Guy understands why there is reason for optimism on consumer behavior right now and says the US consumer will always spend if there is nothing bad going on.
Guy also discusses Walmart, Target, and TJX.
Dan comments on the consumer discretionary sector and previews the upcoming week with retailers reporting.
Guy also discusses Walmart, Target, and TJX.
Dan comments on the consumer discretionary sector and previews the upcoming week with retailers reporting.
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NewsTranscript
00:00 Now listen, I understand why there's reason for optimism without question.
00:04 The U.S. consumer will always spend if nothing bad is going on, and I always view it through
00:08 the lens of the stock market.
00:09 When there's an event in the stock market to the downside, that's typically when consumer
00:13 behavior stops on a dime.
00:15 And 73 percent of our economy is driven by people buying things.
00:19 Who's the winners?
00:20 Well, it's pretty clear in terms of the stock.
00:22 I think Stiefel had a report out.
00:24 Seventy-one percent of households in this country earning $100,000 or more shopped at
00:30 Walmart, compared to like 50 percent at Target and 30 percent, I think, at Home Depot.
00:34 Walmart wins.
00:35 Target loses.
00:36 Walmart's an all-time high.
00:37 Target's $3 away from a 52-week low.
00:40 TJX on that side wins as well.
00:42 So it's obvious what's going on.
00:44 Those retailers will do well in this environment.
00:47 The health of the consumer, I don't know, a trillion dollars in credit card?
00:51 We're fighting inflation, adding more debt?
00:53 That works until it doesn't.
00:54 Citrin, you mentioned Walmart.
00:56 And again, a truly magnificent performance, especially relative to some of its peers like
01:00 Target, which you mentioned can't get out of its own way.
01:02 I think of that more as a consumer staple, right?
01:04 They were benefiting when inflation was a big thing, and now they're benefiting now
01:08 with maybe a moderating consumer, if you will.
01:10 We've heard about the trade down and all that sort of stuff.
01:13 But if you look at the XLY, the ETF that tracks the consumer discretionary space, sometimes
01:16 you can get a bit of a mirage here.
01:18 If you look at the top hole, there's Amazon's about 24 percent.
01:21 Tesla is about 18 percent.
01:23 Home Depot, McDonald's, Lowe's.
01:24 Then you start getting into something that maybe feels a bit more discretionary.
01:28 If you look at the XLY, it just made a new 52-week high last month, so it's come back
01:32 a little bit.
01:33 That largely has to do probably with Tesla.
01:35 So when I think about Amazon and the results that they just gave us, they did tell us the
01:38 consumer's pretty good.
01:39 That strength came in their retail business, but it also had to do with their margin on
01:44 the retail business.
01:45 And at some point, it might speak to their ability to pass forward certain costs at discount
01:50 to a consumer.
01:51 So I think this week is really important because we're going to get a wide swath of a whole
01:55 different retailers here.
01:58 And what is the incentive for a retailer at this point to be bullish?
02:01 I mean, results could have come in OK for the past quarter, but what is their incentive
02:05 to be bullish when there are so many things on the horizon, like the repayment of student
02:08 loans, for instance, starting in October?
02:10 Yeah, to your point, Mel, it's really all about managing forward, managing what those
02:14 expectations are going to be.
02:15 And I don't really see a whole lot of a reason for them to come out and be too bullish and
02:19 then run the risk of disappointing investors.
02:21 I mean, that's literally the last thing that you want to do.
02:25 We've had some conflicting data.
02:26 We've had the CPI print and the PPI print, which seem to tell slightly two different
02:29 stories.
02:30 We've had Amazon that tells the situation with cloud, and we've had some of the other
02:34 SMH components come out and not be as glowing as we would have expected.
02:40 The other thing I'll say is there seems to be somewhat of a K-shaped recovery when it
02:42 comes to the consumer.
02:44 We talked about the trade down.
02:46 You have people that have the tailwinds of interest rates.
02:49 They have debt that's fueling asset purchases, and those assets are being accreted in this
02:55 environment.
02:56 And you have a completely different cohort that has debt that is fueling purchasing.
03:01 And I think that's the pocket that we really need to focus on.
03:03 And if there are cracks, it'll likely be that cohort that starts to show them initially.
03:07 Yeah, Julia, what's your take here?
03:09 Because I feel like this desk overall has been fairly cautious/negative when it comes
03:14 to the U.S. consumer, including yourself.
03:19 So what do you say to all these arguments put out by Bank of America today?
03:22 I think, you know, Savita actually used to be a colleague of mine at Merrill Lynch, and
03:26 so I'm loath to really ever disagree with her.
03:29 But there are some, I think there are some concerns that I have, and I think it's a little
03:32 bit to Bhanuan's point on it depends who you're asking, right?
03:36 So if you look at real liquid assets, if you're in the bottom 99 percent, they have grown
03:41 two to three percent since the beginning of COVID.
03:43 If you're in the top 1 percent, they've grown 23 percent.
03:47 So that's a pretty big differential just in terms of liquid assets.
03:51 And the other thing to think about is what is consumer discretionary doing relative to
03:55 income?
03:56 And right now it is at a high that it hasn't seen in 30 years.
03:59 And in order for it to kind of return to normalization, it would have to drop 10 percent.
04:04 So I think, you know, there's the issue of the stocks, which I think is more what this
04:08 stock call is really about.
04:10 And then there's the issue of the fundamentals.
04:12 And I think we should be concerned about some of these consumers because we're really clearly
04:18 racking up a lot of debt.
04:19 And at some point that has to come due.