- 2023-11-24
- Posted by: kimsite
- Categories: Commentary, Insights, News
Click here to listen to the full interview.
EDWARD LAWRENCE: A shortened day for the markets with the trading set to wrap up in just under an hour, all three indices. You look ending the week in green, but today you saw they were mixed there. So let’s bring in our market experts, fast news contributors, Scott Martin and Gary kba. So Scott, I want to start with you on this. It’s holiday period. It hinges on the consumer. So do you think we’re going to see a healthy spend at the end of this weekend,
SCOTT MARTIN: Edward? I think a good spend, I don’t know if healthy is the word I would use, just because the consumer seems a little bit tapped out here after a great summer and pretty good fall. So look, I think you’re seeing in that in a lot of the earnings reports too from the retail sectors where they’re hitting earnings right now as far as the previous quarter, but guidance has been rather weak. So if you’re thinking about where the economy’s going, yes, the consumer is key, but I’m expecting things to kind of tail off here as we head into Christmas season.
LAWRENCE: And so Scott, is this a situation where the spending was pulled forward because of those early deals? So then we’re seeing a weaker fourth quarter maybe for some of those retail stocks?
MARTIN: Yes, most likely. And I think too, Edward, with interest rates finally flattening out, but still rather high, I think the consumer is going to take maybe a little breather here and see how things permeate in say next year. And then therefore if rates come down and the Fed actually does cut, the consumer will be back.
LAWRENCE: Yeah. Gary, so I wanted to ask you about your favorite topic. You mentioned the Fed there, federal Reserve. We’ve seen those aggressive rate hikes over the past year. Those hikes have translated into much higher credit card interest rates. Now one, do you think the Fed looks at that as Americans have $1 trillion of record in debt?
GARY KALTBAUM: I don’t know what they look at these days. Look, I’m a big believer they’re just playing catching up to the free market. It was interest rates that were going higher before they started to raise rates. So again, they finally played catch up and I think they’re off the playing field right now. The 10 year yields at 4.4 and change and they’re still at 5.5. And for me it’s free markets that dictate and leave no doubt on November 1st, the broad market bottom for one simple reason, yields topped as well as oil prices came down. That’s a great one. Two punch for the economy when the cost of energy and the cost of capital comes down and let’s just hope that continues into the new year.
LAWRENCE: Yeah, I think I’m hearing no more hikes for you. So Gary, when it comes to servicing though, that debt, we talked about, the interest rates, the bank and the consumers. I mean you see at some point next year there’s going to be a break between can consumers service that debt and the interest rates they’re having to service it at as the debt increases. So when is that breaking point do you think? Is it this year, is it next year
KALTBAUM: Call me. Very worried. All one has to do is look at a chart of credit card usage as well as savings rates and both going the wrong way. So going to be some Hector Pay down the road. I’m not sure what date, I’m not sure what the trigger is, but I believe the consumer’s getting spent up here and I think probably within the next six months there could be some trouble. And for me, the one thing that sticks out most is the job market. If the job market can stay in shape, I think we’re okay. If we start to lose jobs in a meaningful fashion, then I think lookout, I think a pretty decent recession will be ahead. There’s no worse environment than too much debt. And not withstanding consumer, our government is just obscene with what they have done with the debt. 2 trillion this year, 1 trillion of our taxpayer dollars will be going towards interest as we move forward. And I just don’t know how do we turn back from that?
LAWRENCE: And maybe some people are saying, Hey, the government can do it. I can service this debt. So Scott, I wanted to look at some of these major retailers we’re talking about Walmart, Amazon, target. Do you see shoppers flocking to that lower cost retail option and abandoning the higher end products? Are those choices being made during this period? Now
MARTIN: I do. And I think Edward, that’s the right move for the consumer as Gary laid out. The picture isn’t as say Rosie as it has been in the past as we’ve come to other Christmas seasons. But two, I mean if you get around today, you see the stores filled, the parking lots are getting full. So the consumer is definitely out there, but they’re probably doing a lot of this spending right now as they have the Black Friday sales hitting them in the face. And then therefore, as we get closer to a state to the end of the year, they may maybe tapped out and we’ll have to see what the Fed does next year. Because that’s, I think the saving grace here to what Gary’s points were is that if rates actually continue to come down, oil prices come down, commodity prices come down, the consumer could be saved yet again.
LAWRENCE: But some of those discount retailers we’re showing in the green today. Some of ’em like Target, they’re down for the year. So Scott, are you buying some of these retailing names now? Are you holding off because of concern about the spending?
MARTIN: Yeah, probably holding off until that news comes through, but I think Target, Kohl’s are a couple names too, Edward, that we’re looking at just as far as a valuation basis because they have been hammered this year. So not chasing some of the big names like say the Costcos of the world, but picking off some of the same, maybe the ones that have fallen a little bit further than they should have just because of the fact the news was so poor.
LAWRENCE: Yeah. Gary, are you staying away from retail market? Are you thinking retail might be something to look at for the low end? Maybe the discount retail names?
KALTBAUM: Amazingly, the discounters have been, except for Costco, have been crushed. If you look at Dollar General and Dollar Tree, the stocks have been obliterated over the last nine months. And we know about Target though I think you may have an earnings recovery in Target. So it’s something I’m watching. Names like Lululemon, great relative strength, I’m watching Dick’s Sporting Goods just came out with a much better number. But then you go look at Best Buy, which is near new yearly low. So it’s just a real mixed bag in retail. So I don’t own any retail right now, it’s just very much too tough. I’ve been staying with technology, that’s where the leading stocks are right now with strong revenue and earnings growth. If some retail shows up on my screen, I’m not opposed to it, but right now I’ve stayed away.
LAWRENCE: And because of all your optimism, Gary, are we going to see the Santa Claus rally you think that we have historically, traditionally seen in December? Is it coming?
KALTBAUM: Well, we’ve already had a good one and all. I can tell you, as of right now, the market’s acting strong. Even a daylight today, 2,400 stocks up only a thousand down on both the New York and nasdaq. And that’s the opposite of what we saw from July end of October. And if we continue to see that the breadth of the market in shape and more names show up and watch the new yearly high list, if that keeps expanding, that means the market’s in good stead and will get better into the end of the year. And then we’ll see what happens in 24. It’s going to get interesting as we head into the election. I can promise you that.
LAWRENCE: So Scott, I’m curious about one thing. President Biden is sitting on basically $5.8 trillion in spending that he has already signed into law and we’re starting to see the plans for some of that government spending to trickle out over the next over Q one, Q two, maybe even into Q three a little bit. Do you think government spending is pushing off a recession?
MARTIN: Maybe Edward? I think a lot of the recession talk was kind of overblown, but certainly government spending as a part of GDP could definitely help boost those numbers, which are likely to fall off from the great numbers we saw for Q three. But here’s the other issue though too is that where does the money go? I mean, we’ve had this government spend, spend, spend and really not make any really developments say that have helped the consumer along the way other than a few handouts. So if you see where that money actually goes to say a positive area, that could be definitely good. But overall the GDP picture is definitely weaker than it has been this year.
LAWRENCE: Scott, Gary, appreciate your insight on this abbreviated trading day. Maybe we can make some money here in December. Appreciate it guys. Thanks.
