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Bloomberg Intelligence Radio. All right, let's get back to those consumer confidence numbers, because we continue to see the soft data disappointing, yet we do not see that within the hard data dot dot dot. Yet consumer confidence falling to a two year low. From more on this, we are joined by Stephanie Guichard, senior economists at the Conference Board. She joins us, Stephanie walk us through this two year low. What was behind it?
So the index fell seven point two points to ninety two point nine, and as you said, this was the lowest since August twenty twenty one. What's important is that now this okay, this was the fourth decline, and now the index is below that trench in which it has been overeing for the past two years. So it's clearly
a week reading. What has been driving the decline is especially the expectation component of our index, where we see consumers negative about the future of the labor market, future label conditions, and importantly getting less more and more worried about future income.
So, Stephanie, it seems like I would think one of the key issues here would be job security. And it seems like the job market is still the labor market's still pretty strong here. But is this just investors kind of taking in the day to day news flow and kind of putting that into a confidence kind of expectation.
No, So for the current situation of the label market, I mean, consumers agree that the label market is still or actively strong, but looking into the next six months, we are getting worried. We're getting worried about the label mart in general. And what's interesting in US survey is that they're also getting worried about their income, which means that potentially about getting worried about losing their jobs in the next six months.
Interesting that it's the labor part, not the inflation and rising up prices part. Where did that play into this?
So we don't ask, especially, I mean, in our index we don't cover inflation directly. However, I mean we know and it has been the case for the past two years, consumers are not very happy about the level of prices and about the fact that inflation has stopped slowly. So that's I mean, this is clearly playing into consumers' mood, but it's not captured fully in our index because we focus on labor market, business condition, and future income.
So I'm looking at the conference board.
The expectations number came in at sixty five point two versus seventy two point or actually seventy four point eight last period, give usus a. Is that an order of bagnitude? Is that concerning?
It?
Is? I mean, we need to see whether this is getting confirmed next month, because as you know, the centex is going up and down on a months to months basis. But this is the lowest reading for the past twelve years as far as expectations are concerned.
All right, one more questions as well. Do you do you do the survey? Is there any distinction between those that identify as independence, Democrats or republicans or is it across the board?
So the survey is across the board.
Meaning that the respondents identify across all of those three bases. So we is that what you mean?
So we yeah, So the survey, the consumers, we survey across the board. They we have, you know, the different political groups covered. This is a representative sample of the US population.
All right, definitely really appreciate it. Thank you so very much. Sepnickie Schard joining us from the Consumer Conference Board. She is a senior economist over there. After that drops to a two year low. But again we got a wait to see it in the hard data for us to suffer things to then affect sort of the real economy as well as the equity market and bond market, et cetera.
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We had some home building news out today. New home sales came in kind of just a smidge blow expectation six hundred and seventy six thousand versus six hundred and eighty thousand. We also had KB Homes report some earning to day that we're a little disappointing to the street. This stock is down five percent. Let's check in with Drew Reading. He covers all the homebuilders for Bloomberg Intelligence Drew. Let's start with the new home sales number, six hundred
and seventy six thousand. It's again kind of just a smidge blow expectations, but a little better than last month. What's an industry look like, what's the market look like these days?
Yeah, so we're about up about you know, two percent, give or take month over month and year overy year. We've kind of been bumping along this mid six hundred thousand annualized pace since mid twenty twenty three, so you know, demand isn't necessarily bad, but we're not seeing that lift that we had hoped coming into the year. So overall, the start to spring has been very soft, as you would expect. Affordability is still the biggest challenge out there
in the market. Home prices are up fifty percent, Mortgage rates have come down, but they're still in the high six percent range. And what's interesting now that we're starting to hear more and more and kind of corroborated by some of the data this morning, is that declining consumer
confidence is becoming more of an issue for housing. We heard it from a number of builders, we heard it from KB Home last night, and it's you know, consumers are more concerned about the direction and growth in the economy, perhaps more concerned that their job isn't secure. So I think that caution is all also contributing to the softness we're seeing in the market.
