Starbucks Baristas Are Unionizing

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. Certainly tough in the overall market, trades and broad based selling, but not selling investors snapping up. In fact, shares of Tapestry stock has been as high as nineteen percent in today's sessions, still holding on to about a fourteen percent gain, and this despite the parent of Coach and Kate Spade cutting its profit outlook due

to pandemic closures in China. Meantime, a bright spot North American demand lifting third quarter sales above estimates. So let's get to the quarter and find out what the consumer is up to. Delighted to be talking once again with Joanne Krivosant. She is you have Tapestry and she is on the phone in New York City. Joanne, So nice to have you here with Tim and myself. How are you and how is the retail environment doing well? Thank you, Carol and Tim. It's it's great to be here. Thanks

for having me. Um. What we're seeing in our business is strength and momentum across our business. As you mentioned, our third quarter outperformed, led by strength in North America, and we drove double digit global sales growth across all of our brands at Coach, at Kate Spade, and at Stuart Whitzman. And you know, Tapestry is a powerful combination of iconic brands that offer tremendous value for consumers, and we have a platform that we've transformed to drive innovation

and customer engagement, and that model is delivering results. We're seeing that in the strength of our digital business, increased customer acquisition and pricing power across brand. So a lot of things are are working and performing, and it really reflects the strategies that that we've put in place over the last few years, UM to stay closer to our consumers. And drive growth behind our our powerful brands. So we

want to dig deeper into that. But let me ask you, if you had to describe the consumer in a word or a few words, how would you do it? And would you say that the consumers back at pre pandemic levels or maybe even better or still a little bit under it. Yeah, the consumer is quite resilient. UM. You know, we've been driving growth above pre pandemic levels for several

quarters UM. And you know that's that's most apparent in our Coach brand, where we've had more quarters in a row, but also true at Cape Spade and at Stuart Whitzman and UM. You know, our business in the third quarter reflects really the strength and momentum we're seeing around the world. You know, we talked about our growth in North America. We drove growth in North America in the last UH in the last quarter, UM, but we also saw strength

around the world in all areas except for China. So we saw strength in Europe UM and strong growth in rest of Asia as well as in Japan. So UM business is performing UM. In fact, even in China going into the quarter, we saw strength and and UM you know that business only started to weekend when we saw the disruption related to COVID in the market towards the end of the quarter. Um. So we're seeing a consumer that is engaging with our brands. They're getting out into

the real world. There are real life occasions and um, you know, we see them engaging with our brands, uh, and our categories and handbags and footwear. Um. And in fact, we're we just came off a great Mother's Day, so that that continues and the consumer really continues to engage

both again with our brands and in our categories. Joan, I want to I want to hit on the China point and dig into that a little bit, because you had to have in North America, you overcame pandemic related weakness in China when you look at the results overall. But I'm but I'm wondering from a planning perspective, how you're thinking about how long these lockdowns last and how long you're going to see that weakness in China where

business has just dried up since this resurgence of COVID. Yeah, the business was disrupted, but it was disrupted in a very discrete way. UM, you know, by the by the impact of COVID in the market. And you know, our business has been quite resilient over the last two years. As I said, you know, we've been driving growth above pre pandemic levels for some time, UM, and that shows the resilience of our model and the way that we're

able to shift UM. Two changes that we're seeing in demand and changes in the supply chain and supply around the world. And our latest disruption has been in China. But as as I mentioned, we had strength in the market and we've been driving strength as as China came out of the first round of lockdowns, the consumer was incredibly resilient UH, and we were driving growth significantly above

pre pandemic levels for a number of quarters. UM. Again, as you pointed out, you know, they've they've been hit by another round of COVID lockdowns and that has impacted traffic UM in the lockdown cities, but also more broadly, UM. It's also impacted some of the distribution centers and logistics in the market UM, and so we're feeling the impacts of that. Our expectation is that, you know, we expect

