The countdown is on. Everything you need
to get the edge at the end of the market
day. This is the close.
>> Is it a sell-off or is it simply a
rotation? Live from studio 2 here at
Bloomberg headquarters in New York. I'm
Roma Bostic
>> and I'm Scarlett Fu. We're kicking off
to the closing bell here in the US.
Pretty thin trading here, so I don't
know how much you can read into today.
It
>> is mid August. Yeah,
>> it is mid August. All right, let's take
a look. You have the S&P 500 down for a
fourth day, losing a half of 1%. Ditto
for the MAG 7, which by the way is down
about 3.6% during this 4-day stretch.
You do have yields coming down, but just
barely lower after the latest Fed
minutes show policy makers still remain
very concerned about inflation and NXT
screwed up about 1.4% after an industry
report showed inventories declining last
week. remain.
>> I know we shouldn't make too much of it
given the seasonality here. But we talk
about the concerns out there about
overstretched valuations in big tech.
All coming at a time when the Fed may
actually not be able to deliver the rate
cuts that the market had priced in.
That's a big part of the reason why
you're seeing the declines on the day. A
two-day drop in the NASDAQ 100 that
potentially could be the worst slump
since the post liberation day selloff in
April.
It does seem that that stocks are
expensive relative to what I call
fundamentals or you might call reality.
We're not at a critical at a nutty uh uh
valuation. Uh I'm I'm certainly not
ringing the alarm bells. No reason to
think there'll be a correction soon, but
the point is that things are expensive.
Nothing nutty out there, but Goldman's
head of hedge fund strategy, Tony
Pascarelloo, in a note saying that the
market moves now actually reminds him of
the riveting summers back in the late
1990s. That's when markets notched those
improbable record highs amid super low
volatility against the backdrop of super
high expectations for rate cuts. Rate
cuts that they wanted to see to prevent
economic crash from widening into a
recession. Good luck with that. The Fed
minutes from the latest FOMC meeting
dropped an hour ago and it did show
officials do see inflation risk
outweighing labor market concern and
likely for a good reason. Nike Sonos PNG
just some of the companies that have
been mulling raising prices to counter
tariff costs. Home Depot yesterday
flagging price hikes are coming. Sony
today said its price hikes are here
boosting the sticker on the PlayStation
console by 10%. Scarlet Fu 550 bucks.
>> What are teenage boys going to do?
>> I don't and and you know older men.
>> Older men. All right. So, a lot for
investors to grapple with. And Roma, you
mentioned the NASDAQ 100's worst slump
since liberation day. Even within
technology, it's really a handful of
names are doing the most damage. Mega
cap tech stocks driving the AI
narrative. So, this bar chart looks at
the difference uh between the
performance of the NASDAQ 100 and an
equal weighted NASDAQ 100. And you can
see today's deficit uh this red bar
right here. It's of 1.34 percentage
points. That is the most that's going
back to midappril which really
underscores the idea that there is a bit
of a rotation out of the winners those
mega cap tech names into other companies
and other sectors.
>> Absolutely. You certainly see that in
some of the factors here on this day.
Let's bring Jeff Degraphth into the
conversation. He's the chairman and head
of technical research at Renaissance
Macro Research to kick us off to the
close here. And Jeff, I think Scarlet's
last point really kind of hits at what
might actually be going on underneath
the surface here. some of the high beta
names being sold, but you're seeing low
volatility stocks get bought, dividend
yielding stocks get bought. What are you
seeing in your data?
>> Yeah, that's exactly right, Roman. I
mean, if we go back to to April, um we
had beta in in our work at least in the
zeroth percentile in terms of returns.
And it's a it's a fairly consistent mean
reverting uh series, right? So, there's
really no persistence in high beta
versus low beta. just kind of oscillates
and the pendulum swings between good and
bad. Um that went from April in the
zeroth percentile over the last 30 years
to the 100th percentile in mid in mid
July and and at that point we started
warning clients that beta was just
extended and it was likely to re revert
and you know cause some some aa clearly
we're seeing that now. So I don't think
this is a a market problem. I don't
think this is a valuation problem. I
don't even really think it's much of a
sector problem. I think it's a factor
problem. Um and regrettably, you know,
we went from the 100th percentile to
just uh yesterday uh in the 93rd
percentile. So even though that factor
um that spread has lost about 15% here,
um it really hasn't contracted enough to
say that all is clear. So I think beta
is going to be under pressure probably
for the next month to two months. Um I
think there's more pain to go there. I
don't think it's a big problem for the
S&P. I think you're going to see more
rotation and we've been urging clients
to swap out of beta and towards higher
momentum names. Um there's a little
confusion around what the difference is
but basically think about beta as
volatility. Think about momentum as as
price trajectory.
>> So well I'm glad you make that
distinction here. So let's talk about
those momentum stocks or at least the
those ones with that price trajectory
because there's been some concern that
that price trajectory might have
actually topped out. That doesn't
necessarily mean we're going to see a
mass selloff in some of those names, but
the idea of how much further can they go
if there isn't some additional support
either from corporate fundamentals or
macro conditions which are all kind of
intertwined.
>> Well, that and you have seasonality too,
right? So, I think part of that is
you've got a weaker September
historically that tends to bleed into
October about the first two weeks. And
you know, one thing that gets under
reported or underappreciated is we still
have a risk, albeit slight, of a
potential government shutdown to fund
the fiscal year 2026. And so, you know,
while Congress is out right now and
there's a bunch of noise, you know, in
Texas, obviously, with what's going on,
there's also a risk that they come back
in, you know, early part of September
and and, you know, make a uh make a
united front against uh against funding.
And so I think there's uh some things on
the horizon that could obviously be um
some pitfalls for the equity markets.
Even if that doesn't come true, just the
rhetoric is probably enough to do it.
And when we look at the option market,
you're not seeing any of that priced in.
Uh you did see the August 1 tariff
deadlines priced in with some
backwardation in in the options market.
You're not seeing that um for the um for
the potential for government shutdown at
the end of September. So I think this is
something for investors to keep on their
radar here.
>> Okay. So, there's a lot going on here,
but as we look at uh investors sell off
some of the winners from the past couple
of months, how much do you really read
into the sell-off of tech stocks here?
We make a big deal about this 4-day
losing streak in the S&P 500, the
biggest two-day loss since uh the post
liber liberation day selloff, but aside
from rotating into other lagging in uh
lagging sectors, do you see anything in
there that really is cause for concern?