So that's so interesting because we talk a lot about the sentiment data and how that has to translate into the hard data, and we think one thinks about that more in terms of like retail sales or GDP. But your hypothesis from the read through we get we're getting from the actual homebuilders is that that's actually translating into putting the pause button now.
Yeah, I think you have consumers out there who are saying, maybe now is not the best time to make such an important and large decision. You know, we've also heard it from the home improvement retailer, so people in the repair remodeling market are delaying large ticket discretionary projects.
You know.
A lot of it has to do with the fact that coming into the year, consumers were expecting rates to come down. You know, if they come down a little bit since January, like I said, down about fifty basis points, but I don't think we've gotten the relief that they need to see what's interesting we heard this from Lenar last week, is that they're having more trouble qualifying buyers.
So maybe people have the down payment and they can afford monthly payment, but their overall debt levels just because of everything else that they're having to deal with the cumulative impact of inflation is getting it a little more challenging for them to qualify.
So we heard from KB Home they reported today I see the stock down five percent of the fifty two week low. They also, I guess called out home affordability. What's what's gone on to KB?
Yeah, so sentiment coming into the quarter was already pretty low across the space, and you know, they fell short of those expectations. Orders were down seventeen percent. They had guide it to orders being about flat, so a pretty significant miss on the order front. So they also cut their revenue guidance and their margin guidance. And the reason is, and this is something we're seeing across the space, more incentives,
but they're doing it on the home price front. So they're reducing base home prices, which has been less common so far in the industry. They've cut prices in about fifty percent of their markets by an average of fifteen thousand dollars. They said that ranges anywhere from five to thirty thousand dollars. And what's interesting is they mentioned that they're having to get more aggressive in markets in Florida, which is something we heard from Lennard as well.
That's really interesting. Also quite a big number when you mentioned that the worry about higher rates, right, and everyone's kind of expecting lower rates this year or the end of last year and didn't materialize. If we just sort of normalize around these levels, what's the lead time until consumers say, oh, okay, I can make I can be okay with seven percent.
Yeah. I don't know how comfortable people are going to be with the seven percent mortgagery. I think you need to see maybe something in the low sixes. You know, we've heard in the past that anything with a five handle from the builders has done well. But I think, you know, I think maybe the way forward might be for at least for the builders is on home prices. Prices are, like I said, fifty percent above pre pandemic levels, and I think people are just having a lot of
problem with that. Maybe there's a little bit of fear of buying at the top of the market that's holding them back. So again it goes to not only the confidence issue from the economy, but how confident are they in the sustainability of these elevated home prices. So rates are certainly a big component. As rates come down, you'll see that marginal home buyer come back in. But I don't think that's the only factor that's holding things back.
All right, Drew, thanks so much for joining us. Drew reading homebloading analysts for Bloomberg Intelligence, joining us from Princeton, New Jersey.
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Looks like the markets are kind of stabilized here.
We had that Peaka trough pullback of about ten percent, and we've kind of been kind of bumping along, rolling a little bit two three percent off of that bottom.
Here.
Let's check out where we go from here.
Grace Lee, Senior portfolio manager, Columbia thread Needle up in Boston, joining us via that zoom thing. So Grace again, peak to trough on yes and P five fund. Just a few days ago we kind of hit a ten percent correction level.
We bounced a little bit here.
How do you think about the market these days?
Well, I think the market did have a healthy pullback. It was probably necessary after a couple really strong years, and it's it's probably warranted given all of the uncertainty, particularly with the Trump administration coming in not even one hundred days in and all of these these changes and executive orders and caraff threats and then pull back some
on care for threats. So this is all I think, just part of a healthy digestion process, and I think it also might be heralding, you know, a shift in where investors might be looking for the next opportunities after you know, a huge run in, particularly growth stocks, which.
