The countdown is on. Everything you need
to get the edge at the end of the market
day. This is the close.
>> A dose of reality for the tech trade or
a reset for the next leg higher. Live
from Studio 2 here at Bloomberg
headquarters in New York. I'm Roma
Boston
>> and I'm Scarlett Fu. We're kicking off
to the closing bell here in the US.
Another quiet day of trading relatively
speaking for some busy events.
>> Calm before the storm.
>> Absolutely. All right, let's take a look
at where things stand right now. The
down industrials, another day of modest
moves, down by onetenth of 1% here. But
of course, this belies the fact that the
Magnificent 7 are having a brutal day,
off 1.7% with Nvidia the worst performer
there. And of course, the S&P and NASDAQ
under pressure as a result. Uh the
10-year yield lowered by three basis
points as yields are moving lower
because traders anticipate a rate cut in
September. And of course, WTI down about
one half% dipping below $63 a barrel. Uh
oil traders are pricing and easing
Russian sanctions as the president
pushes for Ukraine and Russia to meet in
person uh to resolve the war. Roma
>> right across the screen for equity
markets. The MAG 7 down 1.7% the NASDAQ
down about one and a half testing it
short-term moving averages to the
downside. A repeat possibly of what we
saw in early August amid elevated
concern about elevated valuation. The
seeds of this though they've actually
been evident in the options market since
last month. 22V research showing that
the relative cost of hedging against a
severe downturn in tech stocks versus a
mild one that cost that's surging to a
three-year high just over the past 5
weeks alone. In fact, when you take a
look at what Morgan Stanley had to say
about it, they actually showed that
large cap tech stocks are now the most
underowned by institutional investors
since 2009 relative to their waiting in
the S&P 500. But not everyone is
convinced investors should be so nervous
about big tech, which still remains the
primary contributor to the S&P's profit
growth.
>> The big spend right now is still in
technology. So those stocks are at a
premium valuation for a reason.
>> Of course, premium valuation doesn't
necessarily guarantee premium returns.
Run the Bloomberg EQRP function on your
favorite tech stock and you'll see what
I mean. Microsoft, for example, it has
an expected excess return over the
risk-free benchmark treasury rate of
just 5%. Now, that's a healthy
compensation to be sure, but it's about
half half of the risk premium that it
offered up just less than a decade ago.
>> Yeah, these are good things to keep in
mind because of course positioning and
relative valuations can explain a lot of
the day-to-day moves, but you've got to
have the fundamentals. And of course,
here we're talking about earnings to
back up the longer term gains. Now, as
the S&P 500, which is the white line
here, has scaled new heights for much of
this year, except for this period
between February and let's say June, uh
we've seen analysts ratchet up earnings
forecasts. And these green lines that
track uh EPS upgrades, you could see
that right now that green box highlights
how upgrades are now hovering at the
highest since go all the way back to
December of 2021. So, does that set us
up for continued gains remain? Not
clear. Well, let's uh kick things off to
the close here on this Tuesday afternoon
with Chenade Colton Grant, chief
investment officer at BNY Wealth. And
Chenade, I do want to start with market
valuations now that pretty much the
earning season is over. I know we have
Nvidia still out there, but you've seen
most of what the S&P has to offer. And
at least on an earnings basis, it seems
very lopsided towards big tech. And I'm
wondering if that is a ratification of
the rally that we've had or maybe an
indictment of it. Well, you know what we
say to our clients all the time
remaining? You've got to focus on the
fundamentals. And that's really where we
come to with tech because when you look
at the margins, the margins in tech are
so much higher than the rest of the S&P.
You look at the top eight names in the
S&P, their margins are double the rest
of the 492. And so, yes, valuations are
higher. And by the way, I would not say
>> let's not focus on Nvidia next week. We
do still want to see that we're seeing
the trend that we've seen with the other
big tech names,
>> but it's all about the fundamentals and
those earnings expectations.
>> Well, when you take a look at the
fundamentals, what is the main risk? I
guess if you see any, what is the main
risk that you see to those fundamentals
going forward?
>> Well, look, I mean, there's a a huge
element related to capex and overall
tech spend. What's been fascinating over
the last year or so is that even if
firms have been cutting back on their
tech spend, and this is in the broader
industry rather than the the tech sector
itself, they are trimming more
traditional spend, not their focus on AI
where they think they're going to see
significant productivity benefits. So
that's an element. Then we also have to
think about rate cuts, right? We expect
two rate cuts between now and the end of
the year. We're expecting that we're
going to see a little bit more certainty
coming from Powell at the end of this
week at Jackson Hole. Um but look, I
mean, we could start to see much much
stronger data taking out the two rate
cuts that are priced. And you know,
that's a little bit more of a headwind.
Okay, so we've got Nvidia as a big
catalyst next week. We've got big retail
earnings uh coming out later on this
week. Uh and of course, we already heard
from Home Depot. What are you thinking
in terms of whether a rate cut will
actually move the needle here for the
consumer and what some of these
retailers are anticipating?
>> Well, what's most important to remember
about the consumer is we often talk
about the consumer in aggregate, but
really the experience of the wealthier
consumer is very different than um than
lower income households. And that's
where rate cuts really matter, right?
where it's going to move the needle on
mortgage rates, it's going to move the
lead the needle on um auto loan rates,
even credit card rates, right? So, that
is what helps bring more um more
fluidity to the system because I think
what we also haven't really thought
about enough is the fact that we don't
have the same transmission mechanism as
we used to. And here's what I mean by
that. Think about all of the households
that have mortgage rates that are 3% or
lower, right? The fact that rates are
going up to, you know, four or five
percent as they have been over the last
couple of years, it doesn't impact them.
Um whereas lower income households,
the parts of the market that are more
exposed to rates like small cap, they're
having a tougher time. So, look, I do
think that real interest rates are
probably a little bit too high for where
the for where the economy is right now.
So, where do you want to be in terms of
invested in equities? Which sectors do
you want to be most exposed to? It
sounds like technology is still where
you want to stay invested.
>> Correct. So, we like tech. Um, we also
like financials because we think it has
um exposure to not only the steepening
yield curve, but also as we start to see
more deregulation, more M&A activity
coming through, uh, we think that's a
positive. But, you know, we also like
industrials and utilities. industrials
really uh poised to benefit from the uh
the healthy economy overall and
utilities you know sometimes you think
about them as a more stable slightly
boring sector but you know they're AI
adjacent because of the impact of data
centers the energy consumption and so
some of those names that would have been
a 4% yielder you know that could tick up
to about 7% that starts to look pretty
interesting
>> you know a little bit later in this
program we're going to talk a little bit
more about the competition for returns
the idea that you're still getting a
pretty decent returns in the fixed
income market at least on a historical
basis relative to stocks and the idea
that you don't necessarily have to go
for the high growth uh potential higher
returns that you get in the equity
market. You can look elsewhere and get
something maybe not as high but
certainly something healthy. Do you buy
into that?
>> Look, fixed income is an important part
of a diversified portfolio and we've now
seen yields normalize, right? I think we
have to say the decade of the 2010s was
abnormal in terms of just how low yields
were. But if you're thinking about a
portfolio, you really want to think
about what's your time horizon. Can you
afford to take a little bit of ili
liquidity risk? Because when we think
about allocations, we don't bifurcate
between public and private, right? We
want to think about publicly traded debt
as well as private credit. On the equity
side, it's public equities as well as
private equity, venture capital, because
that's really how you build a resilient
portfolio over the long term. How do you
think about the political headlines that
we get seemingly every day? For
instance, the White House considering
taking a 10% stake in the chipmaker
Intel uh AM AMD and of course Nvidia
perhaps paying 15% of their China AI
chip sales to the US government. How do
you fold that in?
>> So, look, I think it's really important
not to overreact to a headline, right?
you need to understand the details of
exactly what this means. Uh so for
example uh when we think about the
possibility that there could be more
chip sales to China. First of all that's
that's good for the bottom line of those
individual companies but also let's
understand more what that means. Does it
mean you get more of a a handle on the
black market in those chips that's
developed? Right? Do you um are you able
to better parameterize the the national
security concerns that are there too? So
again, the details here are really,
really important.
>> All right, Chenade, great stuff as
always. Chenade Colton Grant, chief
investment officer at BNY Wealth,
kicking us off to the close here on this
Tuesday afternoon. And when we come
back, we're going to revisit that
research note by 22B and talk to the man
who put it out. The disaster puts Jeff
Jacobson not necessarily anticipating a
selloff, but saying now might be the
time to hedge for one.
>> That's quite the term, disaster puts.
All right, while tech stocks are falling
today, US housing starts, they're
rising. We're going to discuss the
future of American real estate and the
potential impact of a Fanny May Freddy
Mack IPO with the former chairman and
CEO of Fanny Franklin Reigns.
>> And from the outlook on housing to
retail, we're going to talk about what
to expect out of some of the big
retailers set to report over the next
few days, including Target. Stick with
us. This is the close on Bloomberg.
[Music]
Analysts at UBS raising their price
target on gold to $3,700 by next March.
The firm expecting Fed rate cuts and a
weaker US dollar to translate into gains
for gold, which is already up almost 30%
year-to date. Our next guest runs a
company aimed at keeping gold markets
functioning through volatility. Joining
us live right now is Josh Crumb, CEO of
AB Abex, there we go. Technologies,
which operates an exchange in Singapore
that offers gold futures contracts. The
firm also builds software for commodity
trading. Josh, great to see you.
>> Hi, nice to be here. Thanks, Scarlet.
So, have you recovered from the
confusion 11 days ago when we were
shocked and of course certainly the gold
industry was shocked uh of that
unexpected Trump administration ruling
that certain gold bars would be
tariffed?
>> It was a crazy day for sure. But uh it's
actually why we built our business. Um
so on one hand our uh a lot of our
clients were kind of scrambling because
this is now the third time in five years
that the EFP you know basically this
price between LBMA in London and the
comx price blew out and that caused a
lot of risk for people. Um but you know
we built uh you know we built ABEX uh to
to launch a kilobo kilobar contract in
Singapore very specifically because
that's where the physical market lives.
Um and so that's uh it was actually
probably good news for us but you know
certainly our clients were were
scrambling.
>> There was a lot of scrambling certainly
and you talk a little bit about you know
trying to bridge the gap between how
gold is quoted and priced depending on
what geography you're in. What is the
appetite for something that kind of
unifies across the the different
geographies?