Well, it's a it's a really good question
and you know, I was on vacation two
weeks ago and I came back and I really
try to disconnect when I go away. That's
not always that easy. But I came back
and the first thing I did was just run
through charts, right? I run through
every Russell 3000 chart and you know,
for the first time really since uh the
spring, I was finding a pile of of
charts that were shortable. These are
names that had cracked. Um they rallied,
they kind of failed anemically up to
their 200 day moving average and we're
now rolling back over. So it was it was
the first time in at least 6 months they
had seen um a substantial number uh
albeit not a majority but a substantial
enough number to say hey there are some
fissures here uh and I think that those
are important they are in software they
are in uh semiconductors um there's some
in discretionary there's some in uh in
uh in industrials as well so uh I think
this is a more balanced market I think
you see that in the percentage of issues
above their 20-day moving average which
is running at right right around 50% so
half the markets It's above their 20-day
moving average. Half the markets below
their 20-day moving average. And I think
that's exactly the recipe for a
consolidation. Again, not a big
correction. I think it's probably less
than 5%, but I do think there's a
consolidation in the works here.
>> Yeah, that's really interesting how many
companies you found that kind of fit the
bill. When you talk to clients, what is
the number one question they're asking
you right now, Jeff?
>> Why are my why are my momentum dames
getting killed? I mean, I just I've been
I've been on the phone uh this morning
with with clients. And what's
interesting, you can even use the
Bloomberg function FTW and look at the
Russell 1000. Um, low volatility is is
absolutely trouncing everything else
today. But importantly, momentum is also
up al albeit slightly, at least it was
uh before I came on. Um, which says this
really is more about beta than it is
momentum. And so I think that's a really
important distinction that people are
are are kind of uh bleeding into
momentum when it's really beta that they
want to be talking about. And that is an
important distinction because it will
make a difference in portfolio not only
construction but performance as we go.
>> I am curious Jeff when we talk about the
potential downside scenarios here. A lot
of people of course are looking at some
of those key moving averages and seeing
if we retest them. Yesterday we had Jeff
Jacobson on and he was talking a lot out
about his most recent note about a lot
of the put buying activity that he's
been seeing in the market. If we do
start to hit some of those technical
levels, do you have confidence that
we'll maybe see that as a dip buying
opportunity or could that really precede
maybe the start of a further decline?
>> No, I have a lot of confidence that it's
an opportunity to buy uh on on a couple
fronts. One is if you look at credit
markets, they are um they're incredibly
placid right here. Um you could say
maybe too placid. I mean, I don't think
there's a lot of value there, but
certainly the implications for what it
it is suggesting for the economy is is
is bullish. I think that's important.
You usually will see deterioration in
the credit markets before there's a more
meaningful decline that we have to worry
about and that's just not happening. And
I think the other thing that's being
underappreciated here is just how strong
uh the global economy is and what's
happening globally at least in equities
maybe not the economy that's not my
call. Uh but if we look at the equity
markets particularly in say Asia um you
know you're you're on the cusp of
breaking out uh Hong Kong uh you're on
the cusp of breaking out China. Um
you've got Japan which just made a 35
year 35 years as long as I've been in
this business um new high on the topics.
Um so there are things happening you
know on a global basis that you'd have
to believe that the US is somehow the
sick man in the globe and I just don't
think that that's true given what we're
seeing out of credit. And the other part
just to maybe punctuate that is what
we're seeing out of financials. And
financials are still if you risk adjust
the trends of financials financials are
still leadership. There's still a lot of
good bullish trends there and that's
just not something that you'd expect to
see or we'd be prepared to uh to see as
a market is about to become more
vulnerable and and enter a bearish
phase. So I think there's a lot of
things that are actually un uh
supporting this underneath. It was just
a matter that beta got extended and I
think we've got this uh consolidation
that's going to help to uh kind of clear
that um clear that away.
>> All right. Well, a really sobering
conversation here particularly coming
from a guy who's seen plenty of market
cycles. Jeff, always a pleasure.
>> Are you calling me old? You're calling
me old?
>> I'm calling you seasoned. Jeff Degraph,
chairman and head of technical research
at Renaissance Macro Research. As we
continue our march to the close with a
closer look at the state of the consumer
and a closer look at the state of
retail, a conversation up ahead with
fashion legend Mickey Drexler.
>> Ah, can't wait to talk to him. Plus,
critics continue to sound the alarm on
the administration's tariff rollout
plan. Trade expert Enu Manach from the
Council of Foreign Relations here to
weigh in. And we're going to talk about
the services industry as well. The
bowling giant Lucky Strike making some
changes to get people back in the door.
That conversation coming up a little bit
later as well. Stick with us. This is
the close on Bloomberg.
[Music]
President Trump calling for more
resignations at the Federal Reserve
today. This time with his accusations
directed at Fed Governor Lisa Cook. The
allegations stem from a letter written
by Federal Housing Finance Agency
director Bill Py that claims Cook
committed mortgage fraud in attempts to
acquire more favorable loan terms. All
of this as the Jackson Hole Economic
Policy Symposium kicks off tomorrow and
that is exactly where we find
Bloomberg's Mike McKe. So Mike, Lisa
Cook is supposed to arrive at Jackson
Hole for the symposium. Um how much of a
cloud does this kind of cast over the
proceedings?
Well, obviously it casts a cloud because
it expands the political vendetta that
the president has had against the
Federal Reserve for not lowering
interest rates. It was Jay Powell in the
crosshairs and now it's Lisa Cook who is
not a particularly influential monetary
policy member. She votes with the
majority and generally supports uh Chair
Powell's decisions, including to keep
interest rates on hold for right now.
But uh converting her one way or another
wouldn't make a difference in the
overall vote as the as the minutes
showed just a few minutes ago. Uh so it
isn't clear exactly why they're doing
this other than the possibility of if
they could force her resignation, the
president would get to name another
member of the board of governors who
would presumably be more supportive of
his policies. I'm glad you brought up up
the minutes because normally we kind of
overlook that. But I did think it was
interesting that the ones that just came
out about uh an hour or so ago really
did talk about this idea that there is a
lot of concern about inflation really
maybe being the more preeminent concern
than the labor market. And I'm wondering
if you could kind of fold that in
combined with the pressure that the
White House has been putting on various
Fed members and what that means for J.
Pal's speech scheduled for Friday.
Well, I think Paul will try to stay away
from politics at all costs, but he does
have a balancing act. Uh he doesn't want
to get the markets locked into a rate
cut for September because we don't know
what the jobs report and the CPI report
for August are going to look like. When
these minutes came out at that meeting
on July 30th, we'd had a very strong
July jobs report, the one that was
revised lower this month and we'd had a
CPI report that only showed the glimmers
of inflation from tariffs. Now we've
seen more tariff uh inflation coming
through and the forecasts are we're
going to see more, which is what Fed
officials were looking at in July. you
get a a weak employment number or you
get a higher inflation number and those
are two conflicting uh sides of the
mandate and they would call for
different monetary policy responses. So
you can see why J pal may want to keep
his powder dry, not let anybody get too
far off the reservation on thinking the
Fed is necessarily going to cut just in
case we get a really hot uh inflation
report.
>> Right? So in that way you could argue
that the Fed minutes perhaps may set us
up for a hawkish surprise on Friday from
J Pal. It's not just uh Fed officials,
senior Fed officials who will be
attending uh Jackson Hole. You also have
global central bankers there as well.
How much are they likely to comment on
the whole idea of central bank
independence?