Begs the very unsophisticated question, is it a sell the rally or by the dip scenario?
Well, I think it's it's it might be a little bit more nuanced than that, you know, it might be more of a rotation by the dip in other uh, in other sectors, in other companies that that investors may not have looked at previously. It's not necessarily going back to the same things that have worked in the past. I do think the the market deserves to broaden out and is broadening out. And I think you can see that already. You're to date in the bifurcation between let's
say value and growth stocks. You know, value investors like myself actually think things are are looking okay and feeling pretty decent in the market. You know, I think my
growth peers maybe not not so much. But I think that you know, again, I think investors have maybe lost a little bit of their muscle memory and looking at at things that are not growth and momentum and tech, and so I think, you know, aside from from you know, selling the rally or uh, you know, or or rotating into the same old things, it's it's really you know, rotating into other things that that have not worked as well, and you know, are looking extremely inexpensive and actually attractive
right now.
Value versus growth, where do you see the opportunities here? This has been a market that's been driven by tech and the MAC seven for a long time.
How do you see it going forward?
Yeah, I think I think this might be the year for for value stocks. It is starting out that way,
and I'm pretty I'm pretty optimistic about that. I think that the setup is actually very good for for value stocks in that you have had a couple of years of very strong growth driven markets, and and I think you're starting to see a little bit more hesitation on even things like the AI trade, and so for investors that want to hedge a little bit, take some chips off the table, not necessarily put it all in European stocks.
You know, there's there's ordinary American stocks. I think people talk about is American exceptionalism over because of let's say deep seek. I would say that, you know, I think if they refocus on the American ordinariness, you know, the core companies that that make up the big base of the economy, you know, the bread and butter, and this is this largely pertains to traditional value stocks, you know, and these are the companies that put up reliable singles
and doubles. They're usually not going to hit it out of the park. But you know, but I think that that's the area that again is starting to perk up this year and probably has some runway here.
So that whole idea grace that Tina there is no alternative. That's why you have to buy us docs. It feels like Tina doesn't exist anymore. But that doesn't necessarily mean sell you stocks.
Right right.
It's just looking at again the ignored sectors of the market. I mean, could you if you could believe that the energy sector is up I think close to eight percent year to date, you know, and that's even with UH knowing that that OPEC plus might have a lot more oil coming on the market. So there's a lot of areas that have been really ignored by by a lot of investors who have really crowded into the growth tech
space for such a long time. And you know, and I think it's looking at value stocks as not just a you know, run for shelter, but also just a good place to find you know, interesting companies UH and and sectors that are going to work you know in an in a moderating growth economy me which I think is what we're going to be seeing not necessarily recession, although if we do go into recession again, that a lot of these value and defensive stocks will work better as well.
Right, all right, Grace, thank you so much. I always appreciate getting a few minutes of your time. Grace Lee, Senior Footfallway manager at Columbia Thread Needle.
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I think we've gone several days with that really talking technology that's.
Not like us.
It's been like a full twenty four hours, is it?
Yeah?
Okay, yeah, well we'll counting weekend.
It's like seventy two exactly.
Mandy've sing joins us, he'll fix that right away. He's a senior tech analyst for Bloomberg Intelligence.
A kind of the news that got our tension a little bit.
Is Bloomberg News reporting tech chiefs foreign leaders urge President Trump to rethink AI chip curbs. What is the current understanding of how towers may impact.
The global chip marking point?
Because when I think about a global supply chain, chips is certainly right there.
Absolutely, And look, I think the earliest export controls go back to twenty twenty two when the Biden administration imposed controls on Nvidia kind of shipping their highest end chip to China. So at that time it was really restricting their interconnect bandwidth because remember with AI, all these chips are used as a big cluster, so they thought that could prevent you know, China from using the latest Nvidia chips.
