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the Bloomberg Terminal, and the Bloomberg Business app. All right, let's go to a pro here. Quincy Crosby, chief Global strategist at olpl Financial. Quincy, thank you so much for joining us here. What do you make of what transpired from the close on Thursday to where we are here?
Well, you know, you could attribute it to the.
Unemployment number jumping. Its skipped four point two, went right to four point three. Expectations were that it would remain at four point one, and there have been concerns. Even Powell mentioned at the press conference that they are I don't know if you use the word monitoring, but it was close to that the employment landscape, and he has been invoking the maximum employment mandate over and over again
over the last month or two months. And now he's got a situation in which the market believes that the push in the unemployment rate, which in and of itself isn't But he even talked about four point one was still a strong, a resilient labor market. While we jump up to four point three. The question is is this the harbinger of a labor market that is going to weaken at a faster clip, because that's what the historical pattern suggests that once you start moving up higher, it
continues to move up higher. The other thing with the initial unemployment claims and also the continuing claims, and that is worrisome because you can argue about the participation rate all of that, but when you see that people cannot get jobs, it's harder and harder for them to get jobs. You have to look at this employment landscape and wonder is there something deeper going on? And you don't have to be a PhD economist to figure it out. Yes, there is.
Companies may not be late.
So therefore you had that and that was by the way, in conjunction with the manufacturing ISM manufacturing report that has been deteriorating. Even at a faster clip. Today we'll have a bigger picture on the services you.
Have to get those ISM services at ten o'clock, which I love that indicator as well. You know, it didn't take Wall Street banks a lot to jump on this. I mean, within like hours we got GP Morgan, we have City Look, fifty basis point cuts for September and November, and then twenty five basis point cut in December. Other banks sort of added on to that, is are those kind of calls justified?
They'll only be justified if the numbers continue to deteriorate. You know, the mart the market has wanted as you know, what was it seven rate cuts this year. They're lucky and then they thought, oh, maybe we'll get one in September. But the fact of the matter is that finally they have an economic rationale for suggesting that the FED has got to come in and offer more help, and the Fed is going to have to do it. The worry is, and you know, I don't need to be looking at
what they did wrong at the beginning. They waited too long to raise rates and then they are looking as if they're behind the curve already.
Emergency rate cuts. Put that into context. When do they happen? Why do they happen? Should should emergency rate cut be on the table?
Well, it should always be on the table, and it is always on the table because the fake could come in at any time to raise race or cut race. And I think if they do see that the unemployment rate is going to rise again, if we start to see a host of data releases that suggest even more deterioration, such as what we're going to have this morning with the ISM service sector report, they may have to do that.
They don't want to do that. There's always a suggestion, now this is what's ironic, that it'll scare the market. We'll take a look at the market today, take a look at it on Friday. The market is already scared. They're not going to cave unless they really believe that they are behind the curve. And the other thing is there are rumors that at the last FED meeting there were those who suggested that they needed to cut rates at that meeting. The Fed is waiting an awfully long
time until September eighteenth. The market is clearly not waiting that long.
So that brings the question into the actual market action. If you look at the S and B futures, we're down by three percent, NASA future is off by over four. I mean, it's ugly, right, And this raises the question of selling. The gets selling, like once you trigger stops, then you have to sell more. You have a systemic funds that'll come in at nine point thirty when the cash market opens, and they're going to have to be selling more like CTA's. You have the en carry trade unwinding.
How much of that is playing in versus the fundamentals?
Well that you know this is this is the This is the basic argument, because you can make an argument on both sides of the equation. Right now, the labor market with the numbers that we have, suggest that there is still some resilience. The fact that the GDP report for the second quarter, the first streat came in at what was a two point eight percent, the fact that consumers continue to spend. But the question is the market
is supposed looking ahead. That's the market's job. And by the way, I should point out that the economists of the FED should also be looking ahead, because that's the a in this job as well. And then the concern is that again selling begets selling, buying begets buying. That's the way it is, you know, margins, margin calls are coming in. It creates a war text of the Vix climbing higher. We haven't seen the Vix climb this hire
in a long time. But the fact of the matter is the FED is going to be very careful about coming in and suggesting that we need an emergency move. However, I do want to point this out. I will never forget a Christmas Eve on twenty eighteen, as that market just tanked and the FED that that December meeting raced rates suggests that we would have rate hikes in twenty nineteen. The first Friday in January, the FED called it off.
Remember that before the market opened, right, Fed's going to be patient.