Shanghai to begin to reopen. It's beginning of June, and we expect a gradual recovery, probably more gradual than what we saw last time we came out of lockdown, but we do expect a gradual recovery. And you know, our brands are targeting the middle class consumer in that market, which is an attractive market and growing market, and we feel well positioned um as that market recovers over the near term, but as well UM for long term growth. Uh, you know, with longer runway ahead go in. There's so

much stress out there. It feels like, certainly when we watch the financial markets, right and we look at some individual names, even though your stocks rallying, it's down about this year, but it's it's broad based selling. It feels like no market or sector is immune. It certainly seems in the Star Excel off you sound pretty calm, and you sound I don't know, is it cautiously optimistic optimistic? UM, help me understand fundamentally what the outlook looks like? That

might you know? I think we're all trying to figure out what is the outlook amid a rising rate environment, and what is the business environment and what's the market environment? Um? Could you seem pretty calm? Yeah? Well, and we are optimistic We're very confident. You know, we have such iconic brands in our in our portfolio, and our focus has been on, you know, restoring the health of our brands and driving better and stronger engagement with consumers. And when

we do that, the business perform. So we're really focused on fundamentals UM and you know when we talk about transformation, actually I heard you discussing investment UM in the business in the in the show just prior to when I came on. You know, we're investing, and we're investing in digital tools and innovation and technology that's making us better. And as we focus on the fundamental we're seeing traction.

We're engaging customers, were acquiring more customers. We acquired one point four million customers in the last quarter alone, and since we've embarked on our transformation, we've acquired thirteen million new customers to our brands over the last twenty one months. And these are customers who are coming in and engaging with our brands. They're shopping at higher a you are, higher prices than average, and they're coming back more frequently UM.

And these customers are also increasingly younger. So as we focus on the fundamentals of our business. It gives us confidence because we're seeing much stronger engagement, much healthier brands, and much stronger engagement with our consumers. Joanne'm wondering about your pricing power because you said that there these customers are paying more than they were paying earlier. How much

of that has to do with inflation? Where where are you seeing a rise in costs right now on your production ended, in your supply chain, And how much are you absorbing of that versus passing it along to the customer? Because as Saunders and analysts with global data set in a note after your results, Uh, the customers that you have at Tapestry can cope better with inflationary impacts than

the average customer. Yeah. And the way we think about our pricing power is really in terms of delivering value to consumers UM and and that's how we've been thinking about. In fact, we started this pre pandemic before we started to see pressure on the cost side of the equation,

and those pressures are real. We're seeing pressure on the cost side of the equation like others in the industry, UM a lot of pressure in freight related to the supply chain dislocations that we're seeing, but our focus really on the pricing side of it. In the pricing powers really driven by the value we're delivering to consumers and those emotional connections that we're developing are allowing us to drive pricing power, and we're seeing that across our brands.

You know, some of the investments we've we've made and tools and technology or helping us leverage data better in across our value chain, so that's making us more informed on pricing decisions. It's also making us more informed on our assortment decisions and our inventory management so we've got the right inventory. We're seeing higher skew productivity UM with more concentration behind more powerful items, and that allows us UM to drive pricing power as well and to clarify

our messages with consumers. So on the value side of the equation, we continue to deliver unbeatable value for our consumers across all of our brands, and that's helping us more than offset the pricing pressure that that we're seeing UM in terms of costs, in terms of our expectations going forward. You know, doing when you were part of a Bloomberg panel that we did, you and I did it with a few other heads of companies about a year ago, and we talked about disruption as a new

economic driver. I think part of the conversation we also got into what consumers want in terms of sustainability, and E s G is such a big part of everywhere. Tim and I are back from Milk and we talked about it with every conversation. I am curious about how you guys apply it at the company, and and I'm really intrigued about this craftsperson Is apprenticeship program because I think it's a way of creating jobs, uh and also

you know, creating really strong sustainability initiatives at the company. Exactly. Yeah, We're we're really thrilled to bring that to bear. That that UM UM Craftsman Apprenticeship program and the way we think about E s G. E s G has has been part of the fabric of our company from the beginning, and and we value UM and we think about it in terms of what we're bringing and delivering for our people,

for our planet and for our communities. And part of that UM effort, and some of those efforts include UM Sustainable, UM Materials and and the Circular economy and Coach is a great example of where we're leaning into the circular economy with our our Reloved program that takes product that can no longer be paired um and and we we relove it literally and when we restore it and we bring it back to health, our designers are working on it, are our repair centers are working on this product and

restoring it and bringing it back, and we've seen unbelievable reaction from consumers. This is something consumers are asking for, It's something our associates love to do. And as we think about scaling these programs, we are looking for more people to get involved in terms of leather craftsmanship, and that's part of the apprentice program that we're developing to allow us to further scale these programs. Can say I'm an older consumer, but my daughter is nineteen and she's

a younger consumer. Those are the kind of things that really make us take a second look at a brand. So I think you guys are onto something. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. The cover story of Bloomberg Business Week, The new issue just out on newsstands online at Bloomberg dot com slash business Weekend on the

