: not just the near term supply chain congestion, but also
Speaker 1: the fact that retailers are just doing a much better
Speaker 1: job of managing inventory. Alright, so what kind of inflation
Speaker 1: are we seeing? I know, Friday, we're going to get
Speaker 1: the CPI UM numbers out, so we'll find out soon
Speaker 1: enough that basket of goods. But in terms of you know, um,
Speaker 1: what what consumers are really feeling? How high is it? Well,
Speaker 1: it is hard to measure, and of course it does
Speaker 1: vary by category. There are certain categories like food where
Speaker 1: we're seeing inflation currently running in the load to mid
Speaker 1: single digit range, but in other more discretionary categories where
Speaker 1: there is limited supply, their strong demands driven by strong
Speaker 1: product innovation and low or promotional activity. As we discussed,
Speaker 1: you could see inflation um or you know, net pricing
Speaker 1: rising above those mid single digit levels, but it is
Speaker 1: hard to measure because some of these categories the consumer
Speaker 1: is not buying as frequently, so it's in some cases
Speaker 1: more difficult to notice the pricing increases. But overall, the
Speaker 1: companies have seen a really positive response to the pricing
Speaker 1: that they have taken, and there really has not been
Speaker 1: very much pushed back from the com humor. So mar again,
Speaker 1: when I drove by my local shopping mall a couple
Speaker 1: of days ago, it was full with shoppers. But I
Speaker 1: still have that question, is the United States still overstored?
Speaker 1: Is there still too much you know, kind of too
Speaker 1: many stores out there, and we've got to reduce the
Speaker 1: footprint even more. It's a great question. I think that
Speaker 1: really coming out of the recession, the companies has tried
Speaker 1: to take a closer look at their store basis and
Speaker 1: close on profitable stores. Um. During the pandemic, we heard
Speaker 1: about like the department stores for instance, coming out and
Speaker 1: closing hundreds of stores. So what I would say in
Speaker 1: terms of the store rationalization that still needs to happen,
Speaker 1: I think a lot of the heavy lifting has already
Speaker 1: been done. But going forward, we will continue to see
Speaker 1: select and strategic store closures as companies focus on their
Speaker 1: most profitable doors. All right, So that's what we that's
Speaker 1: what we see UM, certainly in the car industry where
Speaker 1: they focus selling the highest margin products UM and leave
Speaker 1: the other ones aside. And that's what we're seeing, I
Speaker 1: guess across other industries as well, right Mari, Yes, absolutely,
Speaker 1: As as I said, the companies are very focused on
Speaker 1: maximizing margin rate and margin dollars, and so they are
Speaker 1: doing a better job of streamline not just their store bases,
Speaker 1: but also they are assortment their product assortments UM to
Speaker 1: focus on the most productive and the highest margin skews. Mary,
Speaker 1: thank you so much for joining us. We really appreciate
Speaker 1: getting your perspective here on retail sales as we head
Speaker 1: into the whining days of the holiday selling season. Mary Shore,
Speaker 1: senior equity analysts for Colombia Thread Needle Investments. You know,
Speaker 1: when the Omnicom news broke, the markets obviously sold off
Speaker 1: pretty significantly. They bounced back with a vengeance, vengeance, very
Speaker 1: very quickly. And it's kind of getting to the point
Speaker 1: now where the investors are almost immune to some of
Speaker 1: this uh pandemic news flow that we've been dealing with
Speaker 1: for our past twenty months. And see what we're hearing
Speaker 1: down in the trenches. Shawn Snyder, head of investment Strategy
Speaker 1: for US Wealth Management Group at City UH Sean, thanks
Speaker 1: so much for joining us here. As you talk to
Speaker 1: your clients, what are they saying about how they're digesting
Speaker 1: all this pandemic news because it doesn't seem like it
Speaker 1: has the same effect that it used to. Thanks for
Speaker 1: having me. I really appreciate it. I do think that
Speaker 1: investors have developed some sort of herd immunity against COVID
Speaker 1: news um. You know, I know we retired the word
Speaker 1: transitory when it comes to inflation, but you know, it
Speaker 1: seems like they're kind of looking at omnicrom is maybe
Speaker 1: something that's transitory. And you know, there has been some
Speaker 1: positive news, you know, about the variant. It's hard to
Speaker 1: say the variant is positive, but you know there's some
Speaker 1: news and antibodio therapies appear to be effective against omnicrom um.