End of story, all right, Quincy, fantastic perspective. Thank you so much for joining us, Quincy Crosby. She's the chief global strategist for LPL Financial Boy, the economic narrative really seemed to pivot on Friday, with that weeker than expected jobs data really calling into question the health of the US economy and of the US consumers. Let's get some color on that right now. We can do that with Angie Solonk, National director of Retail Services for the US
at Collier's. Angie, thanks so much for joining us here. What's your view aerie of kind of the US consumer right now?
You know, it's really interesting when we look at the US consumer. I mean we've actually seen a slight you know, gain compared to June twenty four to twenty three by two point three percent, although from prior month it's been relatively unchanged. Now I'm forecasting or we're forecasting at two percent at your end, and we're trying to kind of put our wrap our hands, you know, around what's going
on the consumer. Paul, I'll just let you know. You know, we're really seeing the consumer having so much convenience and ease of shopping with online or in store. I mean, it's really a frictional less type of shopping experience, so they're spending more.
All right.
So I'm not into this back to school thing because my kids are grown. But my youngest he's gonna be starting a sophomore year in college and we bought him his first suit yesterday. So that is my back to school shopping scenario. But Angie, I know it's a thing for the retail space. Back to school. How's that looking so far?
It's looking actually quite well.
You've actually seen an early start to back to school, so right now it's about eight percent of compared to what we've seen in the past. And I think people are refreshing their closets, just like your son with this suit. I mean, people are taking pride in what they're wearing.
Do you feel like we're going to see a value war though for back to school? Similar to say fast food chains like McDonalds, Burger King, Wendy's. It's all about that value, right, how's that transmitting itself into the retail space.
Definitely, You're you know, you're still seeing value. Look, there's still a discrepancy as it relates to wage in job growth and unemployment. So people are still managing their funds, they're being conscientious, they're taking their time and understanding how much to buy, where to buy, and how much time
they're spending. So there is a value driven component, but there still is that middle class and higher income you know, where they're still spending and not thinking too much about it, you know, So there is still that hyper spend occurring.
How about it? Some of it at the lower end. I'm thinking some of the dollar stores, how do they fare in this environment where again we really see a disparity in income and a disparity in retail spending, savings rates at credit card delinquencies. How are the dollar stores kind of seeing business today?
I think they're asally going to do quite well.
You know, with some changes that we've seen with ninety nine cent store closing, there's still a need and therefore you're going to see them actually kind of rechange their merchandise and their product mix.
And their stores.
So with that, there will be an increase in terms of their the people going into that store spending because at this point, you know, with the ninety nine cent no longer around, people have nowhere to go other than they're going to maybe shop into the targets and walmarts. But that ninety nine cent store and that dollar store
is still bringing value. So you're still able to buy produce, You're still able to get you know, quick, you know, grab and go items, batteries, household goods, napkins, et cetera. So I think there's still definitely going to be an increase foot traffic in those types of value stores.
What would you be telling what area of retail has the most problems and how would you tell them to solve that problem right now?
You know, when you look at retail overall, you know, the grocery sector has been pretty steady. And what I really have noticed in terms of the grocery spend is that it's been seen in actually a very you know slide increase about one point seven percent. And so when you stop and think about that, it has to do with a the cost of the product and the goods within the stores. Also, I think if you're stopping think
about it, you can go into a quick service. Yes, it's a little more expensive in terms of you know, the per person spend, but if you look at that versus you know, grocery, cooking at home, making your meals, doing the dishes, all of that, it might be a little more convenience. So, you know, the quick serve restaurants, the fast food restaurants, although seeing a bit of a slowdown, it's still you know, there's still seeing.
Quite a bit of pace.
We're actually from a retail perspective, in terms of leasing, we're actually seeing more quick service restaurants looking for space, looking to expand, So it hasn't slowed down in that part. But I would say groceries starting to still trying to figure itself out.
About luxury. We've seen some of the luxury retailers report some sluggish results of the most recent quarter, citing in part, you know, the sluggish Chinese economy and lack really of outward bound travel by Chinese. How's the luxury space look to you?
It has slowed down.
I would say that it's slowed down if you're comparing it to kind of the peak we had, you know, right, you know, during COVID and slightly after that. I wouldn't say it's completely you know, it's less than twenty nineteen. It's it's still you know, ramping, it's still in I would say, you know, maybe fifteen to twenty percent from twenty nineteen. So we are seeing a slowdown there. Definitely has been a slowdown. As it relates to just the overseas.
I think people are still looking at luxury. They've kind of spent during the last few years and of you know, kind of identified and purchased what they needed. So we are seeing a bit of that occurring at the moment. And also I think we're seeing, you know, kind of that Chinese Asian consumer going elsewhere to spend in luxury.