Bloomberg terminal. It's about the return of the company's longtime CEO at Starbucks, along with the rise of a union movement among its baristas. We're talking, of course, about Howard Schultz. This story by Josh Idolson. Check it out. It's the cover story, as Carol mentioned, of the new issue of Business Week magazine. It's available on newsstands, on the Bloomberg and at Bloomberg dot com slash business Week. Josh's labor reporter for Bloomberg News. He joins us on the phone

from San Francisco. With us here in person is the editor of Bloomberg business Week, Joel Webber. He's with us in the Bloomberg Interactive Broker studios. Joel, I want to start with you because this is the third time that Howard Schultz has been at the home of Starbucks. What is the Starbucks that he found when he returned just

about a month ago as CEO. The surprise I think that probably awaited him was one that he was not probably familiar with from his other stints, which was this newfound power that the labor has and Starbucks, which I

found really surprising the workers of Starbucks. Have you know, for all of this talk about unionization sweeping the country right now, Amazon being one that we've talked about extensively, all those all of those roads lead back to what has been happening at Starbucks, and Starbucks has been really the workers of Starbucks have been galvanizing force that a lot of other workers in corporate America have been inspired by.

And and Josh to his credit, saw this long ago and started reporting the heck out of it and going to as many states and and talking to as many workers who were behind the scenes of that union effort. And so what you really have here is a CEO who helped build this company into a global brand, comes back to it and has found that the workers aren't buying that same vision that he had laid out long ago.

And you see this tension between the workers and Schultz and and it even culminates with, you know, the workers being invited to the White House um and the company sort of saying, hey, you know we we we got cut out of this. So so josh Um, what what do you know? You're somebody who follows um labor obviously very closely. I think Josh is like probably as good as it gets in terms of labor reporting in this

country right now. And what really distinguishes the Starbucks story for a wider audience here, so in recent decades in the United States, it's pretty much unheard of for workers to win a labor board election at a company as prominent as Starbucks where there isn't a union already and there isn't some kind of deal between the union and the company to play nice. And that this union not only won that first election in Buffalo, but has now won at sixty some stores and is petitioning to unionize

hundreds of Starbucks cafes around the country. Is a movement with little precedent in the twenty one century United States at a big company me and it is being done mainly through workers mentoring each other. Not just workers organizing their coworkers, but workers training other workers to train other

workers to train other workers to organize their coworkers. And that is how, as one worker put at, this ultimate group project has spread so quickly and has proven so difficult for Starbucks despite all the resources at its disposal and the goodwill that it's had to stem this movement

from growing and spreading further. There are a lot of directions I want to go, Josh, but one question that continues to stick out to me is, you know, Starbucks is as corporate is very pushing back, very aggressively when it comes to these unionization efforts on an individual level, even before Howard Schultz came back, remember he flew to Buffalo to meet with those unionizing employees. What is what

what does that stake here for Starbucks? If there is widespread unionization across US stores here to what that does that affect Starbucks business? Well, there are two big reasons that companies tend to resist unionization, and one is money and the other is power. Of course, for the union to prove its worth two workers, it is going to need to show that it can extract things from Starbucks that workers one an otherwise get, and some of those

things are going to cost money. But the other reason that companies fight unions, and that they often are willing to spend a whole lot of money both on anti union consultants and on making improvements to try to modify people, is that they don't want to give up that control over how the businesses run. And Starbucks for years has bragged, including Howard Scholtz has bragged that there's an empty chair at the board meeting that represents workers voice. So now

you have workers saying, why is the chair empty? Put us in the chair instead. And in fact, in Buffalo, they're in collective bargaining negotiations proposing that Starbucks should have to put a representative of the workers on its board. And so for Starbucks to become substantially unionized would mean that Starbucks executives have less unilateral ability to decide what the business model should be, what the rules should be. And that's part of why the stakes here are so high. Josh,