>> Well, the idea of central bank
independence will probably get a mention
from some of them. They sort of want to
offer support to JPAL. they did at the
ECB meeting in CRA talking about the
fact that central banks that have
independents to make policy decisions
generally have better functioning
economies, but they won't mention Donald
Trump and they won't mention the uh
specific controversies that are going on
here because it's it's not their
business. They would stay out of that.
>> Uh the final question, Mike, I mean,
there's been a lot of talk about the Fed
framework. Of course, the the one that
they kind of put out there was it like
about 5 years ago, the potential update
of that and whether we could potentially
see a meaningful change to it. What is
your expectation and do you think they
will allude to that uh here at Jackson
Hole?
>> Well, the expectation has been that
Powell would kind of lay out the
contours of the new framework. He did
that here in 2020 when they first
adopted the last one. And it's obviously
got to change because at that point we
saw inflation that was very very low and
had been for years and unemployment was
continuing to fall and they felt that
they could let the economy run a little
hot without risking higher inflation.
Then we got the pandemic inflation shot
up. They were slow to react to that. So
it's clear that framework didn't work.
more likely they'll go back to something
like they used to have where they
basically are telling the markets,
"We'll do whatever we need to do
depending on which way the economy
develops."
>> All right, Michael McKe out there in
Jackson Hole, Wyoming, and keeping an
eye on the Fed's uh Kansas City economic
symposium and of course a big speech by
J. Pal set up for this Friday with
yields down a second day here on this
Wednesday afternoon. Meanwhile, we turn
back to the equity markets and take a
look at one of the biggest decliners on
the day and that is Target. The shares
having their worst day since April 8th
after its earnings report and a well
largely expected change in its
leadership. Joe Feldman of Tel Advisory
joins us after the break. 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 today
with Avis Budget car. Bank of America
double downgrading to underperform from
buy concern about limited pricing power
that could further ding the car rental
car company's fundamentals in an already
unsupportive macro environment. Those
shares down about 6% here on the day.
Next up, let's take a look at General
Mills. JP Morgan out with a broad note
on the precarious state of food
companies. It downgrades the Cheerios
maker General Mills to underweight amid
dower grocery aisle trends, market share
losses, and rising costs. So shares down
about 4/10en of 1%. And finally,
Abbercrombie and Fitch City cutting to
neutral, saying specialty apparel
retailers, well, they're going to have a
tough time passing on tariff costs to
the consumer. Abberrombie shares down a
second day, 3.5% to 9159. And those are
some of our top calls. We want to step
in the retail and consumer space. And
that brings us to Target. The shares
having their worst drop since early
April after missing the mark on its
fullear outlook and the announcement
that its COO Michael Fideli is going to
be the replacement for CEO Brian
Cornell. Joining us uh right now is Joe
Feldman over at Telsey Advisory to talk
a little bit more about the change. But
before we get to the leadership change,
I do want to ask you a little bit about
the numbers themselves that we got from
the past quarter and whether what's
ailing Target is specific to Target or
whether it's wrapped up in the broader
macro issues.
>> Well, it's a terrific point, Roma,
because you know Target sells a lot of
discretionary goods. Discretionary goods
are not selling as strongly these days
as non-discretionary, you know. So the
companies that have more exposure to
groceries, consumables, household
basics, and everyday essentials, those
areas are doing well. And actually, if
you look at Target's business, it did
okay in that that category in food and
beverages and held up okay. But, you
know, the discretionary side of their
business, which is really about 60 62%
or so of the business, is really where
they're seeing some pressure. where
they've saw newness and brought some
innovation to some of the product and
the discretionary side. Customers did
respond, but um some of it is the mix of
what they sell. Uh but there is still
some issues at Target. I mean, clearly
the stores are not as tidy as they used
to be. Um it's it takes a long time
sometimes to get through to to process
through checkout. Uh the stocks don't
always have uh or the shelves don't
always have the stock that you want. So,
there are some issues that they do have
to work through.
>> Yes.
So my question here then is by picking
an internal candidate rather than going
outside and and you know choosing
someone from um you know who doesn't
have the legacy and therefore the burden
of of what target always represented.
How much movement is there likely to be?
I mean how much can he really move the
needle uh the new CEO on these on
improving the execution of what's
already been laid out?
>> Yeah, that that's a great question and I
think that's reflective in the stock
today as to why it's down. I mean, I
think a lot of the investment community
that we speak to on a day-to-day basis
has been frustrated and or is frustrated
today and was worried that they may
promote Michael Fidelki. Um, he's the
COO. He's been there at the company for
20 years. He's been part of the
strategic planning group and the he's
responsible for executing the strategy
in the stores and from an operational
standpoint. So, I understand the
concern. Sometimes when you're the boss
though, you can make diff make changes.
you may be able to execute things a
little bit differently. Perhaps that's
the case. I think people should give Mr.
Fideli a chance um to see how he does in
this new role, but I understand the
skepticism and and and I have it myself.
I mean, I think there's definitely some
concern there. Uh and maybe a different
change catalyst is what everybody
wanted. I think the investment community
wanted to see a change at the CEO, but
again, you know, reflected the stock
today, it's it's they're not that happy
with it. And Joe, I am curious about
some of the um I guess politics or
cultural issues that uh have popped up
around Target, whether it was the
controversy uh over um uh some of the uh
you know merchandise it was selling to
appeal to uh certain minorities. uh the
pullback away from that given some of
the pressure on DEI uh from the Trump
administration and whether the anecdotes
about that affecting its sales and
profitability was actually real or was
that just something in our head
something the media trumped up.
>> Uh I think it was real. Uh it may not
have lasted as long as some people think
but you know in the first quarter they
definitely saw some pressure related to
the the change in their DEI policy.
There were some boycots. there were some
people not shopping at the stores as
frequently and you saw that in the
traffic numbers or transaction numbers
as they count. Um but this quarter
things it got a little bit better still
down from a transaction perspective. So
traffic in other words people visiting
the stores was down but um you know I
think that that was more isolated to the
first quarter but we've seen it before.
We saw it back with with the pride issue
that they had a couple years ago. And
you know it Target is is the company
because it's such a large popular
retailer that has a lot of passionate uh
loyal uh shoppers.
>> It it it evokes a response from people
stronger than many other companies.
>> That's a great point, Joe. Really
appreciate you're joining us. Joe
Feldman is senior managing director and
assistant director of research at Tulsa
Advisory Group. Coming up, we've got the
retail legend Mickey Drexler joining us
live in studio to talk about today's
full cart of retail headlines. That's
next. This is Bloomberg
>> 3:30 p.m. here in a rainy New York. This
is the countdown to the close for well
rains over the market. I'm Roma Bostic
>> and I'm Scarlett Fu. Uh slow market day,
but there's so many headlines especially
as it relates to the retail sector.