>> Well, we're already seeing very good
open interest and trading on our
exchange. It only launched about 6 weeks
ago for for our gold contract and we're
really having a lot of Singapore uh and
and really all Southeast Asia Asia
rallying around our contract because
it's it is the product that they're
they're they're demanding, right? Um
because again, a lot of the like if
you're buying gold uh uh over LBMA,
that's really balance sheet gold. It's
almost like foreign exchange markets.
You're buying bilaterally with a bank.
You're buying balance sheet gold. Uh,
Comx of course is physical, but it is
kind of an older warehouse warrant
system of older, you know, 100 ounce
bars mostly, but but you know, the main
physical demand in the world is Asia for
kilo bars. So, and that's what our
market is is is kilo bars. I
>> I am curious as to kind of where you
think this market can go. We talk about
gold right now, something like 33,000 an
ounce, 3,300 an ounce, excuse me. Uh, in
the uh uh in the spot market, you've
seen forecasts, including today UBS
upping their price target to 3,600.
We're already at record levels more or
less and some of that certainly had to
do with this administration and some of
the policies coming in. If we start to
get in leveling off of what's been
happening in Washington, does that
actually hurt the price of gold?
>> Well, again, I think physical demand has
been very strong in Asia. Um, uh, you
know, there's a number of factors for
that, but I think a lot of that even pre
predates, you know, some of the, um,
call it the volatility, you know, policy
volatility. Um, so I think you know, you
know, really we've been on a couple
years now. Um, and it's really broken
what used to be the old, you know, when
I was at Goldman, we always, uh, we
always analyze real interest rates as
really the only factor. Um, but now
there's just a whole another
geopolitical bid u from central banks.
Um, that that I think the market's still
even two years on trying to get
comfortable with what are the metrics to
to analyze that. I
>> I am curious though about where exactly
the demand is coming. There's been a lot
of speculation whether it's coming from
governments, whether it's coming from
traditional investors, whether it's
coming from organized crime. Uh there's
been a lot of discussion about where
those demand flows. Do you have any sort
of clarity into where it's coming from?
>> Well, I think that's one of the other
one of the other issues is it's not
going through the typical u or not all
of the flows is going through the
typical way again buying from bullion
banks in in London, right? So uh even
when the first some first movement
started happening a couple years ago, a
lot of it was going through Dubai, a lot
of it was going through through
Singapore and not your traditional gold
centers. Uh and again, it's it's much
more demand for physical uh rather than
just having balance sheet gold, you
know, with with a with a bank
counterparty for instance.
>> How has demand for gold in its different
forms, whether it's physical gold or
balance sheet gold, changed with the
rise in demand for crypto?
>> Uh I I don't see it totally correlated.
I mean, of course, um, uh, you know,
after, uh, a after the some of the
political, you know, policy changes
around, uh, US dollars, you know, after
Russia's invasion of the Ukraine, of
course, that's that changed a lot of
dynamics that probably affected both
crypto and gold. Um, but I I really see
them as very different markets. In fact,
you know, we still see crypto as very,
you know, correlated to, you know, tech
stocks and so forth where gold really
is, uh, you know, a physical safe haven
that that people look for. There's
there's been a lot of talk about more
tokenization of assets. I mean, we talk
about crypto and obviously the digital
universe, but it's more than just sort
of holding uh you know, whatever the
digital currency is. There's this idea
that the underlying technology can offer
a way to sort of make all markets more
efficient. How are you sort of diving
into that if at all beyond just the
commodities trade?
>> No, it's it's actually probably this we
there's two pillars of our company. It's
why I started the business. you know,
one is to get commodity markets closer
to physical, but second to move
collateral markets in real time. So, my
former colleague uh at Goldman Sachs,
Allison Nathan, just put out a great
report on stable coins like literally
today. Um, and there's a lot of talk
about stable coins for retail, retail
payments, retail holdings in emerging
markets. Uh, but a far orders of
magnitude larger use case is collateral,
moving US dollars in Asia or or gold as
collateral in Asia. Um, and that's what
you need for margins on say a futures
trade. Um the futures industry
association actually just put out a
great report about trying to move
collateral to real time. Um and we
really think we are going to be the
first regulated clearing house in the
world uh that will be able to to do that
uh with two upcoming pilots we're doing
this year moving uh tokenized money
market funds in real time and moving
gold in real time uh for collateral in
Asia.
>> All right, Josh, great stuff. Got to
leave it there. Josh Crumb there. He's
the CEO of Abex as we keep an eye on
gold prices. fractionally lower on the
day, but still holding right around that
3,300 mark here on the day. We turn our
attention back to equities and one of
the biggest movers in the S&P today, and
that is Home Depot actually seeing some
improvement. We're going to catch up
with Steven Zakone and talk get his
thoughts on the most recent earnings
report and what it reveals about the
consumer. This is the close on
Bloomberg.
All right, time now for our top calls,
the big movers on the back of analyst
recommendations. And we start off with
Caterpillar. Evercore ISI out with a
constructive view on the stock with an
upgrade to outperform a price target
boost to 476 with the analyst citing the
company's leverage and geographic
advantage and says Caterpillar is now in
a position to actually scale back some
of the discounts it's been offering
which should help boost the bottom line.
The stock up for a second straight day.
Next up, Prologus. Mazuo upgrading to
outperform after being negative on the
industrial REIT sector for two years
now. The analysts seeing a better
tactical setup in the current
environment, particularly for prologus
given its relative undervaluation and a
more supportive macroeconomic
environment. That stock having its best
day since early April. And finally,
let's take a look at GAP. Bank of
America slashing its price target on the
stock to 21 down from 25. It maintains a
neutral, but the analyst raising some
worries about tariff pressures, which
could crimp the retailer style heading
into the quarter. those shares
fractional down about 1.3% on the day
and those are some of our top calls. We
do want to stick with the consumer and a
big one Home Depot. The shares up about
3% on the day after its earnings report
this morning and it reported relatively
in line with results with sales growth a
standout as shoppers prioritize smaller
projects. Let's uh bring in city
retailing broad lines and hard lines
analyst Steven Sone. He's got a buy
rating and a $433 price target on the
stock. All right, let's start off with
the mix of sales that we saw in the
quarter because on one hand, I see
there's a positive reaction in the
stock. On the other hand, I would think
that investors would be more enthused if
people were spending on big ticket items
rather than the more smaller scale
projects. What did you make of the
report, Stephen?
>> I I think it's it's it's encouraging
trend. you know, we've seen a year
straight now where the homeowner has
kind of engaged with smaller project
activity and um you know, we're waiting
for some of that large productivity to
come back, but it's it's more so a
function of rates, right? It's more so a
function of the macro uncertainty, not
necessarily something that's changed
with the, you know, the health of the
consumer. Depot has kind of talked about
the fact that that homeowner has been in
a good place. They're just kind of
pushing stuff to the right to wait for
those rate cuts to come down.
>> Well, this gets to the idea, though,
too. I mean, assuming we do get the rate
cuts as the market is pricing in, I
mean, what in your model is sort of the
impact on the housing market and
conversely on people going to Home Depot
and uh starting new projects?
>> It's really a 2026 story, right? Because
I think, you know, the back half of this
year is going to be modest improvement,
right? I think when you think about the
opportunity here with Home Depot, you've
had three years of kind of weak same
sort sales growth because we peaked
during the pandemic. you know, we've
seen the homeowner kind of shift away to
other categories and now you have this
deferral where you're waiting for them
to come back. So, I think the
opportunity is this is really a 2026
2027, you know, earnings recovery story,
right? And that's what the market is
kind of anticipating. We've seen this
environment where the stock has had
somewhat of an elevated valuation
relative to history, but it's really on
the hope that the earnings recovery
starts to materialize over the next
couple of years.
>> All right, so some things are out of
Home Depot's uh control, and it all
depends on execution. When it comes to
pricing, Stephen, what are you what's
the takeaway from the results? Are they
maintaining prices, selectively raising?
What should they be doing?
>> I think that was the incremental um
takeaway from this call, right? Last
quarter, you know, across retail, there
was a very big focus on what retailers
were going to say about pricing, right?
The administration in Washington was, I
think, was watching. I think now we've
seen the comment on the call from Home
Depot was tariff rates are higher today
than where they were in May. So that's
probably going to result in some modest
price increases. Those haven't gone into
effect yet in the second quarter. So
they're more likely happening in the
back half of the year. You know, when
you think about home improvement, that's
a category where you typically can pass
on price. You'll see some elasticity of
demand, right? You'll see weaker
transaction activity, but you're going
to pass on that price because it's not
really a promotional transaction. So
prices are going to be up in the back
half of the year. That is that is
definitely a clear takeaway from today's
call. So, Home Depot was the first big
box retailer to report results this
earnings season. We're of of course
going to be hearing from Target, uh,
Walmart on Thursday. What how much can
we extrapolate from Home Depot's results
to those other retailers?
>> Yeah, I think the monthly progression of
same store sales growth is a good read
because things clearly got better as the
quarter progressed. The month of July
was kind of the high point. They made a
comment on the call that that strength
has kind of continued into August. It's
hard, you know, some of that is weather,
right? We had a late arrival of kind of
summer here in the northern part of the
country. Um, but it does seem like the
consumers got a little bit more
engagement. You know, hopefully we get
some some economic certainty. We get
some more view from a geopolitical
standpoint to get things kind of
straightened out there from a, you know,
geopolitical standpoint. But I think
you're moving in the direction that the
consumer is kind of hanging in there.
It's been a choppy first half. There's
been a lot of distractions with tariffs
and stuff of that nature, but I think
they're moving in the right direction. I
just we only have about a minute left,
Stephen, but I do want to get your
thoughts on Lowe's, which reports
tomorrow. Are we going to see a similar
pattern in their earnings report that we
saw in Home Depot?
>> So, the thing with Lowe's is I think
you're going to see a slightly weaker
same sort of sales result. They probably
saw the same sort of monthly
progression. You know, we have a buy
rating on Home Depot. We have a neutral
on Lowe's. You know, my concern with
Lowe's has just been they haven't made
some of the investments to go after that
large pro like Home Depot has done with
the SRS acquisition and then the pending
acquisition of GMS. So, you know, Lowe's
is much more exposed to kind of DIY and
that smaller pro. I feel like you're
better positioned in the home
improvement arena with with Home Depot.
>> Yeah, it sounds like Lowe's would be
definitely a beneficiary of uh small
projects, but also for consumers who are
cutting back uh because of concern about
the economy. City Broadlines retailing
broadlines and hardlines analyst Steven
Zakone joining us. Thank you so much. Uh
that of course was our top call on Home
Depot. Coming up, excitement building
around Fanny May and Freddy Mack as the
US government considers a dual IPO.