what happened at the company? I thought this was the one where they paid their workers as well, they had nice benefits. I mean, this is something at Chultz kind of took pride in as you as you report what happened. So workers would answer that question in two different ways, and one is to say it's not as dreamy as it may sound. Even the fifteen dollar minimum pay that the workers will be guaranteed by August is not a

living wage for someone with a child. In a city like Seattle, the staffing issues have been egregious at times, especially during COVID, and the handling of COVID disappointed some

orders and left them feeling betrayed. The other answer they would give is that it's not enough to be better than other fast food companies, and that they believe they should have more say in their working conditions and therefore in their lives, and that there is no one particular thing that Starbucks could solve that would make them go back to being okay with the company having all the control.

And where does where do things stand with Schultz? Because as you write, this is not a He's not permanently CEO right now, right He's just back on an entering basis. So where where will this dispute go? That's what they've said. There's supposed to be a permanent announcement in the fall. There are some people hoping that Schultz stays on. But it is a fight that is deeply personal for Howard Schultz.

This is his baby, and he has come back and made these personal appeals to workers, sometimes emotionally intensely, and as we see in the rooms that we go into in this story, and so this is not a struggle that he's going to be able to shrug off. Whether he's in the CEO seat or not, and some other companies watching this very very closely. Um, Josh, thank you so much, really appreciate it. Josh Idelson, He's labor reporter

at Bloomberg News. This is the cover story of the new issue of Bloomberg Business Week on newsstands right now, on the Bloomberg and of course online. Till Webber, he is the editor of Bloomberg Business Week magazine. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. So Tim and I were

at the Milk and Institute Global Conference last week. We talked a lot about the Market's big topic touched on and so many panels and conversation was E S G. So we're going to get into that along with the macro environment with our guest. Great to be talking once again with us is Dave Getland. Excuse me, Dave Getlind chairman and CEO Carrier Global. You know, the company for making HVAC systems, refrigeration, so many different things that certainly affect all of us on a daily basis. And he's

here in our Interactive Broker studio how are you. I'm doing great. Thank you for having me. It's great to have you here. Dave, and I do think about Tim and I were just talking. I mentioned when you walked in that we're watching the volatility in the market. Uh, and we're seeing so many asset classes come undone, it feels like, but in a controlled way. And yet we just talked to the CEO of Tapestry. She was calm, said,

consumers are spending. She was optimistic. How do you see the environment, how do you kind of cross that with what we're seeing in the financial markets. We feel the same way. We feel very confident in where we are and where we're going. And a big part of it has to do with the secular trends you mentioned like E. S G. But we looked at our first quarter orders were up ten percent. Our backlog is up over thirty percent versus last year. So demand has continued to be

very strong. Backlog up because of supply chain problems are just demands. Well partly we have some overdoke because the supply chain, but it's really because it demand. Our orders have been strong multiple quarters in a row. They continue to be strong. United States is very strong. Europe continues. There's a lot of anxiety about Europe, but if you were to be in one of our internal meetings, you'd be very bullish on Europe. Orders across our portfolio continue

to be very strong. We have obviously a watch like others on China, but demand in our residential business, large commercial are like commercial business which is h VACT for things like K through twelve very very strong in United States retail with people coming back, So we do see

very very strong demand right now. Would you say that the primary driver of demand is reopening, that desire for businesses and schools to make sure that they have clean and healthy air for the people who are in their buildings.

That's a big piece of it. If you take K through twelve, it's a vertical that's traditionally been starved for capital, and all of a sudden in the last in the last year, they've been given a hundred and ninety billion dollars in governments, yes, by the US government, and it comes in three essays. The last essay is a billion that's going to be spent over these next few years, and a good chunk of that's going to go to h v A C. Because it's not only to build

more energy efficient, more sustainable type solutions. But schools are very aware of the criticality of the health of the indoor environment. And that's what COVID has really done is shine a light on the criticality of having safe and healthy indoor environments if you're in a school system. It not only helps prevent a spread of airborne illnesses like COVID one and thirteen kids have asthma, and then you also look at kids test better when you have lower

CEO two levels. So there's multiple benefits and a lot of that spending is going so our k through twelve orders in the first quarter of So are we all Dave looking at things differently post pandemic about because we understand air quality really makes a difference. Or is it just something that Okay, we were worried about the pandemic and we're not so worried now. Are you saying that?

