Holiday Shopping And 2021 Market Outlook

are out there spending. Let's get some more color on all of that, because I haven't done any holiday shopping. But Mary Shore, senior equity analysts for Columbia Thread Needle Investments Joints, is, Marie, how's this holiday shopping season shaping up for the retailers? Thanks so much for having me. The holiday shopping season has turned out very positive so far. We heard that from companies as they reported through November and over all of you on the consumer remains very positive.

Um the headline trends over Black Friday were a little more mixed, but I think what we're seeing is that the shape of the season this year is smoother than what we've seen in the past as consumers have prioritized their shopping earlier. But this is not necessarily a bad thing because that does help maximize full price selling and

reduces operational stress for the retailers. So are they getting all the stuff that consumers need, our consumers finding the stuff they're searching for, or is there really this um you know, lack of goods and a rise in prices. That's a great question because we've heard so much about

the supply chain disruption and congestion that continues. But all things considered, I think the companies have done a very good job, except for a couple of companies with large exposure to Vietnam, companies have been able to build inventory into the holiday and they're confident in their ability to meet demand. Of course, this is all coming at a cost, and the companies have now built extended lead times and higher freight costs into their plans through the first half

of the year. But I would say outside for a couple of key items like maybe some gaming consoles, consumers should still be able to find what they're looking for as we move into the final stretch. So Mari, am I going to get any deals when I start shopping here, How let's the promotional environment out there? That's another great question. Throughout the pandemic, we have seen the retailers reduce their overall promotional activity as they have planned inventory in a

very detail, in a very discipline way. And now I think they all realize that they tend do more with less and actually drive higher margin dollars with less inventory. And so the net results of that will the lower promotional activity I believe for the foreseeable future, and that really should be across category, and it's a reflection of not just the near term supply chain congestion, but also the fact that retailers are just doing a much better

job of managing inventory. Alright, so what kind of inflation are we seeing? I know, Friday, we're going to get the CPI UM numbers out, so we'll find out soon enough that basket of goods. But in terms of you know, um, what what consumers are really feeling? How high is it? Well, it is hard to measure, and of course it does

vary by category. There are certain categories like food where we're seeing inflation currently running in the load to mid single digit range, but in other more discretionary categories where there is limited supply, their strong demands driven by strong

product innovation and low or promotional activity. As we discussed, you could see inflation um or you know, net pricing rising above those mid single digit levels, but it is hard to measure because some of these categories the consumer is not buying as frequently, so it's in some cases more difficult to notice the pricing increases. But overall, the companies have seen a really positive response to the pricing that they have taken, and there really has not been

very much pushed back from the com humor. So mar again, when I drove by my local shopping mall a couple of days ago, it was full with shoppers. But I still have that question, is the United States still overstored? Is there still too much you know, kind of too many stores out there, and we've got to reduce the footprint even more. It's a great question. I think that really coming out of the recession, the companies has tried to take a closer look at their store basis and

close on profitable stores. Um. During the pandemic, we heard about like the department stores for instance, coming out and closing hundreds of stores. So what I would say in terms of the store rationalization that still needs to happen, I think a lot of the heavy lifting has already been done. But going forward, we will continue to see select and strategic store closures as companies focus on their

most profitable doors. All right, So that's what we that's what we see UM, certainly in the car industry where they focus selling the highest margin products UM and leave

the other ones aside. And that's what we're seeing, I guess across other industries as well, right Mari, Yes, absolutely, As as I said, the companies are very focused on maximizing margin rate and margin dollars, and so they are doing a better job of streamline not just their store bases, but also they are assortment their product assortments UM to focus on the most productive and the highest margin skews. Mary,

thank you so much for joining us. We really appreciate getting your perspective here on retail sales as we head into the whining days of the holiday selling season. Mary Shore, senior equity analysts for Colombia Thread Needle Investments. You know, when the Omnicom news broke, the markets obviously sold off pretty significantly. They bounced back with a vengeance, vengeance, very