Maybe not in the US.
That's interesting, Yeah, exactly like Chinese going to Japan. I think because of that exchange rate, you have to wonder what happens at the last couple of days. But I want to just I know this might be a little off field for a second, but in terms of EVS, we've had a lot of the Carmakers report, and it's been really ugly out there, particularly when it comes to sales weather in China or in Europe when it comes
to EVS. However, can retailers though capitalize on this shift that we are eventually going to see.
I would say yes for a couple of reasons. So what was really interesting when we started digging into these numbers was when we saw that foot traffic, so the actual footfall in stores was starting to you know draw We started to dig why why is this happening? This is really for your large major you know retailers, big box retailers. Well, because they made it so easy to shop online, pickup in store, curbside pickup et cetera. They started to notice that people were not spending as much
time in the store. So by putting a or getting involved in that kind of retail or EV sector, you're really creating another reason for that consumer to come into the store and spend more time.
So it's not a fifteen minute in and out.
But if I'm charging my car, if you have an EV car or vehicle, you can actually go in and you're going to you know, you may start buying things that you didn't even think about. So you're spending thirty minutes, forty five minutes, or even an hour in a store, you're going to be accumulating just things to purchase.
So I think it's a little bit of that.
Plus it could be another additional revenue channel. They may be able to advertise specials. If you're sitting in your car charging your car and waiting, you might see something that pops up that's going to drive you into the store to make a purchase.
Angie, thanks so much for joining us. Always appreciate getting your thoughts on the retail side of the business. Anchie Slank, National director of Retail Services for the United States for Colliers Lissa Auto Joints is here, head of TMT Research, simply Global Visible Alpha. Melissa, we're just hearing Lissa Miteo rattle off some of these pre market trading numbers for somebody's big tech names like Apple, like Nvidia. Are these
entry points? I think if you had told somebody, you know, Thursday afternoon, hey, I can give you in Nvidia thirty percent off its recent highs, I think most of the people in the mark would jump at that opportunity. You have that opportunity here pre market. What do you think about some of these big tech names?
Melissa, good morning, Thank you. It's a wild one on this Monday morning. You know, it's all about expectations, and Nvidia is certainly a company that has very high expectations. So it's critical to believe in the direction of that
company and where it's going. And the Blackwell series is expected over the next couple of years to generate sales of over one hundred million dollars one hundred billion dollars, so you know, ultimately the company has to deliver on those fundamentals for the expectations to meet where they are.
So does that mean that if we have reports there were reports that in Nvidia had some production delays. Okay, if they can't produce the stuff, even if the demand is there, they can't book the revenue. So could part of the Sellouf and Nvidia actually be fundamental at this point or no, it may be.
I mean, we haven't had an official statement from the company to verify that, but that that's certainly something that could impact their numbers.
Let's just kind of look into review mirror just a little bit here some of the recent earnings we've had out of some of the tech folks. Apple generally in line, Microsoft, Amazon, Alphabet, Netflix, I don't know. I mean, I guess this smidge disappointing me a little bit. What do you make of the earnings of these big tech names.
It's again it goes back to expectations coming into the quarter. Expectations were high about both what the companies were going to deliver and what the outlooks were going to be like. So companies, in order to generate an additional leg of alpha to justify the valuations and what's actually priced into
the stock, companies needed to exceed that. And if they're not, then it's disappointing to the market, it's disappointing to investors and they will look for opportunities elsewhere where they can get a better valuation and more upside.
How do you think technology companies need to relate to the market their capex investment versus their profitability? Like Meta clearly did a good job of that, Like they show that AI was helping to impact the amount of money they could make per ad that they sold. How do other companies that don't have that avenue deal with that?
Yeah?
Absolutely, This cash dimension to the megacaps is an absolutely critical one because we've been in an environment where rates have been rising. So if you're sitting on cash, your cash is getting a really nice return. So it gives companies a lot more freedom to invest it, and it makes that cash flow potential a lot stronger. And the
megacap tech companies have enormous cash positions. So now in an environment where that is potentially reversing, coupled with the fact that they're accelerating capex, it presents some interesting questions about what their cash flow positions are going to look like over the next twelve to twenty four months.
So, Melissa, given some of the pullback we've seen in some of these tech names, what are some of the best opportunities in your coverage universe.
Overall.