We've got former former Fanny chairman
and CEO Franklin Reigns joining us next
to break down the heightened interest
and what a public debut could mean for
these companies. This is the close on
Bloomberg
>> 3:30 p.m. here in New York. This is the
countdown to the close. I'm Roma Bostic
>> and I'm Scarlet Fu. We're not looking at
a lot of active trading here in the
market today, but there is some economic
data to speak of. And if you're looking
for encouragement on the economy, the
housing starts would be pretty
encouraging.
>> Yeah, it's pretty well somewhat
encouraging. Can I push back on that?
because we were just talking about Home
Depot and there's a positive reaction to
those Home Depot earnings, but it was
kind of weird. I mean, they're not
people aren't spending on big ticket
items, they're spending on small ticket
items, and I was having a hard time
wrapping my head around why that should
be a good thing long term. Similar story
with the housing data we got this
morning. You had something like housing
starts up at like a five-month high.
Yet, when you look at single family
construction, that was soft. When you
look at building permits, that was down.
So, what am I supposed to make of this?
Well, it is a recovery from the first
part of the year where the homebuilders
were very reluctant to add to more
supply, right? You've got a lot of
supply sitting out there and a lot of
concern about affordability in general,
whether it's for new construction,
whether it's for existing homes.
>> Yeah. And affordability is a big issue.
I mean, we're still talking about
mortgage rates on average uh just below
7%. You're basically paying six and a
half to seven. Uh and that's assuming
you have decent credit. Uh and this kind
of hearkens back to where we were. I
mean, you go back to the early as when,
you know, we prices were mortgage rates
were what 8 n% or so.
>> Yeah. So people are unwilling to move
for their own homes. The market is
frozen in many ways and I'm not sure
that the data today changes that.
Although if you're looking for an up
arrow, we did get that.
>> Yeah, we did.
>> All right. Well, another story that
we're watching in housing is the
heightened focus on Fanny May and Freddy
Mack. Shares of the mortgage financing
companies up sharply since reports surf
surfaced that the US government is
considering taking both public later
this year. Of course, you have big
investors racing to add their input.
Bill Aman for instance proposing a
merger between the two and hedge fund
Edge One taking an activist stake. So
let's get perspective from someone who
knows the space well. Franklin Reigns is
former chairman and CEO of Fanny May and
he joins us now live. Franklin, thank
you so much for speaking with us. As we
mentioned, uh the president no less has
been posting on social media a few times
in recent months about a public offering
of Fanny May and Freddy Mack and those
shares. Do you think that such a move is
necessary?
Well, it's been 17 years that Vandy May
and Freddy Mack have been in
conservatorship. Uh, and that's a long
time and it's probably long enough. Uh,
what the only thing that's really
changed in that period of time is we
went from a consensus that Fanny and
Freddy perhaps shouldn't exist to now a
a broad consensus that they should exist
and the only question is going forward
in what form that will that will occur.
Well, you mentioned the conservatorship
and of course both are still in
conservatorship and Treasury owns a
sizable stake uh through its senior
preferred shares. So, I'm curious to
hear from you what steps you think the
administration would need to take to
make these IPOs enticing to investors.
>> Well, I think you have to think more
broadly than than the IPO. That's one uh
aspect uh of the what of the transaction
that's going to be necessary to move
these entities into uh private
ownership. Uh the that's one test, but
it's not the only test. Uh there will
need to be uh accommodations across the
board by all of the players. The
Treasury with regard to funds that it
believes it it is owed. uh the going
forward what the capital standards will
be uh and the consumer whether or not uh
there will be the mortgages will become
more affordable or less affordable as a
result of these negotiations. Uh well
there's also a big question too Frank
and I mean you know how this works the
idea that you know the sort of the the
return on on on investment the return on
equity that investors would demand is
going to be a big factor in these
discussions and I don't even really
understand at least based on what we
know publicly what level they could even
offer that would actually satisfy an
investor base should they actually
combine these companies into a new
public entity.
Well, I think the I think it'll be the
standard uh approach to financial. It'll
trade at a discount to the S&P uh uh
average as generally financials do. Uh
and a lot will depend in this particular
case uh on the regulatory environment
that the companies will face uh once
they become private entities. Uh one of
the things you know that I've learned in
in the uh 20some years that I've been
away from the company uh is that uh the
most important uh aspect of uh looking
to their future is should they exist and
I think now there is a growing consensus
that they should and the terms under
which they can can exist I think will
will be negotiable
u between the parties between the with
the treasury the regulator uh and the
companies uh I think you can put
together a package uh that can be
marketable. But will it be marketable
with everybody getting everything they
want? No. Uh the if if the capital
requirements are too high, it will not
be acceptable uh to uh the either the
investors or homeowners. Uh if the
regulatory constraints are too tight,
then no one's going to want to own the
stock. But this is the way that
conservatorships often uh are resolved
is by negotiation and concessions by
parties uh to the transaction.
>> I mean when you when you go back Frank
uh to you know that day that a lot of us
were shocked of course in the markets
when we found out that the government
was actually going to step in and take
control of this. There was an idea at
the time and I went back and looked at
those stories. I mean that this would be
a one or twoyear process maybe at most
and now here we are uh you know well
almost two decades later more than a
decade later and it's raising the
question I guess of why we need to even
go back to any sort of structure with
Fanny and Freddy can we have a
functioning mortgage market a
functioning housing market without the
GSC's and that uh implicit if you will
guarantee by the government
>> well I was shocked too I I was away from
the company for four years at that point
when uh when the they were put into
conservatorship and I was as shocked as
anyone that the government did that. Uh
Secretary Pollson had promised to bring
out his big bazooka uh and he did. Uh
and we've been living with the
consequences of that now for 17 years uh
without a lot of progress uh toward
having a better system uh than we had uh
before. The US has the most vibrant
housing finance system in the world and
that's been true for many years now. Uh
and that has allowed there to be great
efficiencies in our financing uh with
mortgage uh to treasury spreads being
relatively tight through through
multiple uh cycles
>> and and so it is it's a valuable system
for the consumer. It's a valuable system
for savings and and investment and it's
one that is uh has proven itself uh to
to be the most efficient way to provide
housing finance. It's much more
efficient than bank dominated systems
that we see elsewhere.
>> But what but what about on the risk
side? I mean you mentioned Hank Pollson
and coming in with that bazooka. I mean
obviously the criticism at the time was
that the underwriting standards uh were
too lax and that led to the perception
of heightened risk with the GSC's and
the potential for collapse. Were the
standards too low and if we sort of
reinccorporate these companies as one
combined entity I mean what assurance
will we have that the standards would be
any different?
Well, I think the uh the question uh
wasn't so much the standards as the
enforcement of the regulatory uh
requirements.
uh what happened uh prior to the
collapse of the uh housing economy, you
know, was not that the GSC's had taken
on uh dramatically greater risk, but
that the private mortgage back
securities market had done so, which
then caused the GSC's to want to compete
for market share. And this is the
problem of financial uh regulation uh
whether it's the GSSE or banks is that
the regulators responsibility is to not
allow these market forces toward uh
seeking greater margins or greater
market share to override standards. That
happened in the mortgage market. Uh but
it's also it's happened about every 10
years in the in the general commercial
banking market. uh where they have
gotten uh uh seduced uh by the allure of
uh rising margins uh and rising market
share.
>> Franklin, as you mentioned, it's been 27
years since you've been uh in charge of
Fanny May, and of course, things have
changed a lot. Um Bill Py, of course,
appointed himself as director of both
Fanny May and Freddy Mack. How unusual
is it for the director of the FHFA to do
that? And does it concern you this
arrangement?
Well, it's certainly unusual. It's a big
He has a big job as the regulator uh and
to also be the chairman of the two
companies. Uh I'm sure keeps him busy
all the time. U but I think the uh the
the important thing here is that as the
regulator, as the conservator, he has
the the power of the board in any event,
whether he's the chairman or not the
chairman. Uh so in many ways I think
it's more symbolic uh than uh than real.
>> All right, Frank, really appreciate you
taking time for us. Obviously, another
topic uh that this market is really sort
of uh hanging on and it really gets to
this idea of why it's taken this long.
Frank Reigns there, the former chair and
CEO of Fanny May. All right, when we
come back, we're going to continue the
discussion about what's going on in the
broader markets as we continue to count
you down to the close. a refocus on tech
stocks and a refocus on some concerns
here that maybe it's time to hedge. Jeff
Jacobson is the head of derivative
strategy over at 22B research and he's
got some interesting data here on just
how much hedging is going on in that
space. That's coming up next here on the
close. This is Bloomberg.
All right, welcome back. Uh 22V has an
interesting report out today by Jeff
Jacobson. a closer look at what options
traders are doing specifically when it
comes to big tech stocks. Uh the company
saying that traders are scooping up
disaster puts on the triple Q's attracts
the NASDAQ 100 uh index to hedge against
a potential sharp d downturn uh in that
group. Of course, a group uh that has
had a phenomenal run off of those lows
back in April. Pleased to say that Jeff
Jacobson joins us right now. He is the
head of derivative strategy at 22V
Research Group. Uh, as always, uh,
Jeeoff, uh, great insights, great data,
and let's just start off with what we're
talking about. We're talking about a put
skew, and maybe you can just put that
into layman's terms, what that is, and
why it's at a three-year high.
>> Sure. So, basically, when we look at put
skew, we're looking at how expensive are
the tail or out of the money puts
relative to the closer to the money
puts. So, in this case, for example,
we're looking at the 10 delta puts in
October relative to the 40 delta puts.
And when I was looking at the skew, it
was essentially at a 3 and 1/2 year
high, meaning that the tail risk or the
out- of the money puts gotten very
expensive relative to owning at the
money or closer to the money putts.
>> When you see this type of activity, and
more importantly, this type of activity
over a relatively short period of time,
what do you read into that? What can you
read into that?
>> Well, there's two ways to look at it.
It's a combination I think of a with the
VIX having moved basically back to the
lows the closer to the money puts got
cheap uh and there was still a bidded or
people interested in buying the tail
protection possibly due to uh the after
effects of the move we had lower in
April on the tariff scare uh or quite
honestly uh investors really concerned
more about another event and less
concerned about a what I would say a
normal pullback
>> concerned about another event I I mean
that could happen at any time. I'm
wondering why now? Why are people
putting on this position now? Is there a
specific catalyst that could unleash u a
disaster kind of scenario?