Speaker 1: You know, hospitalizations appear to be held in check so far,
Speaker 1: you know, got a lot of the suspeculative, it's not
Speaker 1: you know, actual confirmed data, you know, and the symptoms
Speaker 1: seemed to be more mild. And I think, you know,
Speaker 1: we heard about the third dose regime potentially neutralizing the
Speaker 1: variant this morning. But I think perhaps even more importantly
Speaker 1: is that it looks like the current vaccines may protect
Speaker 1: against severe disease. And I think that's a really important
Speaker 1: point that we need to consider. Yeah. Absolutely, I mean,
Speaker 1: as long as all all it does is infect a
Speaker 1: bunch of people and um doesn't put very many in
Speaker 1: the hospital, then it's not as scary, right, all right.
Speaker 1: And Plus, if you think the United States has a
Speaker 1: you know, sixty percent of its vaccination or six pc
Speaker 1: of it's population, uh fully vaccinated, you know that, then
Speaker 1: you know, we're the real problem that happens with these
Speaker 1: waves is the surgeon hospitalizations and seeing healthcare systems overwhelmed.
Speaker 1: And that's really why you need to enter lockdowns and
Speaker 1: that type of scenario. But if we're not seeing the
Speaker 1: surgeon hospitalizations, UM, and we're not seeing seeing severe disease
Speaker 1: because people have at least some protection, UM, then they're
Speaker 1: you're less likely to go back into that renewed lockdown scenario.
Speaker 1: It's less likely to have a large impact on the economy,
Speaker 1: and I think that's why markets are know, have sense
Speaker 1: to recover it in just eight days. I do have
Speaker 1: to say that I was planning on working from London
Speaker 1: next week and I and now I am no longer
Speaker 1: going to. Even though I was going to work in
Speaker 1: London next week, but now I'm not going to. Why not?
Speaker 1: Because the omicron variant is spreading like wildfire. And even
Speaker 1: though I'm vaccinated, um, and even though I'm not afraid
Speaker 1: I would get seriously ill, I don't feel like getting it.
Speaker 1: You know, I would have to sit on a plane
Speaker 1: with a bunch of people. I'd have to wear a
Speaker 1: mask the whole time. You know how much I hate that. Um,
Speaker 1: I probably have to wear a mask in the London
Speaker 1: office everywhere I go. I don't want to deal with that.
Speaker 1: I'd much rather just stay home. So at least, you know, anecdotally,
Speaker 1: some people are changing their plans like me. Interesting, all right,
Speaker 1: So Sean, given that kind of backdrop, what are you
Speaker 1: telling your clients these days? Well, we're actually focusing on
Speaker 1: a couple of things. We're telling our clients to essentially
Speaker 1: upgrade the quality of their portfolios. And you know, we've
Speaker 1: sort of bucketed that into two different core themes. One
Speaker 1: is long term Leaders and then the other one is
Speaker 1: uh sort of be where the cash thief. And so
Speaker 1: long term Leaders is focused on companies that are our
Speaker 1: leaders in their industry, ones that tend to have um
Speaker 1: long term growth prospect growth prospects and you know, stable revenues.
Speaker 1: And it happens to be the technology, health care, and
Speaker 1: consumer staples are the three sectors that often pop up
Speaker 1: the most in that quality bias type bucket. So we
Speaker 1: like that those areas and when it comes to beat
Speaker 1: the cash thief, what that really means is that, you know,
Speaker 1: their clients often think that if inflation is going to
Speaker 1: be high, you know, then maybe that's bad for the
Speaker 1: equity market and that I should move into cash. But
Speaker 1: that's the wrong thing to do because what happens is
Speaker 1: when you move into cash, you're effectively losing uh six
Speaker 1: of your net worth, right if it's all in cash.