One of the things we're looking at really carefully is what is going to really trigger broad adoption of generative AI. We know there's an an AI revolution out there happening, but there needs to be a trigger point where these companies are either internally adopting generative AI in a way that's giving them a competitive advantage, or they're crafting and creating an application that is going to revolutionize the way users enterprises interact and become more productive. So that is
really the critical nexus point. I think, you know, where we're looking at what companies are actually going to be doing that, And that's really I think where we are with the generative AI revolution right now and where megacap and just tech stocks in general really are going going into the second half of the year and next year.
So anecdotally, let me tell you the story. So yesterday, my best friends moving to Costa Rico or their family for a year. So it's like a going away party, YadA YadA. One of my friends is a consultant. One of my other friends also has deeply involved in the market, and guess what the conversation was between the two of them, Yes, how much AWS comprises their budget and how much that's going to continue to go with AI and doubt that they're really going to see the benefit of that kind
of money. And I'm wondering that at what point to customers, Like one of my friends pushes back and says, you know what, Amazon Web Service, I'm not going to pay you that money. I don't want to do that. I don't see the benefit to AI in that sense.
That's a million dollar question. I mean, Amazon was an interesting one this quarter because their AWS business was very robust. It was it basically carried the whole company. It beat the quarter, and it had a strong outlook. Their margin beat by over three hundred basis points. There was an adjustment in there of two hundred basis point, but still it came in over thirty five percent. But when we look at the other side of the Amazon's story on
the North America retail margin that came in soft. That business coming into the quarter was expected to generate a five point nine percent margin, but it came in a five point seven percent, and the company said, well, you know, as we look out at our guidance, we you know, kind of don't really see the profitability coming in that strong, and it actually came in below where the consensus was.
Consensus was about fifteen point seven billion dollars in operating profit and they're the top of their range was around fifteen billion. So it was like, whoa wait a second. You know, you know you've got AWS doing really well, but what else is in there that's potentially diluting it? Or is AWS to your point, potentially slowing down a little bit, or we're not seeing the profitability that we have been seeing.
All right, this is a lot to think about here in the big tech space. Melissa Auto, head of TMT Research sp Global Visible Appha, we need some perspective on this market in a big way. With some of those futures readings at least was just reporting. And for that we go to the lawn in Charlottesville, Virginia, Lori calvacin ahead of US Equity Strategy RBC Capital Markets. If you know what that means, you know, Laurie, what do you make of the last couple of trading days here in
the futures market here today? The market kind of turned on a dime there on that Job's number.
It did look I think the biggest takeaway we have right now is people like Tom Keane going on vacation. I think everyone's going to be afraid to take vacation in August now. But I think the reality is that we have to take the last couple days in context, and that's what we really tried to remind people of
in our Weekly this morning. We're not sitting here saying recession fears didn't escalate, that there weren't some signals in the jobs report, in the ism report on Thursday, but we do think people need to bear in mind that we had I think I came up with like six or seven different reasons that market should be selling off right now. This includes valuations that were full, a tendency for the stock market to sell off after first rate cuts,
a curse, and maybe we're pulling that forward. We had extremely elevated positioning on the CFTC data for US equity futures, Nasdaq futures S and P futures. Aai I was sending us a cell signal. The last couple of weeks. We've got the election, where dynamics are shifting that typically produces a pullback in September, and maybe we're pulling that up. And by the way, markets have been correlated with Trump and now he's lagging behind Harris. So there's a lot
of stuff going on. And by way, add the facts that seasonality the last five years has been really really poor time to be in the stock market August through October, I think, including specifically twenty twenty two and twenty twenty three. So there have been a lot of reasons this market has needed to take a bit of a pullback in here.
So Lorii, it's Alex and I love reading all your notes, is like first must read on Monday. Got to set you up right. When does though, a healthy correction become an unhealthy one?
So I think the biggest thing I'm worried about in here, and I'm trying to tell everybody keep it calm head today, Like I do think we need to dig into the BLS report a bit more, you know, find out exactly what the weather impact was there. But I do think that the rule of thumb I always use is five to ten percent is a typical correction if you look from peak, So that would kind of take us down to sort of the fifty one hundred marks. We have
to watch markets closely in here. If you look at sort of the ten to twenty percent range, that's typically you know, in the coast GFC world where the growth scares settle in.
Now.
Twenty twenty two was a little bit different. It wasn't a recession. We fell twenty five percent, but generally anything more than twenty percent is an actual recession. And I think one of the reasons why it's so jarring, you know, kind of the move from Wednesday to Thursday Friday, is that if you go back to corporate earnings and equity investors, we've all had our heads stuck in these corporate reports
the last couple of weeks. What we're seeing in that jobs data, it's not really syncing up with what we're hearing from companies right now. So I do think we need to sort of take it one step at a time.