>> I don't think that I think it's more of
the the look the NASDAQ had a 43% rally
off the April lows. Uh people have done
very well. I I think it's a combination
of people don't know what that catalyst
could be, but they want to, you know,
have protection for that. And by doing
so, you're going to buy the the further
out of the money, lower cost but higher
volatility puts. Um, what I was trying
to stress is I I think the more normal
pullbacks we've seen over the last 18
months ex the tariff move have been in
that 12% range. So, I want to my clients
to get ahead of that and embrace the
fact that the the tail puts are
expensive and to to buy put spreads or
even ratio put spreads where you have a
better probability of making money on
what I would say again a normal
pullback.
>> Understood. Okay. So, uh you've noted
that traders are buying these disaster
puts on the Q's, the ETF that tracks the
NASDAQ 100. It's difficult to pin down
why because people do things for
different reasons. But do you think this
is specifically tied to technology
companies or is it a case of tech is
just the biggest most liquid part of the
stock market. So it's an obvious place
to start. I
>> I I think it's a combination too. Again,
these these stocks have done fabulously
well off the lows. Um, I think that
there is a a need or a want to protect a
lot of those gains and by doing so,
you're going to kind of reach for the
less expensive in terms of price, not
volatility, uh, by owning tail hedges.
Um, you know, I think it's just a a
normal reaction when you've had such a
sharp move off of where we were in
April. Uh, and we have a lot of catalyst
upcoming, whether you the Jackson Hole
this week, we have the Nvidia earnings
next week, we have another payroll
report. So I think it probably got to a
point where people were like, you know,
thinking to themselves, we've made a lot
of money. Let's have some form of
protection on and rather than spending
more in terms of nominal cost, they're
more apt to to buy the, you know, tail
hedges as they've been doing.
>> I am curious though when we talk about
some of the the dating that we're seeing
on this, of course, you mentioned some
of those October uh pegs to that. And
right now we're talking the cues are
right right around just under 570 I
think last time I checked here. So is
the idea is to keep that that hedge
relatively tight or do you think Jeeoff
there is a case to be made to make that
a little bit wider?
>> Uh well what's interesting about the
hedge that that I had described in my
note to clients is buying the put spread
targeting that 515 level that that's was
at the time about 11% lower. It's a 200
day moving average for the uh for the
NASDAQ which I think should be a level
of support. So initially when looking at
that spread which was uh in terms of the
the triple Q's or NASDAQ 10% wide I
think that's fine. I really don't think
you need to go much wider. Again the the
average decline x the movie saw in April
has been about 12%. So I think a 10%
wide spread but the key part being it
started very close to the money and now
that that uh hedge effectively is in the
money already just on today's move. So,
it kind of reinforces my belief that you
want to own closer to the money puts and
sell the expensive puts that people are
buying um for tail hedges.
>> When you look at the data out there and
what's been bought over the last a few
days and weeks, Jeff, do you have any
sense as to whether this is broad-based
buying, meaning it's it's several
investors out there doing this, or is
this just sort of a few big whales uh
creating uh their own positions?
>> It's hard to tell. I think it's a
combination again of people um looking
to just have that tail hedge on. Look,
we we've been through a period where
there's been a lot of uh you know data
points and just news flashes that have
scared the market over the last call it
you know 6 months to a year. Uh I think
it's just you know after the move that
we've had I think it's broad-based that
people were more likely or more wanting
to to own those tail hedges. Uh, and
that's probably helped push the skew out
to where it had gotten uh, that
expensive.
>> All right, Jeeoff, really appreciate you
joining us today. Jeff Jacobson, head of
derivative strategy at 22V Research
Group and Raine, we saw stock indexes
hit their session lows at the top of
this hour. We've come back off those
levels, but we are looking at a
decidedly lower stock market today.
>> Yeah, and it gets to the question, too.
I mean, first of all, we have to put a
grain of salt. Volume is low. Volume is
light. that always skews the price
action just a little bit. But there is
still a market that is kind of waiting
to hear from J. Pal on Friday. Everyone
is sort of priced in this rate cut in
September and maybe and another rate cut
later in the year. And the idea of
whether Pal will either give a nod to
that or throw cold water on it or as
he'll most likely do just dodge it all
together.
>> Yeah. Throughout the entire speech, he
won't commit to too much. I mean, that's
we've certainly seen that in the past,
although it's been pointed out that he
has made headlines at previous Jackson
Hole speeches that have really moved the
market, especially the two-year yield.
What's notable even with the declines
that we're seeing across the major
indexes is the S&P 500 equal weighted
index is actually up 3/10en of 1%. So, a
lot of the losses we're seeing are in
the big cap tech names uh as we're
discussing with Jeff Jacobson.
>> Yeah. And it'll be interesting to see
whether uh some of the declines that
we're seeing today is indeed sort of an
about phase sort of the start of a more
meaningful decline or simply just a
speed bump here uh in the road higher.
Let's pose that question to our next
guest. Daryl Kron joins us right now is
to count you down to the closing bells.
CIO for wealth and investment with Wells
Fargo and Company and president of Wells
Fargo Investment Institute. Daryl, great
to see you here.
>> Thank you. uh when you do you have a
favoritism right now when it comes to
this debate between sort of big tech
large cap stocks relative to sort of
midcap cyclicals small caps I mean
that's kind of the debate right now do
you make that shift or do you kind of
stand pat
>> so we absolutely do we would say large
and midcap over small cap or unfavorable
small cap here even though you've seen a
nice rally lately as everybody bets on
kind of call it early cycle dynamics fed
cuts all the things that can sometimes
juice small caps we would fade that
completely.
>> Um, and then we still are favorable on
technology. We still think you've got to
you you've got to go where growth
resides and there's just no doubt that
that's where the growth is. You saw it
in the latest second quarter earnings
numbers. You know, you take the the
seven largest stocks, their earnings
growth were 29%. If I take X those,
earnings growth was like three and a
half.
>> Yeah, absolutely. I understand the idea
of chasing growth, but is there is there
a trade out there that maybe combines
growth with value, I guess, for lack of
a better phrase? Yeah, I think there is
and and it's as you roll down kind of
some of the cascading implications
whether it's the data center, you know,
builds all stuff. Actually, our single
most favorite sector right now is
financials.
>> Um we still see the yield curve
steepening from here even though it's
steepened already considerably. Um we
still see an environment where you've
probably got a Fed that's leaning more
dovish, right? Which should help
financials over time and balance sheets
are strong. You're going to get the
deregulation. So, we still think that's
an area where you're getting extremely
good valuations, you're getting decent
dividends, and it can make a lot of
sense in today's environment.
>> Are you talking about big financials
like the cifies or are you talking about
smaller financials which uh could see
more prospect for consolidation?
>> I would still stay up in value up in
market cap there, Scarlet. I think I
think you've got to stay where the
strongest balance sheets are. They're
the ones that are going to carry the
biggest reserves. They're going to have
the greatest dynamic to that yield curve
steepening and net interest margin. on
top of which those are the firms that
also own the big investment banks that
benefit from a pickup and M&A and all
the other stuff that's going on in the
in the marketplace today.
>> So when it comes to earnings, uh we
mentioned how they've been better than
expected and that that's you know
typically what happens, but Nvidia could
be the big one that really changes
everything. Given what we heard from big
tech and it now feels like months ago
earlier in the earnings season, how have
that how's that shifted expectations for
what Nvidia would likely report next
week? We still think Nvidia the demand
far outstrips what the capacity is to
produce. So that's going to be great for
margins. It's going to be great for
earnings. You know, it all depends on
the bar of expectation, but I would I
would think you'd see a a decent beat
out of Nvidia next week. Um both
probably on the top side and the bottom
side. There's nothing to suggest
otherwise in in the demand that they
get. And look, I mean, if you get
everybody knows the concentration of
tech, right? If I get inside of comm
services, two names, right, Google and
Meta make up 53% of that index
>> and three names in the tech sector make
up uh 51% of the index, right? So the
skew even inside of the sectors, the the
the the sectors themselves, not just the
top 10 names of the S&P or tech as a
percentage of S&P is just abnormally
high, right? Crazy high in today's
world. There was an interesting uh data
that came out today from Morgan Stanley
that kind of talked about the idea that
there are still a lot of institutional
investors who are effectively
underweight some of these big cap tech
stocks at least underweight relative to
their portfolio waitings relative to the
S&P weightings. I think one of the
examples I used was Microsoft which has
a waiting of like 7% in the S&P yet it's
less than 5% in institutional
portfolios. What do you think accounts
for that discrepancy? Some of it is the
way that the asset managers are set up
with what the rules and and the
concentration limits that they have
within the actual funds themselves. But
it's absolutely true. We see it across
our platform when we look at large cap
growth which should be where you get the
biggest lean towards tech. Um the vast
majority of managers are still
underweight relative to even a benchmark
waiting in technology and com services.
Right? So that's been a drag on
performance. It's it's fed into this
narrative about active underperforming
passive for periods of time. I mean,
what people miss is since the April
lows,
>> we have lived on this rally back above
the 20-day moving average, almost the
complete totality of the time, which is
so rare for this duration of period that
we've been going now from April to
August
>> where that's happened. Um, it's very
unusual that you see that happen. And
and even as we sit here today, you've
got the Dow, you've got the S&P, you've
got the Russell 2000, all above their
20-day, above their 50-day, above their
200 day, right? It just keeps feeding
onto itself. Notwithstanding,
everybody's a little worried about
climbing that wall of worry of all the
things that could come at us in the
fall.
>> You mentioned you expect a steepening
yield curve. How do you want to be
positioned when it comes to fixed
income?
>> So, we um it's interesting. Yesterday
was the 11th month anniversary. So
almost a year ago when the Fed first cut
interest rates on September 18th, 2024,
right?
>> And if you owned long duration, you're
negative today, right? So if you were
out on the yield curve, you still show a
negative rate of return.
>> We've been actually barbelled right in
the belly of the curve. Intermediates
where we think the best value is. Um
we've been unfavorable short,
unfavorable long. It's interesting if
you look at really wealthy investors
today, they're barbelled themselves, but
what they're barbelled on is tech stocks
on one side and cash or money market
funds on the other. Right.
>> Two extremes.
>> Yeah. And which is a little unusual.
It's probably not where we'd be. We
still think there's nice roll down in
the middle intermediate portion of the
curve and you can take advantage of
that.
>> But I guess if you if you feel
comfortable with that dry powder and the
cash side of it, you know, nothing wrong
with that either. Is there a sense
though too, just real quickly, only
about a minute left, but if the Fed does
indeed make good on what's on that dot
plot with cutting rates, does you does
medium-term duration somehow turn into
maybe a better story with potentially
shorter duration or do you just kind of
stay in the fiveyear, the belly of the
curve?