Yeah, I mean this is this week and next
are really big where we kind of really
get a read on the health of the consumer
not through the official economic data
but through the corporate earnings
>> through the anecdotal and you know the
big question mark here is the tariffs
are finally in place so how much is that
really discouraging consumers from going
out and spending
>> well so far I mean it's kind of a mixed
bag right we heard from Home Depot they
said people are spending problem is
they're spending on smaller projects and
you have other companies that also
showed an increase in spending but some
of that was also because of the increase
in crisis. Uh, and there's a lot of
stories that we're tracking on that
front today. I mean, we came in to today
and there was a big headline about
guests. Do you remember them?
>> I remember guests. I remember guests
from the the8s and 7th grade and $50
Jeans.
>> Well, they're a public company, but
they're now going to be taken private in
a $ 1.4 billion deal with Authentic. You
had TJX companies report earlier this
morning, it was good. You had Estee
Lauder reporting earnings this morning,
they were bad. And then of course you
had tariff concerns like Scarlet was
just referring to really weighing on
names like Gap, like Abberrombie and
well to a smaller extent like Target. So
a lot to talk about here and who better
to talk about it with than one of the
kings of merchandising. Mickey Drexler
is the chairman of Alex Mill and of
course he's probably most well known for
helping to really reinvigorate and turn
around J Crew and of course made Gap
what it well once was and maybe what it
once be. Again, Mickey, great to have
you.
>> Nice to be here
>> and happy belated birthday by the way.
Thank you very much.
>> Uh, you have been doing this a long
time. You understand consumer trends.
>> Well, I Yeah, I understand. Not always.
Yeah, I've been doing it. I've practiced
my craft.
>> Yeah.
>> For as 50 plus years.
>> 50 plus years.
>> Repetitious. Repetitious. Repetitious.
>> All right. You don't have to be modest.
Um, no. But but but one reason why we
love having you on is because when we
talk on the show about the health of the
consumer, we always look at it through
the economic lens, but there are a lot
of other factors that determine what we
buy. uh how much we're willing to spend
on what we buy and then of course
whether we continue that when you look
at the state of specialty apparel right
now. What does it say to you?
>> Well, I I'm a tough critic uh first on
myself and then on everyone else. I
think uh the specialty and it's it's
really I would group all retailers in. I
think the days of
uh kind of merchandising centric pick
the goods you know I have a little hobby
of listening to founder of great
companies reading articles etc etc and
you know words appear almost on everyone
Enzo Ferrari Steve Jobs the Michelin
brothers
>> the common thread instinct instinct,
gut, and intuition
>> because you can't run those companies
and of course I watched Steve for 16
years and that's what to me that's the
business. I think it's true in any
business.
>> Yeah. So when I look around and you know
go
>> but but instinct gut I I mean not to
belittle that but that seems a little
bit more esoteric totally particularly
in a time where we're dealing with very
real world issues economic pressures uh
tariffs I mean you know just being able
to source goods at this point right now
is just mindboggling not just the cost
but just not even knowing what the rate
tariff rate you're going to pay today
versus tomorrow. So how do you do that?
Well, I don't esoteric, you know, you
have to put, you know, as an artist, a
great painter, esoteric designer. I
think esoteric, whatever it actually
means exactly.
>> I'm not sure what it means,
>> you know, but it's a qualification
in the creative world and in the
merchandising world, how do you know if
something's a besteller or not? You
know, AI will not pick colors. It will
not tell you what's a best seller and
dot dot dot. And of course, it'll
probably eliminate a number of jobs. So
I I think the world underestimates that.
I was listening this morning to uh I do
my rehearsals for this show, Bloomberg,
CNBC, sorry to say, and whoever the
other ones,
>> never heard Never heard of Sure. And it
was interesting how the fellow who was
the guest,
a guy who's been in the retail business
his whole life, retired, was talking
about Target and saying about a
financial person and there's nothing
wrong. Look, I could never be a CFO in
my life, but they were saying Target
used to be my word tar.
>> What do you need to run that? And the
numbers don't create the products. And
it's kind of like, look, I don't I
couldn't be an accountant, but and I
couldn't be a chef, but if you put the
the restaurant's accountant as the chef,
>> it's no different than you need
merchants, right? And this guy was
saying it, and I'm going to get in touch
with him because I don't know his
context, but but it's a it's kind of a
misunderstood concept in a way.
>> Right. Right. So, let's follow on that
because Roma named a whole bunch of
companies and said one of them that did
do well is TJX and they have this
incredible business model where it's
offpriced goods catering to a high
household income.
>> I idolize her. Carol,
>> tell me more. Tell me more about that.
>> But you said, but from what I looked at,
they were four comp and 10% increase in
earnings.
We do business with them and Carol
longterm and she doesn't like me to
praise her like this. In fact, I'm
seeing her this weekend for a coffee
>> and and you're talking about Carol
Myroman.
>> She's the best
>> and she's a merchant and she's a
wonderful person and she's knows who she
is down to earth,
>> but they buy the goods from all the
places who they're biggest customers uh
of the wholesale brands in a lot of
cases. And the wholesale brands sell
their goods to their department store
retailers and they kind of pay for
markdowns.
>> Her prices are the real prices you see,
>> right?
>> You go into TJ Maxx and that's the
price.
>> So is that a case there where they just
have a really great business model or is
it that they have exceptional execution?
Which do you give credit to? Well, I any
great business model is dependent upon
the great leader of that business and TJ
Maxx has always been they buy the goods
from all of us. They negotiate like
crazy and they put it out at a price and
they don't have assistant buyers day or
you know prime day or whatever. Uh it's
a very honest um model
>> and that's looked what 50 billion 60
billion what but I'm curious and we
don't have time for why it wasn't a good
report anyway.
>> Well yeah but it gets to this idea
though too. I mean their model has has
been resilient and we know that but it
decidedly was always supposed to be a
value model for those companies that
maybe didn't have that model. So you
take the GAPS and the Abberrombies and
all of those names there. All of those
companies at one point in their history
have fallen victim to that sort of
perpetual discounting that was
>> but there's still a group of them that's
in that same
>> there there are some have managed to try
to wiggle themselves out of that but I
am curious as to how you do that if that
wasn't your model to begin with and you
have found yourself trapped in that how
do you get out without simply going
under
>> reinvent move forward imagination
I mean for me that's I never thought
about the answers to that But I always
lived in my imagination and I always was
very critical but I learned from the
best in the business and not the retail
business. I mean I'm learning about
these founders extraordinary stories.
>> But but it's not always the founders. I
I mean I mean we talk about and we can
go down memory lane for a quick second.
So just bear with me Scarlet. I mean, we
go back to the late 60s, early 70s when
the Fisers founded Gap, which was
basically just a reseller of jeans and
records and other stuff. Some point, I
don't remember the exact year, you come
into the picture and you completely
reimagine what they sold from very
colorful, a wide variety of stuff to
basics, simple, but with a No,
>> that was you. That was you.
>> Color was the number one ingredient that
was part of the concept.
>> Oh, yeah. Gap were not and all due
respect to Don who really helped me in
my life.
>> Sure.
>> Gap was a discounter.