Speaker 1: So what you should do is you should actually be
Speaker 1: into equities because they tend to beat inflation over a
Speaker 1: long creative time and earnings. Corporate profits are the key
Speaker 1: driver financial markets, and that outpaces inflation more often than not.
Speaker 1: Just look at this year. We have a six point
Speaker 1: two percent inflation rate currently come Friday, maybe closer to seven.
Speaker 1: But equity to return. So you know, in some ways,
Speaker 1: if you want to maintain your net worth, you you
Speaker 1: actually should move into equities. All right, John, We're gonna
Speaker 1: have to leave it there. Um. I really appreciate your
Speaker 1: thoughts there. Sean Snyder, he's head of UH Investment Strategy
Speaker 1: at City's US Wealth Management CD. You point out his
Speaker 1: previous experience as well. Previous experience former he was a
Speaker 1: budget analyst at the White House. Wow, very cool, that
Speaker 1: exactly all right. Let's check in with Mike Vogelsan, chief
Speaker 1: investment Officer and managing director for Cap Trust. I'm gonna
Speaker 1: get his thoughts in these markets, but I want to start,
Speaker 1: Mike with your thoughts on you know, the pivot we
Speaker 1: saw from the Federal Reserve last week, accelerating tapering, talking putting.
Speaker 1: You know, interest rate increases right front and center here.
Speaker 1: How do you view that given your outlook for two
Speaker 1: how did that shape or reshape your outlook? Yeah? You know,
Speaker 1: it's um good question. First of all, I think it
Speaker 1: is a really important pivot point in the market and
Speaker 1: the psychology of the market. Uh. You know, understand that
Speaker 1: the the our opinion is that the while the economy
Speaker 1: is doing terrifically well, most of the upside has in
Speaker 1: the in the stock market, and certainly the high valuations
Speaker 1: were in have come from from excessive and very abundant
Speaker 1: liquidity is a better word, um, from the Fed of course,
Speaker 1: and and and stimulus and so on, but specifically the Fed.
Speaker 1: And you know, I think I think once we saw H. J.
Speaker 1: Pow as we like to call him, um get you know,
Speaker 1: clear up his nomination and renomination for the position. Uh,
Speaker 1: you know, the fact they became a little more um,
Speaker 1: a little more hawkish on on interest rates, I think
Speaker 1: is uh it tells you what he's really feeling. We
Speaker 1: think it's a it's a it is a pivot, and
Speaker 1: it is a bit of a signal change here to say,
Speaker 1: you know, the going is going to be tougher. Um.
Speaker 1: He clearly thinks that, you know, things are too easy
Speaker 1: and too loose, and so we fully expect to be
Speaker 1: a little more difficult market. Not saying there's anything major.
Speaker 1: We're not calling a massive correction, but I just think
Speaker 1: the easy money has gone, and I think it would
Speaker 1: make some sense to pay attention to what the Federal
Speaker 1: Reserve chair says when he when he starts to think
Speaker 1: about about tapering and raising interest rates faster. You know,
Speaker 1: I think back to our interview UM yesterday on Floomberg
Speaker 1: Radio with one of the big investment legends, Peter Lynch,
Speaker 1: who said, those of you who are going all passive
Speaker 1: are going to really miss out here. And I know
Speaker 1: this is something that's cyclical, right, active versus passive, But
Speaker 1: are you saying is a year to be active as well?
Speaker 1: I think things exactly right. We we we like that
Speaker 1: trade a lot. It's been a it's been a megacap
Speaker 1: saying lead stock market, and most managers have been systematically underweight, uh,
Speaker 1: you know, the entire array of super super large cap
Speaker 1: MEGACP stocks and and so you know, we think, you know,
Speaker 1: the valuation disparity there is also exceptionally high. So we
Speaker 1: think that that um, a lot of the action is
Speaker 1: going to come from the active side of the equation.