very quickly. And it's kind of getting to the point now where the investors are almost immune to some of this uh pandemic news flow that we've been dealing with for our past twenty months. And see what we're hearing down in the trenches. Shawn Snyder, head of investment Strategy for US Wealth Management Group at City UH Sean, thanks so much for joining us here. As you talk to your clients, what are they saying about how they're digesting all this pandemic news because it doesn't seem like it

has the same effect that it used to. Thanks for having me. I really appreciate it. I do think that investors have developed some sort of herd immunity against COVID news um. You know, I know we retired the word transitory when it comes to inflation, but you know, it seems like they're kind of looking at omnicrom is maybe something that's transitory. And you know, there has been some

positive news, you know, about the variant. It's hard to say the variant is positive, but you know there's some news and antibodio therapies appear to be effective against omnicrom um. You know, hospitalizations appear to be held in check so far, you know, got a lot of the suspeculative, it's not you know, actual confirmed data, you know, and the symptoms seemed to be more mild. And I think, you know, we heard about the third dose regime potentially neutralizing the

variant this morning. But I think perhaps even more importantly is that it looks like the current vaccines may protect against severe disease. And I think that's a really important point that we need to consider. Yeah. Absolutely, I mean, as long as all all it does is infect a bunch of people and um doesn't put very many in the hospital, then it's not as scary, right, all right.

And Plus, if you think the United States has a you know, sixty percent of its vaccination or six pc of it's population, uh fully vaccinated, you know that, then you know, we're the real problem that happens with these waves is the surgeon hospitalizations and seeing healthcare systems overwhelmed. And that's really why you need to enter lockdowns and

that type of scenario. But if we're not seeing the surgeon hospitalizations, UM, and we're not seeing seeing severe disease because people have at least some protection, UM, then they're you're less likely to go back into that renewed lockdown scenario. It's less likely to have a large impact on the economy, and I think that's why markets are know, have sense to recover it in just eight days. I do have to say that I was planning on working from London next week and I and now I am no longer

going to. Even though I was going to work in London next week, but now I'm not going to. Why not? Because the omicron variant is spreading like wildfire. And even though I'm vaccinated, um, and even though I'm not afraid I would get seriously ill, I don't feel like getting it. You know, I would have to sit on a plane with a bunch of people. I'd have to wear a mask the whole time. You know how much I hate that. Um, I probably have to wear a mask in the London

office everywhere I go. I don't want to deal with that. I'd much rather just stay home. So at least, you know, anecdotally, some people are changing their plans like me. Interesting, all right, So Sean, given that kind of backdrop, what are you telling your clients these days? Well, we're actually focusing on a couple of things. We're telling our clients to essentially upgrade the quality of their portfolios. And you know, we've

sort of bucketed that into two different core themes. One is long term Leaders and then the other one is uh sort of be where the cash thief. And so long term Leaders is focused on companies that are our leaders in their industry, ones that tend to have um long term growth prospect growth prospects and you know, stable revenues. And it happens to be the technology, health care, and consumer staples are the three sectors that often pop up

the most in that quality bias type bucket. So we like that those areas and when it comes to beat the cash thief, what that really means is that, you know, their clients often think that if inflation is going to be high, you know, then maybe that's bad for the equity market and that I should move into cash. But that's the wrong thing to do because what happens is when you move into cash, you're effectively losing uh six of your net worth, right if it's all in cash.