>> Okay.
>> It was pure discount 20. It was started
as a Levi business. Gap was discounting
Levis's when I got there. Two for $26 or
whatever. I went to Houston Galleria. I
said, "What did I get myself into?"
There's uh on the windshields there's
these what are they called? Those little
things under the windshield. Flyers. I
look at one where I
>> today only gap 30% off.
>> It was a nightmare. But I didn't say I'm
going to reimagine it. It was inside.
You have a vision. I I used to live in
my imagination as a kid for a lot of
other reasons.
>> But if and a lot of founders by the way
and Don knew this
>> when they hit a wall in 19 I got there
in 1980 or 83. He knew I mean there was
two or three people. No one could do the
job. You imagine it. Old Navy was an
imagination came from Old Navy named
after a bar in Paris.
>> So weird.
>> Who is out there right now? What company
is out there? What merchant out there is
doing that imagining? Is getting people
excited about their specialty apparel?
>> Well, you admire.
>> Well, the the customers would answer
that better than me. I am so critical of
me and everything we do. You can ask my
team. They call me the pain in the ass.
And that's what they did. They did an
email or whatever. I don't know if you
can put that on the air, but uh who's
out there? I respect companies that
build great businesses long-term and you
don't turn around a company in a year or
two or three.
>> Well, but I I am curious though on that
point because I think the last time we
were here, we talked a lot about kind of
the reemergence of Abberrombi and Fitch.
certainly in terms of its stock price,
its revenue. Just earlier this week,
Bloomberg did a great story talking
about some of the progress that Jay Crew
has made in turning itself around her
brand. And I know it's still early and
and I want to be fair uh to the CEO over
there uh Libby Wadd and what she's
doing, but I do I am curious about when
these CEOs and whatever their background
are trying to turn around these
companies. Why isn't sort of the MBA,
the CFO, the CEO types, not necessarily
the ones in your mind that can do that
best? Yeah, it's an art and a science
this business and and Libby and I worked
together for 15 plus years at GAP and
Jay Cru. She's terrific. But I always
ask the customer I work for customers
>> and I go into all of our competitors. I
smoo with the sales speed well a gap in
J crew I know a lot of people made well
old Navy but you have to find out from
the consumer and I have a judgment I
make like I hate to say the car industry
I look at today and I'm an old guy I've
been around a million years and I like
nice things for getting the Bronx which
taught me all that but if you look at
the car designs today
where are the great classics you look
I mean, designer clothes, it should only
happen to us, but the the consumer
has changed.
Logos,
forget about it. And and the fakes, it's
not so prestigious to carry uh some
fancy dandy.
>> That's right. Well, consumer tastes have
changed, especially with Gen Z. And we
see that in what they think of as
stylish. I mean, there's a lot of what's
popular right now is stuff from the 80s
or 90s and, you know, concert band
t-shirts are seen as a brand in and of
themselves. Um, how what what are
customers telling you really when you
look at the customer and what they favor
what they favor? What does that tell you
about where we are in the cycle? I I
first of all c looking at customers I
never done a focus group that I've liked
in my life but what I do is I look you
have to every company has to surround
and I'm lucky well not lucky if you
don't have the top talent who can answer
those questions then you don't have the
right people we have a vision we have a
vision my vision is clothes that never
>> expire they're always taste they're
stylish Who defines that? Our team does.
>> What What brands excite you right now?
And don't say Alex Mill, but take Alex
Mill out of the equation. I mean, what
brands excite you where you look at them
and you say they're doing this right or
at least right enough?
>> Well, if you talk style, I first of all,
I can't mention brands because then I'll
upset some of my friends.
>> Uh, you know, there's very few when I
walk into a shop or I walk down the
street. Um, uh, what I don't there's
some really good ones out there. Okay,
I'll let you off the hook on that. But
but but to kind of build on that
question though too, with the way people
shop, do you think that the standalone
retailers sort of the single brand
retailers like an Abberi Gap can compete
or are better at merchandising than say
the multi-line retailers like a Target
or and the higher end like a
Bloomingdales?
>> You give me a name and I'll tell you
who's good. Every business has a name,
has a founder and founders, you know,
after 10 years or so or five, their time
is up. Great. inventions, but I I don't
think
>> Well, look, go look at the factory
outlets. My good friend Steve Yaleoff is
CEO of Tanganger.
>> Yeah, we have him on.
>> He's terrific, Steve. And we worked
together for years at Gab.
>> But look at look at the factory store
relationships
to their regular price stores. Factory
business is a great way for companies to
cash quick, put it on sale. This whole
world is a discount world. You know, you
look on the three major networks and
everything's 50 off. It's a game. They
used to be illegal, I think, to have
these fake high prices.
>> Yeah. Yeah.
>> And now it's all that.
>> Well, the consumer is trained to look
for it. Mickey, we appreciate your time.
Thank you so much for joining us today.
Mickey Drexler, the one and only uh the
merchant prince, the chairman of Alex
Mill, and former CEO of course of J Crew
and Gap. And I was looking at J Crew,
the company he run. Um, I don't see any
uh for sale ads on here. I don't see any
discounts on the website.
>> Oh, yeah. I don't know. I have to I have
to admit it's been a long time since
I've actually set foot on Jer or gone to
the store, but you know, I do go to some
of the other brands. Uh, you know, I'm
wearing Ralph Lauren now. Something that
I've kind of rediscovered. Uh, it's not
the same as it used to be, but it's good
enough.
>> Oh, you're fancy.
>> I tried it. Well, you know, I knew
Mickey was going to be here, so I had to
step my game up. So,
>> of course.
>> Absolutely. Good.
>> All right. Thank you so much again,
Mickey. Uh but let's next up we're going
to take you to the closing bell with
Megan Hornman. She is CIO at Verdens's
Capital Adviserss. Keep it right here on
the close. This is Bloomberg.
>> I think Beta is going to be under
pressure probably from the next month to
two months. Um I think there's more pain
to go there. I don't think it's a big
problem for the S&P. I think you're
going to see more rotation and we've
been urging clients to swap out of beta
and towards higher momentum names.
Jeff Degraph, chairman and head of
technical research at Renaissance Macro,
kicking us off to the close. When we
started this program, it looked like
markets were setting up for one of the
worst uh two-day declines that we've
seen since liberation day. Stocks still
in the red, Scarlet, but they're
actually near session highs.
>> Yeah, they're pairing their losses. And
you now see the NASDAQ 100 only down
half of 1%. Still, it is the first
back-to-back decline uh in a while. And
uh at one point it was down by more than
1%. So, it's been a real change uh in
terms of how things have come off their
lows, but the numbers remain the same in
terms of a direction within the S&P
equal weighted index. We're back to
unchanged. Roma,
>> yeah, unchanged here. And this has been
a big question here because people talk
about was this really a sell-off, right?