Speaker 1: We we we uh, just just because the market is
Speaker 1: likely to be broader and there will be opportunity in places,
Speaker 1: whether it's cyclicals or whether reopening trade or whatever. Uh,
Speaker 1: that that will allow us to take some take some
Speaker 1: market share back in the active space as opposed to
Speaker 1: the passive led by the megacap stocks. Right, the passive,
Speaker 1: the passive valuate, the passive geminy, if you will, is
Speaker 1: really dominated and driven by by the megacap stocks doing
Speaker 1: so well. Because it's just hard as an active manager
Speaker 1: and I've been an active manager for tw through two years,
Speaker 1: it's really hard to get enough of that stuff in
Speaker 1: your portfolio, uh, to to overweight the benchmark that you're
Speaker 1: that you're trying to beat, right, and so it's a
Speaker 1: it's been a hard situation. I think it's going to reverse. Uh.
Speaker 1: Going into going to I will say one thing. You know,
Speaker 1: the market normally anticipates economic activity by you know, six, twelve,
Speaker 1: eighteen months or whatever happens to be. Um. I think
Speaker 1: one of the really interesting patterns in today's market is
Speaker 1: that is that it has been trading coincidentally with COVID,
Speaker 1: with COVID rumors, right, UM, I mean it's so so
Speaker 1: making making projections for it's really hardly a well that's
Speaker 1: why that's why we have smart guys like like you
Speaker 1: on to try to give us a little bit of guidance. Here,
Speaker 1: we're gonna be actually leave it there, Mike. Mike Vocals,
Speaker 1: chief investment Officer and managing director at Cap Trust based
Speaker 1: in Boston, Massachusetts. Kind, we've had some tremendous, you know,
Speaker 1: kind of one to three, two and a half percent
Speaker 1: moves in these markets. As a markets try to discount
Speaker 1: this new variant out there and what it means for
Speaker 1: the economic recovery. Let's check in with a professional if
Speaker 1: in debt, Chief investment officer of Manetta Group Efan, Thanks
Speaker 1: so much for joining us here. Boy, let's just take
Speaker 1: the last seven days when we really started to get
Speaker 1: some news on this omicron variant. How do you think
Speaker 1: the market kind of reacted to it? Did it? Did
Speaker 1: it feel any different than what we've been dealing with
Speaker 1: or the past twenty months? It did? This downturn we
Speaker 1: saw on markets definitely sounds a little more chilling um
Speaker 1: it sells. We saw a lot more severe drop off
Speaker 1: and some of the stocks that perhaps had been leveraged
Speaker 1: to the economy reopening. And I like the way it
Speaker 1: was described in something I read recently as a debate.
Speaker 1: It's almost as if the market is having a debate.
Speaker 1: It's debasing what the impact of omecon is gonna be. Um,
Speaker 1: it's debating whether inflation is transitory or not. And in
Speaker 1: a way, the way we see the volatility markets, we
Speaker 1: see each side of that debate making their case. It's
Speaker 1: interesting that we well, we're looking for six point seven
Speaker 1: percent inflation on Friday, the highest since when Olivia Newton
Speaker 1: John was topping the charts. Um, is this you know?