So what you should do is you should actually be into equities because they tend to beat inflation over a long creative time and earnings. Corporate profits are the key driver financial markets, and that outpaces inflation more often than not. Just look at this year. We have a six point two percent inflation rate currently come Friday, maybe closer to seven. But equity to return. So you know, in some ways, if you want to maintain your net worth, you you

actually should move into equities. All right, John, We're gonna have to leave it there. Um. I really appreciate your thoughts there. Sean Snyder, he's head of UH Investment Strategy at City's US Wealth Management CD. You point out his previous experience as well. Previous experience former he was a budget analyst at the White House. Wow, very cool, that exactly all right. Let's check in with Mike Vogelsan, chief

investment Officer and managing director for Cap Trust. I'm gonna get his thoughts in these markets, but I want to start, Mike with your thoughts on you know, the pivot we saw from the Federal Reserve last week, accelerating tapering, talking putting. You know, interest rate increases right front and center here. How do you view that given your outlook for two how did that shape or reshape your outlook? Yeah? You know,

it's um good question. First of all, I think it is a really important pivot point in the market and the psychology of the market. Uh. You know, understand that the the our opinion is that the while the economy is doing terrifically well, most of the upside has in the in the stock market, and certainly the high valuations were in have come from from excessive and very abundant liquidity is a better word, um, from the Fed of course, and and and stimulus and so on, but specifically the Fed.

And you know, I think I think once we saw H. J. Pow as we like to call him, um get you know, clear up his nomination and renomination for the position. Uh, you know, the fact they became a little more um, a little more hawkish on on interest rates, I think is uh it tells you what he's really feeling. We think it's a it's a it is a pivot, and it is a bit of a signal change here to say,

you know, the going is going to be tougher. Um. He clearly thinks that, you know, things are too easy and too loose, and so we fully expect to be a little more difficult market. Not saying there's anything major. We're not calling a massive correction, but I just think the easy money has gone, and I think it would make some sense to pay attention to what the Federal Reserve chair says when he when he starts to think

about about tapering and raising interest rates faster. You know, I think back to our interview UM yesterday on Floomberg Radio with one of the big investment legends, Peter Lynch, who said, those of you who are going all passive are going to really miss out here. And I know this is something that's cyclical, right, active versus passive, But are you saying is a year to be active as well? I think things exactly right. We we we like that

trade a lot. It's been a it's been a megacap saying lead stock market, and most managers have been systematically underweight, uh, you know, the entire array of super super large cap MEGACP stocks and and so you know, we think, you know, the valuation disparity there is also exceptionally high. So we think that that um, a lot of the action is going to come from the active side of the equation.

We we we uh, just just because the market is likely to be broader and there will be opportunity in places, whether it's cyclicals or whether reopening trade or whatever. Uh, that that will allow us to take some take some market share back in the active space as opposed to the passive led by the megacap stocks. Right, the passive, the passive valuate, the passive geminy, if you will, is really dominated and driven by by the megacap stocks doing

so well. Because it's just hard as an active manager and I've been an active manager for tw through two years, it's really hard to get enough of that stuff in your portfolio, uh, to to overweight the benchmark that you're that you're trying to beat, right, and so it's a it's been a hard situation. I think it's going to reverse. Uh. Going into going to I will say one thing. You know, the market normally anticipates economic activity by you know, six, twelve,

eighteen months or whatever happens to be. Um. I think one of the really interesting patterns in today's market is that is that it has been trading coincidentally with COVID, with COVID rumors, right, UM, I mean it's so so making making projections for it's really hardly a well that's why that's why we have smart guys like like you on to try to give us a little bit of guidance. Here,

we're gonna be actually leave it there, Mike. Mike Vocals, chief investment Officer and managing director at Cap Trust based in Boston, Massachusetts. Kind, we've had some tremendous, you know, kind of one to three, two and a half percent moves in these markets. As a markets try to discount this new variant out there and what it means for the economic recovery. Let's check in with a professional if in debt, Chief investment officer of Manetta Group Efan, Thanks

so much for joining us here. Boy, let's just take the last seven days when we really started to get some news on this omicron variant. How do you think the market kind of reacted to it? Did it? Did it feel any different than what we've been dealing with or the past twenty months? It did? This downturn we saw on markets definitely sounds a little more chilling um it sells. We saw a lot more severe drop off and some of the stocks that perhaps had been leveraged

to the economy reopening. And I like the way it was described in something I read recently as a debate. It's almost as if the market is having a debate. It's debasing what the impact of omecon is gonna be. Um, it's debating whether inflation is transitory or not. And in a way, the way we see the volatility markets, we see each side of that debate making their case. It's interesting that we well, we're looking for six point seven percent inflation on Friday, the highest since when Olivia Newton