>> I'd still stay in the five-year. I mean,
look at the two-year at 375, right? Fed
funds is 433. So, you're a full, you
know, we got two two cuts priced in this
year, three for next year. We think
that's too much. We don't think the Fed
can deliver again. Just like the bond
market's been job owning the Fed for the
past two and a half years and it's never
come to fruition. We think they've
priced in too many cuts today.
>> All right, Darl, always great stuff.
Daryl Kron, president of the Wells Fargo
Investment Institute, counting us down
to the closing bells right across the
screen for the major indices, though we
should point out transports and midcaps
in the green.
>> Yeah, we heard uh Commerce Secretary
Howard Lutnik talk about how he would be
in favor, he would support consolidation
among rail companies.
>> Yeah. Okay. Yeah, sure. Transports. We
should point out uh while everything is
sort of testing those moving averages to
the downside, transport is actually back
above all of its key moving averages.
The full breakdown of all of today's
market action starts now.
The closing bell. Bloomberg's
comprehensive crossplatform coverage of
the US market close starts right now.
>> And right now we are 2 minutes away from
the end of the trading day. Roma Bostic
here with Scarlett Fu taking you through
to the closing bell with the global
simalcast. It's already started. There's
Tim Stenick in the radio booth. Emily
Grafo by his side. Carol Masser has the
day off. Welcome to our audiences across
our Bloomberg platforms here on a big
test for the equity rally. Tim,
>> yeah, I mean a big test, but I think
it's fair to say that the you know the
tech tech companies don't always go up,
Roma. And that's exactly what we're
seeing today.
>> Wow.
>> That's what we're seeing with the Nasdaq
Composite on the downside. Look at that.
Down 1.5%. The S&P 500 taking a hit down
the to the tune of 610 of 1%. It's being
dragged down by mega cap tech companies.
>> Bitcoin also doesn't always go up. Uh
try convincing the uh crypto fans of
that. But we are seeing Bitcoin down
about 3% right now and Ether falling
even more than that as well.
>> I know that was a lot of red arrows that
Tim was just showing us, but within the
S&P 500, 351 stocks rising, only 150
declining. So when you look at the S&P
equal weighted index, it's notable that
it is up about three ten of 1%.
>> Yeah, I like the glass half full uh
thing there, Scarlet. It also gets to
this idea of Dow transports up more than
a percent on the day with some of those
transport stocks getting a bit. And I
just want to point out too, we talk
about tech stocks being on the back
foot, not all tech stocks. You take a
look at the NASDAQ 100 and the number
one gainer there on a percentage basis,
Intel
>> up 7% of course after yesterday's 4%.
>> That that's uh you know a singular story
though. Yeah, I think it's fair to say.
You're going to have to wait for my
gainers to hear why.
>> I step on your toes.
>> If you haven't been staying tuned deep,
>> what's Emily got? Can I step on her
toes?
>> All right, let's
>> Don't do it.
>> All right, let's walk you through the
closing bells here in New York. A bit of
a pull back for some of the major
indices here on this Tuesday afternoon.
Maybe just a little bit of profit
taking, maybe a rethink of the rally,
maybe concerns about valuations, or
maybe concerns about the Fed. The Dow
Jones Industrial Average is going to end
the day relatively unchanged after
spending a good portion of the day in
the red. It's going to close higher by
roughly about seven points. The S&P 500
is down more than 30 points or about
6/10 of 1%. The Nasdaq Composite down
about 1 and a.5% on the day. Similar
move lower for the Nasdaq 100. And the
Russell 2000 dropping about 18 points on
the day or 8/10en of 1%.
>> Hey, Scarlet making a really good point
earlier about the number of stocks
higher in the S&P 500. It really speaks
to the megga cap tech nature of these
companies. That is it a market cap
weighted index. We did have 356 stocks
advance in the S&P 146 on the downside
despite the fact that it closed down
6/10en of 1%.
>> Yeah. But when you look at the IMAP and
you look at the size of the different
sectors, there's a reason why the S&P
500 closed down even though there are
seven sectors in the green and only four
in the red. The ones that are in the
red, tech, biggest sector in the S&P
500, right? A third of the S&P.
Communication services makes up about
10% of the S&P 500. Consumer
discretionary makes up 10 and a half
percent. Those are your leading
decliners and uh communication services
and tech each down more than 1%. REITs,
consumer staples, and utilities, some of
your smaller sectors. They're leading
the gains today.
>> Well, speaking of gains, I do want to
start with Intel shares surging after
Soft Bank agreed to buy $2 billion of
the company's stock up 7% at the end of
the day today. Analysts see this news as
positive, but continued to see a number
of questions surrounding the company's
prospects. Uh, Commerce Secretary Howard
Lutnik was on CNBC earlier today. He
confirmed discussions between the US and
Intel for the government to take a stake
in Intel, but he cast the plan as a bid
to convert Chips and Science Act grants
into equity. So, as Carol always says,
the devil is into details and we'll wait
to see those details. Also, Palo Alto
Networks going uh rising in today's
trade. The company reported stronger
than expected annual forecast. The
company seeks to provide customers with
a bundle of AI enabled cyber security
products to fend off attack. Shares
higher today by 3%. PaloAlto Network CEO
said quote in this new era security is
no longer a bolt-on and that an
integrated best to beat platforms
deliver superior security outcomes
according to him. And how about a little
media merger news on this Tuesday. Today
I'm watching what happened with shares
of Tegna today because NextStar Media
Group agreed to buy Tegna for $3.5
billion in an allcash takeover.
Investors certainly liked that up 4.3%
throughout the day today. The deal
values Tegna at $22 a share, trading
just shy of that, but it is a 44%
premium to the company's stock price on
August 8th. And including debt and
transaction fees, it face uh values
Tegna at $6.2 billion. Emily.
>> All right. All right. Well, tech stocks
were certainly amongst the biggest
decliners of the day. Oracle was one of
them that I chose to highlight. It fell
about 6%. It was the biggest drop since
April. Trading volume was also about 77%
above the average for uh the time of the
market close. We got news a few days ago
that uh their longtime chief security
officer, one of the highest ranking
women in the cyber security industry, is
leaving the company as part of a recent
reorganization. Perhaps that's weighing
on the shares a little bit today.
Maryanne Davidson, she joined Oracle in
1988.
Additionally, when it comes to Oracle
specific news, Bloomberg News recently
reported that they're cutting jobs as
the company takes steps to control costs
amid heavy spending on AI
infrastructure. So, we talk a lot about
this AI theme and spending, but here it
is. Maybe there was too much money and
investors are taking note of that. I'm
also watching shares of Viking
Therapeutics. This was a big drop today
after the company's experimental obesity
pill disappointed investors in a
mid-stage study. You look at the shares
closing down 42%.
Uh obviously a lot of companies here
racing to make those weight loss uh
pills. Vikings pill did h help patients
lose up to 12.2% of their body weight
according to a statement from Viking,
but almost a third of the patients
dropped out of the trial in just 3
months. It seems like investors hanging
on uh to that. And then finally, I
finished with a company you guys may
have heard of, Nvidia. Uh trading volume
was about 21% above the 20-day average.
It was leading losses uh in the market
today, and it was actually the biggest
full day drop since April 21st for uh
this chip company. It was down almost
4%.
>> All right. And we should point out, too,
not all day activity was in the equity
market. We did see activity in
treasuries coming off three straight
days of actual price declines. We saw an
increase in treasury prices across the
curve, pushing yields down all across
the curve of just about one basis point
on the short end and three basis points
uh when you get out to your 10 and
30-year yields. This may come as no
surprise to our viewers and listeners
who live in New Jersey, but New Jersey
Transit, when you look at the other
commuter rails in the tri-state area,
including the Metro North and the Long
Island Railroad, it's actually the worst
in terms of reliability, and it's by a
long shot. An analysis of real-time data
shows that it's less reliable than the
Metro North and Long Island Railroad,
and riders face significant service
disruptions at six times the rate of
other commuters. Katie, one I mean,
excuse me, Emily.
>> One in every 18 New Jersey Transit
trains was delayed by at least 15
minutes.
>> Yeah. Well, Katie's the New Jersey girl.
I'm the Connecticut girl, so this is
kind of a win here uh for for for my
state. For an average commuter, um they
had a bad commute roughly every two
weeks versus once every three months or
more if you're going to New York um and
Connecticut versus Katie going to New
Jersey.
>> I feel bad because Carol should be here
to defend her state. I mean, she she's
the New Jersey commuter. Uh, I know one
of our producers commutes here from New
Jersey and it has to take the New Jersey
transit and um is constantly texting us
from uh, you know, wherever he's stuck
saying, you know, it's going to be
another hour. It's going to be another
half hour. I'll get there when I get
there. So, I feel for them. Um, I'm on
the Metro North, which is, uh, got
pretty good timely arrivals. But you
take the subway remain, right? You're
good.
>> Me? No.
>> He doesn't do public transit. Do you
even know me? Um uh speaking of which uh
you know there are other stories out
there guys and more important stories
than than your gripes about your uh you
know pedestrian commutes there. Leubu
>> Labubu
>> has taken over the world
>> and now it's taken over the
profitability of PopMart. PopMart
actually just reported earnings and its
revenue jumped 200%
year-over-year. Net income jumped 400%
year-over-year. Of course, PopMart makes
a lot of uh various uh dolls and
trinkets and tokens, if you will, but uh
nothing, at least in recent memory, has
been
>> as successful as a loop. Margins.
>> Yeah.
>> 400% jump in net income. 200% jump in
revenue. Honestly, how long does this
last?
>> I would have expected more.
>> Really?
>> Yeah. That's it.
>> What are the What are the tariffs on
these liabu
the plural or do I say labuboos?
>> It's labubai.
>> Labubai. But but it gets to this idea
too. I mean, we talk about this these,
you know, how something that really has
no value whatsoever to anyone. But it
just Yeah, it's just my opinion. But but
but the way it just takes over. You see
these things everywhere now. Uh you
can't even buy them when they come on to
market. Scalpers just pick them up and,
you know, then they resell them for, you
know, two, three times what they paid
here. This is the craze. Tim Sten,
>> Yeah. I heard you have an entire room in
your apartment dedicated to just your
Lib Boooo con collection.
>> I do. It's called the bathroom.
>> Is that true?
I've actually only seen one of these,
but maybe I'm just not looking up from
my phone enough.
>> I can't wait for the, you know,
crossover when we get the Lubu movie,
you know, video games.
>> I mean, look, we all know how this ends.
We were around for the Beanie Babies,
you know, 25 years ago. So,
>> yeah, I got a closet full of those.