Speaker 1: Is this going to come back down next year? We're
Speaker 1: all riled up right now about Powell's pivot hawk is
Speaker 1: pivot um, but are we going to see inflation coming
Speaker 1: back down to the threes two? It's really interesting on
Speaker 1: six point seven is certainly going to just from an
Speaker 1: optical soundpoint for the shop markets, because we already had
Speaker 1: the highest level of thirty one years of the last
Speaker 1: at the last time where we lived at the numbers
Speaker 1: of six point two. So what I think would be
Speaker 1: really interesting is to look beyond that this this week's results,
Speaker 1: because well, we have seen a drop in oil prices
Speaker 1: and that's why I think the week, the week we've
Speaker 1: seen has been more notable in terms of market fragility,
Speaker 1: and I think making the hate that markets have been
Speaker 1: stubbornly resilience up to now. They seems to have been
Speaker 1: resilient around any news, the potential government shutdown, geo political news,
Speaker 1: even the news of the delta variance. They were relatively
Speaker 1: resilient around that. The travel curbs that came in and
Speaker 1: the fact that we're right in the middle of winter
Speaker 1: that certainly did and more of a chilling message to
Speaker 1: true markets. UM on the frigility. So, just as I
Speaker 1: mentioned the debate, I asked myself the question whether markets
Speaker 1: can be resilient and fragile at the same time. But
Speaker 1: to where we see inflation going into next year. Certainly
Speaker 1: there was some of the the acute supply tinch cane
Speaker 1: shortages and bottlenecks should be easing. Um, we will probably
Speaker 1: see after the summer and easing of demands which would
Speaker 1: should also bring prices after the holiday season, and using
Speaker 1: of demands which should bring prices in. And again the
Speaker 1: oil price and energy prices filtering through will have a
Speaker 1: more muted effect going forward. But it was interesting that
Speaker 1: the timing of German powers, the discussion of the removing
Speaker 1: the bird transitory and who suggestions that they would be
Speaker 1: speeding up the papering that actually was what was probably
Speaker 1: the worst timing given where markets were feeling anyway, given
Speaker 1: the Omicon news. So because of that, we think that's
Speaker 1: already been based in now because that essentially have we
Speaker 1: now have a sense that the said maybe moving faster
Speaker 1: than we thought they are getting concerned. There's point of
Speaker 1: that before, kind of trying to control inflation from the top,
Speaker 1: and that has actually now been built in. I don't
Speaker 1: expect further pronouncence of that nature to shop markets, um
Speaker 1: and we most likely will be looking at a lower
Speaker 1: rate than six point seven percent going forward, but certainly
Speaker 1: higher than we've been used to enjoying around that two
Speaker 1: percent historically. All Right, so given that backdrop ethan, what
Speaker 1: is your outlook? We believe that this will continue to
Speaker 1: be a good market. With stock pickers, we're focused not
Speaker 1: only on the fundamental nature of eclonic markets from where
Speaker 1: they are at today, but also some of the technical factors.
Speaker 1: We cannot ignore the vast amounts of money that have
Speaker 1: been pumped into the system globally, but particularly in the US,
Speaker 1: where that money has not been safe but has instead
Speaker 1: been touched into risk gasses. So there is a record
Speaker 1: amounts of money and money market funds who saw them
Speaker 1: in the reverse repo markets, record amount of transactions that
Speaker 1: that suggests that there is money on the sidelines and
Speaker 1: as a results, when we did have gips like we
Speaker 1: did this week, even chilling ones that were a little
Speaker 1: more severe than we were used to, they close up
Speaker 1: melatively quickly. There is a desire not to miss ouse,
Speaker 1: to to buy on the dip. There is a lot
Speaker 1: of retail activity and all of that is focused now
Speaker 1: around and propping up equity markets. I see that that
Speaker 1: technical factor is not going to go away because that
Speaker 1: should supports equity markets going into two to what I
Speaker 1: see in terms of sectors and very focused um because
Speaker 1: of my European routes on on what we saw coming
Speaker 1: out of a Glassgow in top twenty six, so where
Speaker 1: we saw, now what's the road from Glasgow. We're definitely
Speaker 1: going to see more capital flowing through to renewable energy,
Speaker 1: to climate change focus strategies, to e f G focused funds,
Speaker 1: and those sectors such as electric vehicles. We seeing the
Speaker 1: huge momentum that it's surrounded. It stops to Tesla as
Speaker 1: well as the car rental companies when they simply say
Speaker 1: they're going to add evs to their fleet. So that's
Speaker 1: kind of almost Meanlike momentum indicates that there is clearly
Speaker 1: a sense that this is going to be a sector
Speaker 1: that will have a lot more focus in the future.
Speaker 1: So I'm looking at all those factors that are likely
Speaker 1: to benefit from what came out of cost PTY six.
Speaker 1: All right, Evan, thanks so much for joining us. Ethan Devitt.
Speaker 1: There is actually the last five years in a row
Speaker 1: ranked in the top ten by barons among independent pretty
Speaker 1: registered investment advisors. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews of Apple podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three. On false Sweeney, I'm
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
Speaker 1: always catch us worldwide at Bloomberg Radio.