And I think yesterday, I don't know if
it was you who pointed it out or Tim
Cedic, the idea that the majority of the
stocks in the S&P were actually in the
green despite the index being in the
red. You saw that play out today. Even
when we were at the depths of the
sell-off today, you still had a majority
of S&P stocks in the green, which
suggests this is a little bit more of a
rotation rather than a sell-off.
>> Yeah. But with Jeff Graph saying beta is
going to remain under pressure. How much
of that rotation actually takes place
will uh determine whether we actually
move up or kind of stay, you know,
treading water at these levels.
>> Yeah. Obviously, uh technicals and the
momentum indexes are going to have a
play a big part in that. So, too are
corporate fundamentals. We're still
awaiting some key earnings this week out
of names like Walmart and then next week
from several other big retailers
including Macy's. And of course you have
a big Fed speech. J Pal said to address
Jackson Hole, Wyoming crowd uh on Friday
where the market hoping that he might
telegraph whether rate cuts are indeed
on the table for the Fed's midepptember
meeting. Megan Hornman joins us right
now the CIO over at Verden's Capital
Adviserss. And that is where I want to
start. Megan, the confluence of all of
these events and the idea that while it
has certainly maybe rattled the market
just a little bit, it has certainly not
destroyed it.
>> Exactly. You can look at the the market
as a whole. Um you're seeing some of
that weakness there in the technology
side and some of those really high high
PE very expensive growth type of stocks.
You're seeing some of that pullback, but
there is some of the the other side of
the market where you're starting to see
some rotation. Um I think that people
are are forgetting to mention that there
is some rotation into the small caps
that did really well last week and um as
you can see today you're seeing that
rotation from out of those tech some of
those tech stocks into um the the the
more Dow Jones Industrial Average some
of the other names that have been really
forgotten here over the past few months.
It gets to the idea though, Megan, is do
you see that rotation or that embrace I
should say, of some of those uh cyclical
uh economically sensitive names, the non
big cap names? Is that something you see
a sustainable or are people just going
to rotate back into Nvidia and Microsoft
and everything else once they think the
coast is clear?
>> I think that the it's a valuation
correction. Let's keep that in mind.
Valuation's got so elevated here in some
of those tech names that I think this
can can continue for a little bit of
time. We've seen this before. Um it it's
simple valuation correction. You can't
figure out how long that'll take, but it
does go on for some time. And if the Fed
is going to cut interest rates, whether
that's in September or October or in
December, then you you'll see some of
these names. You'll see that rotation
continue. I think people will move out
of those real expensive names and
they'll look at those unloved. You know,
small cap, these are great, especially
if the interest rates go down and the
valuations are so cheap. they'll
continue to rotate into international.
So, unfortunately, I do think this tech
valuation correction has some room to
go.
>> Yeah. But what tech has going for it, of
course, is that it's growth and growth,
especially in an economy that like the
one we have right now, um, deserves a
bit of a premium. Is there value within
growth right now?
>> Um, I think your big Magnificent Seven,
those ones that have really led this,
I'd say no. I'd say hold off. I think
that the you'll get a better opportunity
to invest in those. Um there may be some
some names that have have lagged behind
that. But over the long run um even
those bigger names there the
opportunities are there for the long run
just not today. Wait till that continues
to correct. Wait till valuations get a
little bit more realistic and then
invest. You can invest back in those and
they'll be something that you hold on to
for the long run.
>> Megan, we also got Fed minutes today
that uh of course are dated. there from
three weeks ago and they looked somewhat
hawkish indicating that policy makers
are more concerned about inflation than
the labor market at this point. Um does
that set us up for some kind of a
hawkish surprise uh on Friday when J Pal
speaks?
>> I'm not sure that we're going to get
much out of much of a change out of him
on Friday. I know Jackson Hole has
sometimes in the past been market
moving. Um but I think those minutes
even though they are backward-looking I
think they're very important and I don't
think the market's taking into
consideration um how important that is.
The two dissenters are really the only
two the rest of the members talked about
inflation and inflation is still a risk
and even by September and surely by this
Friday we're not going to have any more
additional information from tariffs and
what that means for inflation. This is
something the Fed's going to have to
keep reiterating. So I think they'll do
that again when they speak um at the
Jackson Hole conference. Reiterate that
the tariff is still unknown. It's a
lagged effect. We may not feel those
effects until the end of this year. So
it's going to keep the Fed walking this
fine line. I think that they have to
really balance that whether it's this
Friday how when they mention that or at
their next meeting. I I am curious then
how that sort of plays into allocations
to fixed income given the uncertainty
about the direction of Fed rates whether
they go up down or maybe just stay right
where they are when you look at yields
right now in the treasury space when you
look at spreads uh in the corporate
credit space Megan do you find anything
attractive?
>> No.
>> Simply no. That's a really easy answer
for you. credit is um that's something I
I do not understand why this the credit
continues to grind lower and lower in an
environment where um the Fed hasn't
committed ne to continue to to cut
interest rates. The futures market wants
it and the president wants it, the White
House wants it, everybody wants lower
interest rates, but at the end of the
day, inflation still is a problem. So
when you're going into an environment
where the economy is slowing, the Fed
may not have the flexibility with
interest rates, credit is at risk,
especially at these levels because it's
pricing in perfection. Perfection from
economic growth, perfection from the Fed
coming in delivering um saving the day
here in se September. That simply I
think is an unrealistic expectation.
Also, I think just from if you look at
the Treasury market, I think you you'll
see some more steepening in the yield
curve if they come in and cut interest
rates in September. Steepening not just
by short-term rates coming down, even
though they have come down quite a bit
as of late, but long-term rates can rise
even when the Fed's cutting rates
because investors are are future looking
when they're looking at the economic
growth and inflation and what that can
do when the Fed starts cutting rates.
>> All right, Megan, got to leave it there.
Megan Hornman, CIO over at Verdance
Capital, counting us down to the closing
bells. Uh stocks pairing a good chunk of
their losses on the day, but still red
across the screen with the exception of
the Dow, which is unchanged. Some big
drags today coming from big tech.
>> And I'm looking at volume. Uh volume in
the S&P 500 off 20% from the three-month
average. So that just gives you a sense
of, you know, not a whole lot is pushing
these indexes up.
>> Yeah, you do actually have quite a few
gainers on the day. Just of course not
the same waiting uh to flip the whole
market. TJX having a great day. So too
are a lot of the healthc care stocks
including the medical device makers like
Medronic. We count you down to the
closing bells with full market coverage
of everything that comes now and after
the bell with a global Simoc cast that
starts now.
>> The closing bell Bloomberg's
comprehensive crossplatform coverage of
the US market close starts right now.
>> And right now we are two minutes away
from the end of the trading day. Roma
Bostic here with Scarlet Food taking you
through to that closing bell with a
global simalcast. It starts now. Tim
Stanovvic in the radio booth. Emily
Grafo by a side in for Carol Masser
today. Welcome to our audiences across
all of our Bloomberg platforms. A second
day of declines for the broader market.