>> Exactly.
>> All right. Well, that is going to do it
for our crossplatform coverage, the
market close. You better have another
plan in place, Roma. We'll see you same
time, same place tomorrow.
And our coverage continues here on
Bloomberg television. A closer look at
the tech selloff today and some
questions going forward about whether
that selloff was even justified. We're
going to talk to Dan Ives over at
Woodbush when we come back. Stick with
>> The countdown is on. Everything you need
Well, the close just happened about 11
minutes ago and it was a down day for
the major indices. The Dow unchanged on
the day. The S&P down fractionally, but
it was really big cap tech that really
stole the show. The NASDAQ 100 dropping
about 1.4% on the day. That bested some
of the losses that we saw in the Russell
2000 and some of the other indices. The
VIX slightly elevated and Bitcoin
slightly down as well. Down about 3%
raising some questions here about some
of the risk appetite in the market. We
should point out not all was lost here.
Nvidia did drop about three and a half%
on the day, but of course we're talking
about a stock that has been on a
phenomenal run, but do keep an eye on
some of the key technical measures here.
Nvidia closing below that 20-day moving
average for the first day, for the first
time I should say, since April.
Meanwhile, pounder on its longest losing
streak, daily losing streak going back
to March, raising about 15% of its
market value over that stretch,
including a 9% drop on the day. But a
few bright spots, idiosyncratic stories
to be sure. Intel rallying about 7%
after yesterday's sell-off. Some
optimism here after we learned that
SoftBank is taking the $2 billion stake
in the company and PaloAlto Networks
rallying about 3% on the day on the back
of a very encouraging earnings report.
And that mixed bag that we just saw in
this screen brings us to our top story
and that is the tech trade. Where is it?
The S&P tech sector is still pacing the
rest of the S&P 500 this year. and what
is going to be the 11th year of
outperformance in the past 12. That is
the market. So, we use that as an excuse
to take a look back in history. Back in
history at one of the key moments in the
formation of this rally, August 19th,
2020, that was the day Apple's market
capitalization passed $2 trillion, the
first stock to ever surpass that level.
And while it took 38 years to reach that
first $1 trillion in value, that next 1
trillion only took two years. It was
aided, of course, by the pandemic
sell-off that helped, but it also was
aided by Tim Cook's management savvy and
just a shift in the way investors were
thinking about the company and the tech
sector overall. Now, Apple's market
value on this day in history back in
2020, it almost matched the entire index
of the Russell 2000 small cap stocks.
And then back on this day, we saw so
many headlines, so much hand ringing
about whether those valuations were
justified. headlines screaming that only
six stocks were responsible collectively
for most of the gains that we saw in the
broader market for that year. Up 40% as
a group, just six stocks, while the S&P
was down 4% when you exclude those six
stocks. Not much has changed since.
Apple now has a $3 trillion valuation.
So too does Microsoft and Nvidia, of
course, is north of $4 trillion. And
like in 2020, this broad market rally is
anything well but broad. Just five
stocks, all tech stocks, account for
more than half of the market gains. 300
points of the 500 points added to the
S&P so far this year. While the extreme
concentration rivals the 1998.com
bubble, unlike 1980 1998, excuse me,
those five stocks along with three or
four others to be sure, make up the lion
share of profit growth for the market as
a whole. Maybe that's why some are
betting that today's sell-off is just a
mere bump in the road rather than some
sort of wholesale about face. One of
those folks, I think, not to put words
in his mouth, is Dan Oz, the global head
of technology research over at Wed Bush.
And Dan, I do want to start here with
this idea that we've had anytime you
have a big rally, you're always going to
have these daily pullbacks, even weekly
pullbacks, if you will. That doesn't
necessarily mean the rally is over. And
I do wonder if you see enough
fundamental case there for this rally to
reset and continue.
>> Yeah, look, I view it as a bump in the
road because it's our view when you
think about AI revolution, you're just
continuing to get validation from
earnings and from everything we see from
the data center as well as just overall
demand. We'll see that from Godfather
Bay Jensen, Nvidia, you know, as we go
into next week. And look, I continue to
view this, this is a 1996 moment, not a
1999 or 2000 moment. And that's our
view. I mean, this is a tech bull market
that will continue to rage on into in
second half of the year into next year,
given we're talking about a fourth
industrial revolution that we're
actually just living through.
>> When we talk about that fourth
industrial revolution, everyone of
course wants to know how that includes
stocks other than say Nvidia or
Microsoft. I know we've talked about
this before, the idea of the AI trade
broadening and it does appear investors
are hungry for that. Looking for who the
next beneficiaries of this are going to
be. Are they visible yet?
>> I think they're starting to be visible.
I mean, we have our AI30 list where we
talk about the derivatives. It's not
just look, of course, it's led by
Nvidia. It's led by Microsoft. It's led
by, you know, big tech, Meta, and
others. But now it's second, third,
fourth derivatives. Nebius is a good
example. You never would have talked
about them a year ago. You know, you
look what's happening on cyber security.
You never would have said as an AI name,
Palatoto, Crowd Strike. You look on
Palunteer two years ago, no one talked
about it. A year ago, maybe, you know,
haters would talk about it. Look what's
happened there. And the sell off today,
I just view as just a small bump the
road to what I believe is a trillion
dollar market cap next two or three
years. So my view is and that was a
great illustration we talked about it's
going to spread second third fourth
derivatives and I always say when the
bears are in hibernation mode they can
see AI in the spreadsheets
>> one thing that I found interesting about
the rally certainly uh this particular
year that we've been in is sort of the
participation that we started to see
amongst old tech companies we talked a
lot in the past on this program about
Oracle today we take a look at Intel and
I know Intel has a lot of issues but to
see uh not just so much the rally in the
shares today, but the vote of confidence
that Masayoshi Sun and Soft Bank had to
put up $2 billion to invest in this
company. Do you think Intel is going to
find a spot in this with AI revolution,
tech revolution, whatever you want to
call it?
>> Look, I think the problem is they're
just years behind, right, in terms of,
you know, you look at what Intel has
done the last few years has been just a
a massive black eye. Now clear like soft
bang voter confidence obviously US
government you know that's a little you
know call it a obviously a champagne
moment today but I just think this is an
everlike uphill battle they're years
behind other competitors when you look
at Nvidia AMD TSMC and I I just think
look there's a better chance of me
playing Ryder Cup Beth Page in September
than Intel catching these other chip
players and that's the reality. So, so
what what do you think Intel can be or
or more importantly, what do you think
it will end up being? Does it get
bought? Does it get chopped up and into
different pieces or does it just kind of
wither on the bind and go away? I think
chopped up. It's going to have to be
strategically split. I mean, that's our
view. Look, you have I get right now
you're talking about one of the core US
tech asset. you look at their customer
base, but the reality is like markets
telling you, I mean, of course, you had
today, but strategically that this is
probably a company that's gonna have to
split up. I think that's part of the
problem is that these tech companies,
when you look at the ones that
participate, they're so far ahead of the
competition and Intel, you know, they've
been on a treadmill almost, you know,
2.5 speed or or lower.
>> All right, Dan, always appreciate
talking to us. Dan Ies, global head of
technology research over at Wed Bush. As
we continue here on the close with a
focus on macro and a focus of course on
JPAL, the Fed chair set to give a speech
at Jackson Hole, Wyoming later this
week. We're going to break down what to
expect. This is the close on Bloomberg.
Chair Pal's in a tough spot going into
Friday because uh we got a long way to
go until we have that that September
meeting you referenced. Um and a lot of
data in between now and then. On top of
that, he has the political pressure on
the back of his neck he's been dealing
with with some time. Uh so he can't lean
one way or another uh in my view uh in
this speech.
>> Rob Sakin over at City speaking earlier
on Bloomberg television and warning that
J Pal is in a tough position heading
into that Jackson Hole summit this week.
Our next guest coming up says that the
Fed well will stay on hold as much as it
can. Economic uncertainty still high. So
he says stay disciplined, stay invested,
and more importantly stay diversified.
Those words coming from Omar Aguilar,
the CEO and CIO at Schwab Asset
Management. And Omar joins us right now.
And Omar, I do want to start off uh with
the Fed and the expectation for interest
rate cuts. First of all, let's start
off. What is your base case? Do we get
not just that cut in September but that
second cut that was already modeled into
the dot putt for 2025?
>> Yeah, I think the uh the market seems to
be completely into the u the cut you
know being in September. I think we have
more than 80% probability that that will
happen. uh the the second cut, you know,
in December is really more for our own
view regarding the the trends that we
see in the economics as well as just the
the trade-offs between what we see in
unemployment as well as what we see on
inflation. So the likelihood that we
will see one or two cuts between now at
the end of the year seems to be pretty
high. You know the the biggest challenge
and the biggest question mark is whether
or not you will do one you know two cuts
of 25 basis points or they will actually
try to accelerate and maybe just do one
or 50 basis points and a lot of those
you know will be probably you know
questions that may be answered you know
after the Jackson Hall meeting. I am
curious that I I mean assuming we get
those cuts uh not only for this year but
of course the additional cuts that the
market is pricing in for 2026 does that
materially in your view change how you
approach this market in terms of what
you allocate to what you hold on to what
you get rid of?
>> Excellent question. Uh no we we have
been very clear and we have encouraged
our clients here at Schwab that to
continue to look at what we call the
direction of travel. um you know try to
stay focused on that long-term trend.
You know it is a reality that between
now and middle of next year we will see
lower interest rates. You know we we
understand the dynamics that go through
the economic cycle and we see the trends
in the economy of a slowdown. When you
look at the economic slowdown and when
you see yes a sticky inflation that has
been you know putting these breaks into
the Fed you know cycle you know
obviously you know we we have to adjust
to what the timing is and the volatility
that comes with it but the direction of
travel is very clear. We will have a
steeper yield curve. We will see lower
interest on the low end and we will
potentially see a continuation of the
rally of risky assets as you know the
market starts to go through the next
phase of the economies economic cycle. I
I want to talk about uh two pillars of
that. Of course, what's going on in risk
assets, but first, what's going on in
the fixed income space and when you look
at yields and you factor in the the
expectations for a cut in Fed rates
here, do you find if assuming you don't
have a major allocation to fixed income
and I'm primarily talking about
treasuries, do you go do you go to the
short end of the curve and take
advantage of potential price
appreciation? Do you lock in something
on the longer end of the curve or do you
stay in the middle?