Are you seeing that kind of as a sustained concern and then a sustained upgrade, you know, And I think what's happened is you can see there's a certain amount of anxiety when people go into very crowded indoor environments. Your shoulders, shoulders, so we're very confident that it's sustained. You know, if you take bottle water in the United States, people spend thirty six billion dollars on bottle water when it's free. And what's happened is people are sensitized to

that's a safer way to drink water. What's going to happen with health errors? Because it's invisible, people don't know whether or not it's safe. Our job is to make air visible. And what we're selling now is a new digital platform we call abound, which can make air visible. It's an aggregated scorecard of whether or not the air that you're breathing is safe. And our goal is to

make that ubiquitous. So when you come into bloomberg Er, you go into a restaurant, or you go into a school, it's an you can see it in the Atlanta Braves Games in Truce Park. It's an aggregate score that tells you you are in a safe and healthy indoor environment. So that's our goal to make it sustainable is make it visible. But this only works for HVAC systems and filtration systems that are carrier systems right. Our our system

can work with others as well. Like it can overlay with any ones building management system or anyone else's equipment. It's a it's a digital tool that we've launched in partnership with AWS to really make it so you know, in anywhere we can attach the sensors and collect the data. It looks at CEO two levels, particular matter rate on t V O C. So it's a way to kind of get data and make it visible so you get

confident to go back indoors. How much of what you're doing is upgrades of existing systems day versus what you're what is new construction, because I'm trying to get an idea of construction that's going on right now. Well in the large in the large commercial side, it's seventy new

construction and replacement. And if we look at that space, we look at the Architectural Building Index because that's a six month leading indicator of people work on architectural designs and advance of course of construction and the A B I you want that to be north of fifty. It's been north of fourteen months in a row. So there is demand for large commercial buildings in the residential and

light commercial space. It's the reverse, it's eight percent. Replacement and new construction and residential has and residential for US was up over in the first quarter. Like commercial, which is things like data centers, retail K through twelve that was up over in the first quarter, So very strong demand in that particular vertical. All right, I'm gonna go back to you sound positive and optimistic. So I'm trying to figure out where we are in this economic cycle.

You know, I think there is this there's this anxiety that is very understandable because obviously with the inflation we've seen people know that leads to rate increases, which typically slows in economy. So you can understand the anxiety. But when you kind of go back to things like secular trends that we know there's going to be demand for

things like more energy efficient HVAC systems. So in Europe are orders for heat pumps, for commercial heat pumps, where were the market leader, They were up thirty percent in the first quarter. As Europe weans itself off Russian gas, you know there's going to be more demand for systems like heat pumps. You know that if you're if your air conditioner fails when it's hot, it's going to be replaced.

You know, people spend more time at home hopefully car no, don't, yes, hopefully get so that you can help the quarter care. What you say is like it was an old system twenty years or so, and it's much more efficient. Like it's just the technology continues to get better and better, and we see the government require it, yes, and people

in governments incentivize it. But people are also mixing up, you know, because people spend more time at home, they don't want it when their air conditioner goes off and on, you know, makes that sounds. So they're actually going for

variable speed, more higher end equipment. So to your point, there is this juxtaposition with anxiety about the future and some secular trends like E s G and healthy indoor environments are rising middle class globally, only seven per cent of people in India have air conditioning and it's a pretty hot country, you know, at one point four billion people. So you can see that these forces coming together that's

driving demand. Our challenge. We both want to ask you questions change what signs are you seeing of Like you're putting systems in places you never thought you'd put air conditioning, Like that just speaks to kind of what's going on

in our environment globally. Yeah, you know what's really encouraging is the continued trend around around heat pumps, in particular for h v A C systems so UM in in Europe, almost all new construction is going to heat pumps in Europe for residential we're seeing in the United States States like South Carolina by more they look at we look at their heat pump where they sell heatpumps with UM

connected to their split system versus a cooling only. They sell more integrated heat pumps than they do cool and only. So the demand for heatpumps in the United States and globally is going up exponentially. More energy efficient solutions in the United States next year, there's gonna be the entire country is going to a switch to higher serre units in the South fourteen and fifteen, North thirteen and fourteen. So governments globally are incentivizing their populations to have more