That didn't suffice, so then they added kind of a new form of restriction, and then the diffusion real rule came into play, which was almost one hundred and sixty eight page rule around like how Nvidia is supposed to ship their latest and greatest chips to three different sets of allies in terms of you know, countries that have unrestricted access versus the ones where China could use them as a proxy to get access to the chips. So there were different sort of clauses in terms of restricting
the access to those chips. But at this point, you know, given we keep hearing about Chinese llms and group being the latest one releasing their own LLM at low costs, It just goes to show that even with all the restrictions, it hasn't really impeded their progress in any way and they are able to, you know, build on whatever they have available.
So to that point, do chip companies that are like, hey, just let us get a piece of the pie that's already going to build no matter what, or are they really losing revenue from this?
Yeah, So there are two sides to it. One is, if you ask an LLLM company like open Ai, Sam Altman has said, had it not been the export controls, they would be more undersupplied. Remember this market has been undersupplied for a very long time. Everyone wants more GPUs that they don't have access to. If the export controls were not in place, these companies would be even more undersupplied.
But the other side is Nvidia is saying I'm losing revenue because I have got, you know, twenty percent revenue exposure to China. It's getting lower and lower to the point that it will be less than ten percent now and I'm losing potential revenue that I could get by selling my chips. So there are both sides to it. But I think the fact that this market is undersupplied means that Nvidia does have you know, somebody to buy their chips, and they continue to command premium pricing for that.
Do we have any idea where China is in terms of developing their chips, where their technology is.
Yeah.
So with the latest Group model release, what they said was they were able to bring down the pre training costs by twenty percent by using not just the chips that are available from Nvidia, but also their homegrown Huawei chips or you know, AMD chips. So they talked about a heterogeneous computer architecture and using that for pre training.
And look, in the end, everyone is looking to optimize the infrastructure, more so in the case of Chinese llms because they don't have access to the latest and video chips, which give you more performance per unit of power than any other chip company can provide. So from that perspective, I feel they've done well in terms of using what's available. But clearly I think the US based LLM companies have an advantage given they have the best performing chips and
they can train their models much better. They can use it for reasoning, so it is an advantage at the end of the day.
That's what I was asking for and and deep seek, etc. Like Are they accurate in the same way that LM models in the US are accurate.
No, I think the OpenAI models are way better when it comes to the reasoning capabilities and really the multimodeal capabilities that everyone cares about. At the end of the day, the use case for AI is not just a tech space prompt risk sponds. It's much more than that. If you're talking about AGI, and you know, everyone feels like we can get to AGI, it's it's not just tech space. You need audio, you need video, and the Chinese lms are still way behind when it comes to the other modalities.
Right, let's be honest, you and anurag build a career on seven stocks. Basically the people still want to talk to you about the MAG seven or is that just passe?
Absolutely? I mean you can't really talk about the indices without these MAG seven stocks. So, no matter what happens to the market, these are some of the best companies when it comes to generating free cash flow. And look, they have tremendous modes so and they drive the marks.
I just feel like that, you know, fifteen percent or so drawn down in the MAG seven's is that temporary there's still that has knock anybody's confidence in those names.
Yeah, it's still the prevailing sort of sentiment that you know, you buy the dips on these companies because they just are fantastic when it comes to generating free cash flow.
Well, what I keep hearing a little bit though, too, is that where these things are built, like the data centers and how you power them, that's now kind of up for grabs. Like we know that they're going to work obviously in like Virginia, but are they really going to work in Texas? And are they really going to work in like North Dakota, And they're really going to work with all this energy? So it's like how you get it done? Feels like a question, But that shouldn't
affect the actual cap expend or the demand. That's just sort of the back end part anyway.
Yes, So the second to play that everyone keeps talking.
Yeah, and that seems to be where the question marks are. Mandeep always a pleasure man keeps saying Bloomberg Intelligence senior tech industry analysts. And I should point out that spokespeople for the White House and Commerce Department did not respond to requests for comment on the story of tech chiefs and foreign leaders urging Trump to rethink some AI chip curbs.
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