We we have been you know working on this
premise just for the last few months u
to basically anticipate these the
potential you know cut in Fed rates that
will obviously be affecting the the the
short part of the of the curve and the
near-term part of the the curve. So
we're encouraging our clients to start
increasing their duration to the middle
size of the cycle. Again, the
anticipation here is that we will have a
steeper yield curve and then trying to
lock in those, you know, yields that you
have in the middle part of the curves
with higher quality, you know, it will
be great. We have also encouraged
clients to try to just be very cautious
on how much credit exposure they have.
At this point, spreads are incredibly
tight and with the potential of economic
slowdown, it is probably prudent to
maintain that high levels of quality and
don't necessarily go too far into the
credit spectrum to try to generate more
yields. So staying in the middle and try
to take advantage of the yields that we
have today until we see what happens
after the Fed starts reducing their
their pol monetary policy. With regards
to equities, uh, particularly given the
elevated valuations at least for certain
pockets of the market, Omar, I mean,
where are you kind of steering clients
towards? Do you just say stick with big
cap, take stick with the big growth
companies, or is there a broader trade
out there to be had?
>> Yeah, the the big the big part of on the
equity side is, you know, valuations are
clearly above average. We have seen
these trade-offs between you know
valuations being high but at the same
time seeing this incredibly acceleration
of capital expenditures the capital
expenditure cycle was uh accelerated as
a result of AI but also as a result of
the fiscal stimulus that was announced
just a few months back. So when you put
the together that you know component it
the whole story of what we've been
working with with clients is
profitability looking at margins and
looking at those companies that will be
able to absorb any uncertainty on trade
policy that will be able to just stay
you know competitive. So big part of of
of the of the emphasis for investing
over the next few months will be
corporations that tend to be higher
quality, corporations that tend to pay
dividends and corporations to be able to
absorb uncertainty on the trade policy
because they have plenty of of margins.
Industries and sectors and companies
that tend to be more capital intense
when they use they need to use capital
that will probably have a little harder
time is staying o on there. So there
will be dispersion and volatility coming
from this. All right, Omar, always
smart. Always love talking to you. Omar
Aguilar, who helps to run Schwab Asset
Management, the CEO and CIO over there.
When we come back, we are actually still
awaiting earnings. Today, it's going to
be Toll Brothers, the home builder. It's
going to be an interesting report,
particularly on the back of the actual
official home building data, housing
star data that we got earlier today.
That conversation coming up after the
break. This is Bloomberg.
Some breaking news right now. This on
Toll Brothers, the US home builder
reporting earnings right now in the
third quarter. The company did say that
revenue came in at about 2.88 billion,
just a smidge above the average of
street estimates, which we're looking
for about 2.86 billion. EPS on a
year-over-year basis, $3.73 versus $360
year-over-year. Not quite sure what the
analyst estimate comparison is on that,
but we should point out gross margin did
expand just a little bit, 27.5. And home
sales themselves in terms of actual unit
sales came in in the most recent quarter
at 2,959.
And that's higher than street estimates.
They were looking for 2,927.
The backlog though, something to keep an
eye on, coming in well below estimates.
The company says that his 3Q backlog
coming in about 5,492
homes. the street was looking for 5,720.
You see the knee-jerk reaction here in
the shares down about 6%. We do want to
talk a little bit more about the home
sector with those earnings coming out
here in the after hours trade and of
course with those housing starts numbers
that we got prior to the opening bell
today. We want to bring in Ore Devangi.
He's senior economist over at Zillow to
talk a little bit more about the health
of the home buyer market. And I am
curious or there's been a lot of talk
about some of the shifts in mortgage
rates as of late. I mean I think we
started the year roughly around 7% the
average mortgage rate in this country.
That's down depending on the data
provider maybe a half percentage point
or so. And I am curious is when what
more do we need to see to get a material
increase in buyers coming off the
sidelines and entering this market? I
>> I think you nailed it right.
affordability has uh is still a problem,
but it's actually been improving. Uh
mortgage rates were lower than they were
a year ago this home shopping season,
but we didn't we, you know, we saw
sellers return, but we didn't see a big
uptick in in uh in buying activity. Uh
and and a lot of that had to do with the
uncertainty that we saw in the spring,
right? The big stock market correction
in March and then in April. Uh, you
know, look, the labor market is now
showing, you know, numbers that are kind
of weaker, much weaker than than
previously anticipated. Uh, and the
number one reason people move is for a
job. And so, uh, when the labor market
slows down, uh, and income growth
remains somewhat subdued and people
don't feel confident about their future
income prospects, they tend to pull
back, right? They sit on their wallets,
they wait it out. And I think that's
what kind of played out uh, this spring.
>> I I am curious. I mean, because
obviously we talk here in the US,
obviously a very seasonal seasonal
industry with a lot of those sales
weighted uh to the spring season. Now
that we're basically almost through the
summer and heading into the fall, are we
going to see maybe a potential catchup
of what we didn't see in the spring or
do we have to wait until next year uh
for the next uh spring cycle?
>> Yeah, it's it's interesting you say
that. Look, buyers now have uh more
leverage in negotiation, right? uh and
and part part of that is the fact that
you know there's not that many that can
actually afford uh to transact in this
in this market. The good news is we're
seeing prices coming back down to earth
in places where builders have been able
to keep up with demand and that has also
contributed to the affordability
improvement. Uh nationally the share of
listings with a price cut on Zillow was
27% in July, a record since we've been
tracking this measure. Of course there
are huge disparities across the country.
Uh in in the sunb belt we're seeing
inventory accumulate. Part of that has
been the big increase in supply from
coming from builders. Uh in the
northeast we're the constraint is still
housing inventory. In the northeast
we're not seeing the big increase in
inventory. Inventory remains stubbornly
low. You know especially around the
tri-state area. Those are places where
it's really tough for builders to
increase to lean into density. And so
we're not seeing a lot of building
activity there. And so price price and
rent growth remains relatively stubborn
in that region. Are we going to see
buyers take advantage of the the
affordability improvement? I think it's
really going to depend on where the
labor market goes from here. I think the
you know the the emphasis on the Fed
cutting interest rates. Uh you know I
don't expect a big move on the long end
of the on the year curve and mortgage
rates but I do expect uh hopefully the
Fed to put more emphasis on the labor
market slowdown. And if we see uh job
creation kind of uh increase again and
kind of move out of the stall speed that
we're in right now, uh I think that
buyers could come back could slowly
return to the to the housing market. Now
remember last year we saw builders
finish out the year pretty strong after
those uh after of course uh you know we
saw support coming from the Fed.
>> Absolutely. And I do I am curious. I
mean looking at Toll Brothers and really
all the builders I mean we've heard them
talk about this on past conference
calls. the idea that they're actually
trying to moderate a little bit of their
growth to sort of match uh market
conditions. And I am curious as to
whether some of the moves that they made
over the last few years, I don't want to
say we're wrong, but maybe they got a
little bit too ahead of themselves with
regards uh to some of their building.
>> No, we're if you look at where new
construction is really really strong,
it's in the south, right? It's in those
markets where uh you know it even as
affordability you know got stretched
builders really pivoted with market
conditions. I think builders are still
very good at predicting where housing
demand is. And right now what are they
showing us? If you look at the latest
numbers they're showing us permitting
activity down on a year-over-year basis,
right? And so there's fewer homes that
are going to get built in the months to
come. So builders already pulling back.
So, while I expect potentially that new
home sales could finish out the year a
little bit stronger, uh I think builder
activity is going to continue to pull
back at least for for for the time
being. Look, builders are facing higher
labor cost. They're f facing higher
materials and components cost and
they're facing higher cost land costs.
And so unless we uh lower builder cost,
builders are not going to be building
into a easing price or even falling
price environment. I
>> I am curious on the affordability side,
particularly when it comes to new homes.
We did see builders offering a lot of
incentives, particularly once mortgage
rates spiked up. This idea of a way to
get people in the door. A, did that
help? and B, do you think we're going to
start see a roll back of some of those
incentives now that maybe uh the
potential pipeline of new supply might
be a little bit more imbalanced?
>> So, I I don't think we're going to see a
roll back. I think I think builders are
kind of uh you know are meeting buyers
where they're at, right? And uh and in
fact, the fact that mortgage rates are
have been declining since May actually
makes the rate bound buy down a little
bit uh cheaper uh from a from a builder
standpoint. And so, I don't think we're
going to see a lot of that. However, I
have to say that because the market
conditions are such that buyers have
more bargaining power, affordability is
improving slightly, uh the fact that
builders will begin to pull back uh
means that potentially kind of this uh
perfect this sweet spot that potential
buyers are in right now may actually go
away, right? If supply starts to pull
back, uh you're going to start to say
get pressure again uh on prices. The
remember the nation is faced with a
massive housing deficit and so we need
to keep builders in the game and and
that means lower lowering cost for
builders especially in an environment
the current environment where they're
they're kind of pulling back. All right,
Orfay. Uh, really great stuff. Or
Devanji is Zillow's senior economist
here on a big day for a read on the
housing market with those housing starts
and building permits numbers that came
out this morning. And here in the after
hours trade, keeping an eye on Toll
Brothers, the company, the home builder
just reporting earnings here, a miss on
a couple of key metrics here. You see
the shares slightly lower here in the
after hours trade down about 2%. keep an
eye on some of its peers like Lenar and
KB Holmes to see how they react in the
after hours trade and maybe into
tomorrow with regards to the cash
session. But I do want to point out Lazy
Boy. We haven't had a chance to talk
about this. They did report just a
little while ago and the shares plunging
here in the after hours trade after
missing on several key metrics with
shares I should say comp sales down
about 4% in the most recent quarter
operating income down 32% in the most
recent quarter and the CFO talking in
the statement about maybe some pressure
on the consumer and its ability to
continue spending. We'll be back in a
moment. This is the close on Bloomberg.
A focus on the consumer this afternoon
with recent economic data shielding
consumers from the worst of tariffs.
That's the read. But companies and
economists alike are warning they are
not yet in the clear. New data from the
Carne Consumer Institute shows shoppers
becoming more selective with their
purchases toggling between the mindsets
of scarcity, yolo, and optimization.
Katie Thomas is the lead at the Carne
Consumer Institute, a think tank housed
under the global consulting firm Carney.
And she joins us right now to talk a
little bit more about this data. Are we
still spending money?
>> Uh, we are. And I know it seems hard to
believe because you hear a lot about
poor sentiment, high stress on behalf of
consumers, but they are still spending
for a couple of reasons. One is it's a
sense of control. So consumers really
feel like it's almost a reaction and
response to all this uncertainty. I
still have some level of control and I'm
shopping with intention. That's a word
we're hearing a lot. Intentionality,
thoughtful tradeoffs. Uh, but the other
piece of it is just, you know, because
of all of this ambient anxiety, you kind
of see them going back and forth from
this like, okay, I'm going to be frugal.