energy efficient solutions, and that's what we do. So that's why there is this overall anxiety. But when you have things that impact can make a meaningful impact on climate change, that there's going to be demand. If there's going to be things that impact health and wellness. There is going to be demand there. There is this overarching anxiety. But at the same time you do sound really optimistic, as as Carol said, but there is a lot to be

concerned about. We've got concerns about the recession here in the United States that milk, and we heard a lot about a potential recession in Europe and concerned about the customer in Europe. What what keeps you up at night? What concerns you right now? Our biggest challenges keeping up with the demand. So clearly we understand the concerns around recessions. Um and you know, we all kind of read about it, and you can understand some of the underlying reasons why

there is that anxiety. But canceling orders, no one's canceling orders are demand has you know, our biggest challenge right now is truly keep you know, we have chip shortages. We're working around the clock to rectify those. But as we operationally perform, we're making share because we're able to support our customers better than some of our peers. We

are managing inflation. We came into the year saying that we would get a five percent price increase, a billion dollars on twenty billion of sales in anticipation of a billion dollars of inflation. The only good news with the anxiety that folks have about the economy is some of the commodities have recently been coming down, copper, steel, aluminums.

So if we can keep prices at the at the raised levels that we've done, and if we get some relief on some of the commodities, that should drop through with some margins. Date based on what you're seeing in terms of commodities, I thought that was a really important point. Do you think we have hit peak inflation? Um? It's hard to call that because I you know, every time we feel like it's peak inflation, the next quarters worse.

So UM, I could tell you that. Um, we have seen over the last few weeks some relief, but it's really hard to anticipate what's going to happen a few quarters from now. You know, we've been able to now stay out in front of bits. So we've been very, very aggressive because last year we came. Last year we chased inflation all the year with pricing. This year we said we are not going to chase inflation. We are

going to get out in front from pricing. We have get pricing in the first quarter, and we're very confident that we will do very well on the pricing side this year. Dave, very briefly fifteen seconds. Our high energy prices actually good for you because it compels people to upgrade their systems to more efficient ones. Yes, that does. Overall, that does drive demand for more energy efficient solutions, which is actually good for our business. It's the only business

where more from oil and energy companies. Right, you have to think about that, right, You've got to really think about how all the different markets. Um, Dave, thank you so much, really appreciated, Dave. Gitlin Sherman, CEO a carrier joining us here in our studio. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. All right, we have about ten minutes left in today's trading session. Man, talk about a

volatile one once again. Up down, up down. Yeah, it's a seesaw market, is how I'm going to describe it. We're definitely off our lows, as we just heard from Charly, and really interesting to see investors coming back into the market. And I think this is the trade we continue to see tim as investors trying to figure out, at least

on the equity side of things, where is the body. Yeah, that's exactly what we talked about with Equities Reporter, just meant in a little earlier sharing with us some key technicals, but we are above those technicals at least as of today. Let's get into it with Chris Zaccarelli, the chief investment officer at Independent Advisor Alliance. Chris joined us once again on the phone from Charlotte, North Carolina. Chris, how are you doing well? Doing well? Thanks for having me back.

Are you doing well? This market has been pretty tough for a lot of people. Well, I mean, I think the market has been a challenge, absolutely, and clearly we've had a lot of volatility, but I think it's not completely unexpected, you know, given what I had A reserve needs to do you to get inflation on our control. We can't say we're surprised, but obviously we'd love to get through this period of market turbulence as quickly as

we can. Unfortunately, there's nothing we can do to control it, so we just have to ride through the volatility or in the fifth week of that market volatility. So here we go two. Uh, what is it out there on the horizon? Fundamentally that maybe gives you hope that you see some sign of a conclusion at some point later on this year, or do you feel like the visibility is not so great right now? Well, I think we're

definitely in the bearer market. You know, clearly we're not in the technical definition of downs from the all time high on the SMP, although we continue we got really close today, Yeah we did, we did absolutely um, but you know, ultimately we think about it in terms of this kind of qualitatively. You know, the the idea of a buyer market is that investors to see everything as glass half empty, and that's clearly where you're where we