John was topping the charts. Um, is this you know? Is this going to come back down next year? We're all riled up right now about Powell's pivot hawk is pivot um, but are we going to see inflation coming back down to the threes two? It's really interesting on six point seven is certainly going to just from an optical soundpoint for the shop markets, because we already had the highest level of thirty one years of the last at the last time where we lived at the numbers

of six point two. So what I think would be really interesting is to look beyond that this this week's results, because well, we have seen a drop in oil prices and that's why I think the week, the week we've seen has been more notable in terms of market fragility, and I think making the hate that markets have been stubbornly resilience up to now. They seems to have been resilient around any news, the potential government shutdown, geo political news,

even the news of the delta variance. They were relatively resilient around that. The travel curbs that came in and the fact that we're right in the middle of winter that certainly did and more of a chilling message to true markets. UM on the frigility. So, just as I mentioned the debate, I asked myself the question whether markets can be resilient and fragile at the same time. But to where we see inflation going into next year. Certainly there was some of the the acute supply tinch cane

shortages and bottlenecks should be easing. Um, we will probably see after the summer and easing of demands which would should also bring prices after the holiday season, and using of demands which should bring prices in. And again the oil price and energy prices filtering through will have a

more muted effect going forward. But it was interesting that the timing of German powers, the discussion of the removing the bird transitory and who suggestions that they would be speeding up the papering that actually was what was probably the worst timing given where markets were feeling anyway, given the Omicon news. So because of that, we think that's already been based in now because that essentially have we now have a sense that the said maybe moving faster

than we thought they are getting concerned. There's point of that before, kind of trying to control inflation from the top, and that has actually now been built in. I don't expect further pronouncence of that nature to shop markets, um and we most likely will be looking at a lower rate than six point seven percent going forward, but certainly higher than we've been used to enjoying around that two percent historically. All Right, so given that backdrop ethan, what

is your outlook? We believe that this will continue to be a good market. With stock pickers, we're focused not only on the fundamental nature of eclonic markets from where they are at today, but also some of the technical factors. We cannot ignore the vast amounts of money that have been pumped into the system globally, but particularly in the US, where that money has not been safe but has instead

been touched into risk gasses. So there is a record amounts of money and money market funds who saw them in the reverse repo markets, record amount of transactions that that suggests that there is money on the sidelines and as a results, when we did have gips like we did this week, even chilling ones that were a little more severe than we were used to, they close up melatively quickly. There is a desire not to miss ouse,

to to buy on the dip. There is a lot of retail activity and all of that is focused now around and propping up equity markets. I see that that technical factor is not going to go away because that should supports equity markets going into two to what I see in terms of sectors and very focused um because of my European routes on on what we saw coming out of a Glassgow in top twenty six, so where

we saw, now what's the road from Glasgow. We're definitely going to see more capital flowing through to renewable energy, to climate change focus strategies, to e f G focused funds, and those sectors such as electric vehicles. We seeing the huge momentum that it's surrounded. It stops to Tesla as well as the car rental companies when they simply say

they're going to add evs to their fleet. So that's kind of almost Meanlike momentum indicates that there is clearly a sense that this is going to be a sector that will have a lot more focus in the future. So I'm looking at all those factors that are likely to benefit from what came out of cost PTY six. All right, Evan, thanks so much for joining us. Ethan Devitt. There is actually the last five years in a row ranked in the top ten by barons among independent pretty

registered investment advisors. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On false Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.