I'm going to show scarcity, be really
thoughtful, and not maybe not eat out
all week to, you know what, I give up.
There's too much going on. I'm going to
live my life. I'm going to book a trip.
And so you're really seeing these
dynamic mindsets impacting how they're
spending.
>> I am curious. I mean, you guys have a
report that's going to be published
tomorrow and and you know, one of the
data points in there is this idea that
the majority of folks are basically
feeling the impact of inflation,
particularly when it comes to their
essentials like like food uh and other
things. And I am curious what type of
impact does that have on their
willingness to spend on discretionary
items if they are feeling the pinch at
the grocery store? Yeah, I mean they
absolutely feel it the most on food,
groceries, and then restaurants. Uh, but
that's sort of an interesting dynamic
because that's one where the price value
equation has really gotten out of whack
in recent years for consumers. And
that's when you start to feed into I
don't love the term trading down to
private label because consumers see it a
lot more savvy than that. They're making
good tradeoffs. They're sometimes good
enough is good enough. And that's what
you see at the grocery store is I'm
going to buy what feels like the right
price value for me.
>> We just got several earnings from a lot
of the uh publicly traded restaurant
chains cavas and the sweet greens. Uh
across the board, most of them were not
very good. Yeah.
>> And there seems to be under the hood
this idea that people are dining out
less or if they are dining out uh their
their checks are a lot smaller than what
they would used to be.
>> Right. So I would say it's a combination
of the wallet tightening with this price
value issue. So, we did have about half
of the consumers in the survey we're
publishing tomorrow say they are trying
to cut back on how much they eat out.
However, when you think of some of those
places you mentioned, bowls in
particular, places that used to be 10 to
12 a bowl are now 20 and it really just
feel it doesn't feel like the quality is
improved. The menus haven't been
innovative and so consumers are really
questioning, is that even how I want to
spend my money? So, I don't think it's
as simple as a tradeown.
>> But there's inflation everywhere. I
mean, we, you know, you go out to a
restaurant, you see it on on the prices.
Obviously, you see it at the grocery
store. I mean, just today, my dog walker
raiser fee $5, which I was like, okay,
sure. I mean, I have no choice but to
pay it. But it gets to this idea that
whether it's real or not, I mean, the
idea is a perception as you walk around,
it seems like everything is
significantly more than what it was a
year ago or 5 years ago. So, long term,
does that alter the psychology of the
consumer?
>> Absolutely. It's an idea called
reference pricing and it's just what you
describe. Eggs was another great example
of that. It's like I remember when eggs
were two $3 a dozen and it takes time
for that to catch up. In general,
there's going to be a consumer lag when
you see this data, the impact of tariffs
and even right now the job market is
still reasonable. The labor market's
healthy. You're not going to see this
appear in consumer spending data
overnight.
>> With regards to clothing, I saw that in
the report it was 57% bought new clothes
or shoes.
>> Yep.
>> Is that normal? Is that sort of in line
with historical averages or is that
higher? What?
>> Yeah, I mean it's it's about normal, but
it's also not I mean that is more
discretionary purchase. You can kind of
argue it either way in some cases with
kids, right? It's a little bit more of a
necessity, but you're seeing consumers
stylish adults.
>> Exactly. Right. I mean, I certainly am
still buying clothes and shoes. Um, but
no, you you see that's a great example
of that like kind of retail therapy. I'm
going to go to the mall. I'm going to do
a little bit of shopping. I was at the
mall this weekend. It was as hard to
find a parking spot as it is around the
holidays. So, back to school shopping
certainly seems to be thriving.
>> All right. Uh well, this is a a great
report and it kind of get really gets to
the idea of just how layered our economy
is and it's not always just the
aggregate everything's bad or
everything's good
>> and how layered consumers are as well.
Yes.
>> Yeah. Good point. All right. Katie
Thomas is the lead over at the Carne
Consumer Institute. A new report coming
out talking about some of the trends in
shopping. And of course this report
comes on a week where we are going to
get several earnings report out of
several big retailers that includes
Target tomorrow, Lowe's, TJack, Estee
Lauder among them and that's followed by
Walmart and Ross stores on Thursday.
Here to discuss what to expect is Stacy
Woodless. She's the president and
founder of SW Retail Advisor. Stacy,
great to see you as always.
>> Good to see you. I I want to start with
the the big box stores if you will and
we'll talk we'll just start with Target
uh for that matter here because this
kind of straddles I know people kind of
look at Target as being discretionary
but I to me it always felt kind of a in
between you know it al offers a lot of
discretionary items but a lot of
necessities as well and I am curious as
to what your data and your research is
showing with regards to how we're
spending there.
>> Sure. And you're absolutely right. So,
you know, Target definitely has less
exposure to food than Walmart, but
still, you know, a nice exposure around
40%. So, they're definitely more of a
discretionary play, but when you look at
Target and think about it and look at
the stock performance, you know, you
have to understand that they've been
losing share in the majority of their
categories. So, this is a self-inflicted
story. Um, we've certainly heard a ton
about stores being in disarray, labor
shortages, uh, things being locked up so
you can't access them. It feels like
you're shopping in jail sometimes. So th
this is less of a consumer specific
story than I think a self-inflicted
story. The good news is that the bar for
Target is is pretty low here going into
earnings. Um but I think from an
investment thesis there are probably
better places to to put your money.
>> Yeah, obviously a very specific story to
target and of course a lot of questions
right now surrounding the leadership
there with Brian Cornell and his
contract coming up at the end of this
year. turn to Walmart and specifically
TJX. Two companies, two retailers that
seem to always defy whatever negative,
you know, negative Nellies are out there
with regards to consumer spending. Is
this a function of their price value or
is this a function of their brand and
marketing? I
>> it's a very much uh at the moment a
function of their price value. If you
think about Walmart, where is the most
of their comp growth been coming from?
It's been coming from the higherend
$100,000 plus consumer. So that's that's
a share gain from from other places.
Certainly they have the ability in a
tariff environment when we are going to
see more increases in pricing in Q4 and
beyond because certainly you couldn't
have loaded inventory um from tariff
announcements until holiday. Um so
you're going to see some price increases
there and that's where the consumer is
shifting. They're also doing a much
better job in terms of advertising uh
revenues and uh certainly in general
merchandise they've become a lot better.
So it's kind of like it's the perfect
moment for Walmart. And also if you
think about TJX, they get all the
overflow from the inventory that isn't
selling in other places. And it's a
treasure hunt. It's the price value
treasure hunt for the consumer. And I
would say, you know, while we normally
think of TJX, HomeGoods is really the
one where you're seeing the traffic
where we're seeing the biggest ramp not
only in the US. Um, but also if you
think about in Europe, there is TK Maxx,
which is also gaining a lot of traction.
>> Yeah. And this of course a stock uh
certainly uh been loved uh by investors
uh who are looking for uh something
representative of the retail space. Can
you talk more broadly about the retail
industry, particularly as we head into
kind of the final few months of the
year? It's already back to school
season. I actually did my back to school
shopping last weekend. Uh I know a lot
of folks have already got it and now
we're already looking ahead to the
holiday season as well. Are companies
stocked up right now with the inventory
that they need for this season? And more
importantly, Stacy, how much should
investors start to factor in tariff
impact on some of those companies that
maybe aren't as stocked up as they
should be?
I think in general back to school we're
seeing we're seeing shelves stocked.
We're not seeing companies that have
said, "Okay, we didn't order anything
because we're terrified of tariffs and
the consumer isn't going to shop." We
just didn't see that. As your last guest
was talking about, the consumer is
paying up for what they want. And I
would say that in general, if you look
at the apparel players out there, the
majority X and American Eagle Outfitters
that had an inventory blip, there's a
lot of full price selling and mostly
full price selling out there. And that's
one way to wean the consumer off of
these non-stop promotions. I think and
and of course move along price. I think
one of the best examples of that is the
gap. We used to see 50% off everything
for 5 days. Now we're seeing up to 50%
off or shorter periods of time. So the
consumer is kind of hunting for those
bargains whereas before they were more
plentiful. But I think there's a decent
amount of full price selling out there.
>> Yeah. And I'll just uh sort of give a
shameless plug here. great uh story on
the Bloomberg terminal today uh
highlighting the CEO of J Crew uh and
some of the work she's done to turn
around that brand and uh raise its image
uh along with a video interview there.
When it comes to uh some of the more
individual retailers, meaning not the
multi-line retailers, so like take sort
of a Crocs, basically a branded uh
retailer here. Are they in the same boat
as the others or is there something
unique or special that we should be
looking at when we start to get earnings
out of them?
So I think if you look at all the brands
and the ones that have reported you have
uh tapestry for example that's coach you
have Ralph Lauren what they've done is
during co obviously there were shortages
of inventory so they raised their prices
and again reduced promotions they have
held the line on that and they've been
successful at that and they've continued
to grow their revenues despite the fact
they're not offering things half price
or 25% off all the time. So those are
brands that have staying power and you
know we're even seeing price increases
being passed along at those. You're
seeing others like Crocs that have
significant wholesale exposure that are
talking about you know what the
wholesale channel all of a sudden is
starting to push back and get a little
scared and want to carry less inventory.
So that's a story where you know in some
cases you want to look at brands and say
I prefer a DTC or direct to consumer
story one that has less exposure to
wholesale when you know the third party
uh partners get nervous and pull back
which impacts your business.
>> All right, Stacy got to leave it there.
Great stuff as always. Stacy Woodlets is
the president and founder over at SW
Retail Advisors. We'll be back in a
moment. This is Bloomberg.
All right, let's push ahead to what the
markets will have their eyes on over the
next 24 hours. That includes a slew of
earnings, particularly from some of
those retailers we were just talking
about. Target and Lowe's, as well as
TJX, all set to report tomorrow. We're
also expected to get reports out of
Estee Lauder. And in the tech space,
keep an eye on names like BYU as well as
Analog Devices. We're also going to get
several uh economic data points, but
this time from overseas UK CPI, a read
on inflation there that is not expected
to be good. Eurozone CPI over there
that's also not expected to be good. And
we are expected to hear from the
president of the European Central Bank,
Christine Lagard. She's speaking at a
World Economic Forum meeting in Geneva.
Meanwhile, back here in the US, we are
going to get those FOMC minutes from
that July 30th meeting. And this could
be key because of course those minutes
will drop just a couple of days before
J. Pal is set to address folks at the
Jackson Hole Symposium, maybe outline a
path forward for the next set of rate
cuts.