In here, Llie, what do you think the Federal Reserve is going to do here? There were some discussion over the weekend, maybe an emergency rate cut. What do you think they're going to do here?
So I have no idea, you know, I think we have to talk to the rates crop, we have to talk We have to talk to some of the reporters, but the true that they don't. And you know, I get a little bit of frustrated with the fed guessing game that people play on Wall Street all the time. I think, you know, they're looking at data, they're trying
to make the best decisions that they can. But what I can tell you if this question has come up a few times since Friday, and even frankly since the CPI report, that's when my rate strategist was telling me he was first getting questions about fifty basis points. And you know, I kind of went and dug up some of my work from SVB, looked through some of my files, and we found that in at least kind of my time on Wall Street I started in two thousand, when you either get sort of the big chunky cuts or
you get the emergency cuts. You know, generally they don't tend to happen in isolation. They tend to happen in bunches. So I worry a little bit that if we get some sort of emergency action, if we get some sort of big chunky cut, it could further spook the market. That's just my opinion, though there's certainly people out there smarter on this than me. No.
I mean it's a fair point, and there are a lot of people out there who are trade equities who are in kind of your boat, right, So right, based on all of that, when and where do you buy the dip?
So I think we've got to take it one day at a time, you know, I want to see sort of how the market reacts if we get down to that ten percent threshold, you know, I think that's sort of where we could look to see if there's a line in the sand. The other thing that's come up a bit this morning is just you know, sort of looking at valuations. You know, we've been very elevated. For example, on those top ten names in the broader market in SMP, you've been traded. You got up to thirty two times
on a medium pe. Actually it's now fallen down as of last Wednesday to around twenty seven. Who knows where it is today. Well, we'll see tomorrow. But I do think you want to sort of watch for some additional relief on those valuations. And I've noticed just in my career a lot of times you don't have to get super cheap on things for the bleeding to stop. Sometimes you just need to go get back to the average, get a little bit below average. Small caps, for example,
it's the opposite phenomenon right now. They keep getting up to average and then the trade sort of peters out. So I think watching when we get back to average valuations on certain things is going to be critical.
So, Laurie, I'm just looking at Nvidia here in pre market trading. The level suggests a you know, a thirty percent pullback from its recent high.
Wow.
I mean, that's that gets your attention. I mean, if you've told somebody you could buy I'll give you Nvidia a thirty percent discount to it's high. If you said that to them on Thursday, I think they grab it both hands. What do you think about some of these big tech names that have led the market higher in which we're now taking the big brunt.
So when I think about the basket as a whole, I think that we've just we've sort of hit evaluation ceiling. I mentioned, you know, we kind of got up to thirty two times on those top ten names on a media and pe when it's it's hit sort of you know, the upper twenties thirty in the past, that's really been the ceiling. So I think we kind of hit the
ceiling on valuations. If you look at the growth rates on the MAG seven versus the rest of the market, We've had a accelerating growth advantage, and so you know, those MAG seven names had just ferocious earnings growth last year, but it's expected to celerate both this year and next. It's hard to sustain the premium valuations when you've got a growth rate that's accelerating off peak, even if everything is fine. So I do think the valuations are really
the key to the story here. We just need to see some additional relief.
The VIX has jumped an insane amount in two days. The curve is super inverted at this point. What kind of damage does a VIX that's moved the most in thirty years due to the equity market.
So look, I think it's a question of where does it settle out. You know, I actually called someone this morning. I noted I got to the office pretty early and it was around fifty and I called someone to say, this is real, you know, you know, it's actually the real data point. So I'm glad you guys are reporting it as well, But I think the reality is it just tells me that we have a sentiment problem in
the market, that sentiment needs to unwind. I mean, if you look at the CFTC data alex, the broader US equity futures positioning across all of the byside, so we add up three different categories together, it's been sitting above January twenty eighteen levels, it's been sitting above February twenty twenty levels, and also above the levels of twenty twenty one twenty twenty two, though frankly those weren't nearly as high as what we saw back in the twenty eighteen
and twenty twenty time frames. So there has just been you know, I don't think people necessarily have sounded raw raw when you've talked to them, but if you've looked at the actual positioning data in the futures market, you know, these are some of the levels that have historically just caused a tremendous amount of volatility, and we need to let that play.
Out in here, all right.
Lori Calasina, thank you so much for joining us, for you know, you're super busy today. Lori Calvalsina. She's head of US equity strategy at RBC Capital Markets. This is the Bloomberg Surveillance Podcast, bringing you the best in economics, geopolitics, finance, and investment. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten Eastern from our
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