Really a fourth day for the S&P to be
clear. Two days down for the NASDAQ, but
the losses on the day. Tim Cinebec not
as severe as where they were just a
couple hours ago. Yeah, it is
technically two days in a row down, but
on Monday, Roma, it closed only up oneth
of 1% after falling half a percentage
point last Friday and then about
onetenth of 1% last Thursday.
>> You're one of those truthers.
>> Yeah. Yeah. I'm I mean, if you look at
the trend line,
>> 19.99% draw down. That's not necessarily
>> Yeah, that's Yeah, you don't round that
up, right?
>> But but you do look at the trend line
and it's certainly been going in one
direction for the last five trading
days. And we're definitely seeing that
the more
>> that one day
>> the more speculative areas of the market
here getting hit the hardest. The Dow is
defin it's still in the red uh set to
end the day in the red, but at least it
fared the best out of all the major
indexes.
>> Yeah, and it's worth pointing out
yesterday uh we talked about how the S&P
500 actually uh the number of gainers
and decliners were roughly equal. Today
you have more gainers than decliners in
the S&P 500 uh 257 to 246. Yet the S&P
down 310 of 1%.
>> Similar story for the Dow with about 19
names higher on the day. Your cats, your
McDonald's and Coca-Cas. And of course,
we've been spending a lot of time today
talking about the health of the consumer
with a lot of those retail earnings.
We're going to get Cody earnings after
the bell. Of course, the cosmetics
retailer, which comes on the heels of a
somewhat dow report earlier this morning
from Estee Lauder. Let's walk you
through these numbers here because it
has been uh an interesting day to say
the least. It takes a while for these
numbers to settle, but we're just going
to call it right now. Now, the Dow Jones
Industrial Average is going to finish
the day unchanged, right around that
44,938
level here, despite actually being
significantly lower earlier in the
session. The S&P 500, which at one point
in the day had dropped all the way down
to 6343 and change, closes down at
around 6395 and change, down 16 points
or a quarter of a percent. The Nasdaq
Composite down 7/10en of 1% and the
Russell 2000 down 3/10en of 1%. Though I
should point out uh Tim uh the Dow
Transports had an awful day of course
after leading the charge over the last
few weeks down almost 2%.
>> Well as far as stocks the mix of stocks
that moved higher and lower. Scarlet
giving you a preview 261 to the upside
at the close 238 to the downside in the
S&P 500. So even though Scarlet as the
S&P 500 fell more stocks in the index
did move higher
>> and that shows up in the IMAP as well.
Seven out of four se uh out of the 11
sectors finished in the green four
finishing down. But the ones that did
finish down consumer discretionary, tech
and communication services they seven
names and they are of course uh the
bigger sectors more heavily weighted
sectors. Energy was the best performer
gaining 8/10en of 1% moving higher along
with oil prices.
>> All right, taking a look at the stocks
that performed the best in the S&P 500
and in the US today. Well, at the top of
the S&P 500, analog devices to the
upside of three 6.3%
best performer in a percentage basis in
the S&P 500. The company did report
results earlier today, adjusted earnings
per share. The forecast for the fourth
quarter came in above estimates. The
guidance beat the average analyst
estimate. The CEO and chair, Vincent Ro,
said that quote, "While tariffs and
trade fluctuations are creating market
uncertainty, demand for analog devices
products remains robust." and Herz also
in the green today. Shares climbing
after the company after reports of the
company will start selling used cars on
Amazon Autos up close to 6% on the day
today. This is Amazon Auto's first fleet
dealer. Here are some details. Customers
can browse Hertz car sales listing on
Amazon Autos and finish their purchase
online and then pick up their car at
Hertz Car Sales locations. The roll out
not all over the US. It'll start in
Dallas, Houston, LA, and Seattle. The
company plans to expand to Hertz car
sales 45 locations nationwide. A
reminder that some of these rental car
companies are the largest sellers of
used cars out there. And guest shares
absolutely surging today. The company
going private in a $ 1.4 billion deal
with Authentic Brands Group. It's in
partnership with the co-founders Maurice
and Paul Marciano and CEO Carlos
Alberini. Shares up more than 26% today.
Authentic Brands is going to acquire a
majority stake in Guess's intellectual
property. Well, Guest Management will
continue to run the business and own the
operating company. Once again, guest
shares up more than 26%.
>> All right. And for the decliners, Target
was one of those maybe surprising
decliners of the day, falling 6%. They
had a hotly anticipated earnings report
that actually was pretty good. They
maintained their guidance, most of the
results, beating estimates, but the
retailers pick for an internal CEO
appointment did seem to offset those
better than expected results. So, we did
see that stock falling over 10% on an
intraday basis and then closing the day
down over 6%. I'm also watching Estee
Lauder. This is the third day of
declines for the makeup cosmetics
company uh close the day down about 4%.
The company said that it has hired
external advisers to conduct a review of
the brands it owns, La Mer being one of
those in a bid to accelerate a
turnaround after years of sales
declines. The CEO said,
>> "That's that's like the little facial
serum. It cost like $1,000 a bottle."
>> Yes. It cost a couple hundred dollar for
like a little thing of moisturizer.
>> I was like, "You know what? Maybe
there's something I'm missing out on. I
didn't notice a difference.
>> They never give out samples ever."
>> Yeah. You must have purchased.
>> Well, you know what you can do? You
know, you go to Bloomingdales across the
street and use their samples there.
>> Okay. No, that's gross.
>> Yeah. Everyone's sticking their fingers.
>> If you want to save money, you got to
think outside the box.
>> Anyway, for Estee Lauder, the CEO said
the company is rethinking its portfolio.
So, now I'm thinking about moisturizer
in order to focus on our highest return
opportunities over the medium to long
term. Uh, we'll share updates in due
course. That's from Estee Lauder. So,
check back in on that company. And then
finally, James Hardy. This was a really
big drop, worst drop since 2001, the
building materials maker falling 34%.
Um, they reported net sales that missed
analyst expectations. And they also
warned of weak demand for repairs and
new construction in North America.
really a downbeat outlook here on the US
housing market.
>> Yeah, I was that was a phenomenal uh
well not phenomenal in a bad way uh
report here, but I mean we paid a lot of
attention to that and that kind of leads
us to this idea of macroeconomic
conditions and whether the Fed might
actually potentially come to the rescue
or whether they even need to. Uh we did
get the FOMC minutes a little bit
earlier uh today and maybe it kind of
ratified the idea that well rates might
not actually go anywhere. In fact, the
curve uh the Treasury curve today pretty
much steady right around where it's
been. You did see just modest movements
to the downside here, but this has been
a Treasury market that's been in a bit
of a holding pattern. Of course, waiting
for JPAL speech on Friday and the
official FOMC meeting which concludes uh
on September 17th.
>> Okay. You guys were talking about the La
Mer, what is it?
>> Moisturizer.
>> La Mer moisturizer.
>> A cream.
>> Okay. It's the luxury high-end Yeah.
>> moisturizer,
>> but it works. So, you know, it deserves
the price tag. What about a $160
lipstick from the makers of Louis
Vuitton? There's a story in the Wall
Street Journal.