are now. Some things that would give us confidence on the positive side of things is that, you know, the consumers still has a lot of cash on their balance sheet. Uh, companies are are equally pretty well capitalized, and so we're heading into a more difficult time where the feed is raising interest rates, but the economy for all intensive purposes, with the exception of obviously inflation being a challenge, is

still on pretty strong footing. So for that reason, we feel pretty confident that you're not going to see a recession this year, now, next year, or the year after. Obviously that's anyone's guests, and unfortunately, as the Fed begins

raising interest rates, the probability recession increases. But as far as from a positive point of view, the idea that we're not going to have a recession this year could potentially provide a floor under the SMP and and we won't drop through um pique, the trough um drop the you typically see with a bear bear market that the companies work. Yeah, Vincent derelebrating the Fed is not, as critics like to say, behind the curved, is actually way ahead of it, and as such, on the verge of

a major policy mistake. So he's certainly concerned about the Fed over doing it. You mentioned Chris consumer balance sheets, and yes they are flesh and heaven flushed because of all of the government stimulus. But that's not gonna last forever. Yeah, that's absolutely right. And actually, if you think about it, part of the reason why we have the inflation problem we have now is because there's so much cash in the system, whether that's from the federal government spending or

whether that's from the Fed reserves balant sheet. Clearly all of that fiscal and monetary stimulus provided the precondition such that you know, supply chain issues, need other things that eventually started started the process. Going not to mention the war in Ukraine, but ultimately with all that cash, it does set the seats, or does set the tone for inflation, and so at some point consumers are are going to need to pair back on what they're purchasing. They're gonna

have to make harder decisions. Ultimately, it just won't be a blanket statement that the entire stock markets you go down. You're gonna have to pick winners and losers. You're gonna have to look at those companies that are likely to be to have pricing power and to be able to make it through a recession if there is one. And I think that's what we're looking ahead to, not just watching the market as a whole, but looking at, you know,

a market of stocks instead of just a stock market. Well, well, Chris, help us understand how you're thinking about opportunities right now? Are you putting cash to work? And where are you putting cash to work? So we've bringised a good amount of cash earlier this year in the concerns that we'd have a lot of volatility, we've been slowly putting cash

to work. I think, unlike in where there was v shape recovery and it would have been very difficult to put cash back to work, this has obviously been a slower, slower process, and as Carol mentioned, you know, we're five

weeks since of volatility. We think this entire year will probably be full of volatility because ultimately the volatility is being caused by uncertainty around inflation, uncertainty around set policy, and then ultimately uncertainty about growth, and we don't think any of those things will resolve in the near term,

so there's gonna be a volatility. We do you think there's opportunities for the market to bounce, as I point out in the note, so I think there's been a lot of bear market rallies that have been very sharp.

As far as the things that we've slowly been putting back into the market, we've been looking a little bit more defensive positions in terms of healthcare providers, where things that we think will make it through recession, and we've added a little bit more cyclicality as energy and some of those commodity complexes has sold off in recent days

on growth ears. We've added a little bit more to our portfolio because we think inflation will be a little bit more persistent that people are thinking even though the fet is raising rates, not hearing any of the high flying tech names. Now. We we we reduced a lot of our tech exposure last year. We definitely were concerned not only evaluations, but also have the idea that you know,

tech and some of those longer duration assets so to speak. Um, we're doing very well at a low interest rate environment and they've had they've had, you know, tail winds for over thirty years. But we did think we were going to move into a new regime of interest rates moving higher, and as such we paired a lot of those a lot of those positions. By no means are we underweight technology, but we had naturally gotten overweight technologies I think everyone else.

That's just from the market appreciation, and so we just rebalanced in order to bring that back to a more market weight rather than necessarily a market overweight. And so obviously, given the way things have happened this year, that's turned

out to be a good thing. But if we do add into recession, which we do think is likely in the next year or two, some of those technology names, like the ones that you're seeing selling out today, those really big tap cap tech, the ones that have great balance sheets, that have pricing power, that have a you know, really great business model, they're the ones that are likely to probably do well for the next resession. So that's the can underm. I think people find themselves in all right,

Gonna leave it there. Hey, Chris, thank you so much. Chris Scarelli, chief investment officer at Independent Advisor Alliance. They are a registered investment advisor, and he joined us on the phone from Charlotte, North Carolina. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News.