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