>> So, I I love this question because I
have no idea what lipstick is supposed
to cost.
>> I don't either.
How much is a lipstick anyway?
>> I'm guessing it's less than $160.
>> A shock to you.
>> Yeah. Not $160. That's the answer.
>> No. I mean, you go to a drugstore, you
can get it 10, 15, 20.
>> Okay. Well, the folks at over at Louis
Vuitton actually think
>> scented. They they think that it's that
there is a market at the highest end to
create essentially the Louis Vuitton
trunk of lipstick. At least that's the
question that the Wall Street Journal
asks.
>> But there okay the case that the
lipstick is in is also beautiful, right?
I mean it's leather and it's monogrammed
and you know it looks like one of those
mini trunks. So I think that's part of
the selling point too.
>> Oh no, no, no, Scarlet. The mini trunk
costs extra.
>> Do you want to know how much that costs?
>> $2,900.
>> Yeah. But you could get you could get a
canvas one and an eyehadow palette for
$530.
Okay.
>> Okay, Tim. I mean, yeah,
>> this is really turning the lipstick
indicator on its head. Like, it's
supposed to be a recession indicator
because it's an inexpensive luxury.
>> You should just call it the CVS lipstick
indicator because that's the one that's,
you know, going to tell you whether
consumers are willing to spend. I mean,
so Emily, you brought up earlier about
how Esteee Lauder is hiring advisers to
help it perhaps winnow down his brands.
Um, how do they position themselves when
you've got Louis Vuitton entering the
makeup market now? I mean, what is their
highest end brand at at Estee Lauder La
Mer, but they don't make lipsticks or
anything like that or regular cosmetics,
right? I mean, they're they're a skin
cream company.
>> Yeah, they just have I think that that
moisturizer that smells really good.
>> But it gets to this idea too of like
what the brand power and we've been
talking about this all day today. Today
we had Mickey Drexler of course famous
for uh helping to sort of build Gap and
turn around J Crew and this idea of you
know why would you pay $160 for lipstick
well because you know it's attached to
Louis Vuitton. At the same time Esteee
Lauder is dealing with the idea that
maybe some people don't see his brand as
having that same premium and that's why
when you got their earnings report they
talked a lot about maybe potentially
actually scaling back prices or at least
offering some sort of discounts. Why are
you guys just looking at me right now?
We don't Isn't there a toolbox or
something? I'm confused. It's like I'm
talking to myself there. I'm just
getting all the information about the
luxury skincare.
>> I'm just looking at the brand. I mean
Estee Lauder owns an incredible number
of brands, right? And uh the makeup
sales that fell 5% during the quarter uh
were due mainly to declines in MAC, Too
Faced, and Bobbi Brown. Avita also saw
sales declines of another skinare.
>> My prerogative, you know.
>> No, different Bobby Brown. Yeah,
different one. Yeah, not Mr. uh Whitney
Houston. The ex Mr. Whitney Houston.
>> Oh,
>> Bobby with an I.
>> Well, now I'm less interested. Oh, okay.
>> Bobby with an eye. Thank you, Scarlet.
>> Yep.
>> For the information. Appreciate it. Uh
we are
>> going to if you listen to 80s pop music.
>> Sadly, we're going to have to leave it
there. That is going to do it for our
crossplatform coverage of the market
close on Bloomberg TV radio, YouTube,
and Bloomberg Originals. We'll all be
back same time, same place tomorrow.
Stick with us here on the close. We're
going to continue our conversation about
the tech selloff, if you will. We're
also going to talk about valuations
overall. Brent Th going to be joining
us, the tech sector leader over at Jeff.
This is the close on Bloomberg.
>> The countdown is on. Everything you need
>> Welcome back to the close. And well, it
could have been worse. The big sell-off
in markets today, extending the selloff
from yesterday. But late in the day, we
started to see those dip buyers come in.
a NASDAQ 100 that at one point looked
like it was going to drop 2% on the day
only closing down about 6/10en of 1%.
Even some of the more volatile areas of
this market like the spa IPO index, like
cryptocurrencies, all which had been
deep in the red earlier in the session
managed to rebound as we got closer to
the 4pm mark here in New York City. Even
the VIX, which at one point was touching
the 17 mark, closing back below 15 on,
excuse me, 16 on the day. Now, that
doesn't necessarily mean that all the
concerns out there are somehow over.
There are a lot of concerns out there.
Target, of course, down 6% here on the
day, the worst day going back to early
April. A lot of concerns here about not
only consumer spending, but of course,
some of those idiosyncratic issues with
regards to management and its new leader
TJX companies though actually bucking
that trend, showing that it does have
resilience. That low value, that low
price model really working to its
advantage. those earnings this morning
giving investors some confidence that at
least in the retail space there are at
least a couple of companies still worth
buying. Meanwhile in the tech sector and
that's where we want to go back to. We
talk about some of those names. Dell
which of course has been just kind of
the darling of the AI data center trade
that dropped 5% on the day and Palanteer
the best performing stock in the S&P 500
didn't do so well today down about a
percent though once again it was down
more than 5% at one point earlier in the
session. And that brings us to our top
story of the hour, and that's about the
jarring nature of this two-day sell-off
in US equities. But when you really look
under the hood, it's less of a sell-off
than maybe a bit more of a rotation.
After all, despite the headline index
slump, the majority of stocks in the S&P
and in the Dow finished in the green
again. It's just, of course, that the
majority didn't include the heavyweight
names that had powered the S&P to a 27%
gain over the past four months. Using
the FTW function on the Bloomberg, you
can see the best performing long only
factors today remain low volatility
stocks and high dividend payers. Egg
producer Caline up for a second straight
day. Exon Mobile up for a third.
Lockheed a fourth. AT&T a fifth. And how
about this? Health insurer Sigma on an
11-day run. It's an embrace of companies
with pricing power and economic buffers
and a bit of a shunning of the
unprofitable. the meme stocks like Open
Door and Soundhound and even a bit of a
shunning of some of those high multiple
tech names like a Broadcom, Adele, and
well, all seven of the now not so
magnificent seven stocks. You put it all
together though, and it's not
necessarily bullish, but it's not
wholesale bearish either. Here's Howard
Marks on that point. It does seem that
that stocks are expensive relative to
what I call fundamentals or you might
call reality. We're not at a critical at
a nutty uh
>> Howard Marks speaking a little bit
earlier on Bloomberg television. Brent
Phil joins us right now here on the
close, tech sector leader of software
and internet research at Jeffre. And I
really liked Howard Marx's statement
because I think he kind of encapsulated
the idea that there is some concern in
this market, but to use his phrase,
nothing really nutty out there when you
look at the sell-off that we've had in
big tech stocks, Brent, over the last
week or so. Is there anything there that
gives you a sense that there's something
more meaningful there or is this just a
bit of profit taking and maybe a modest
rotation into uh lower multiple areas?
>> Yeah, I think it's orderly. It's not
been violent. Uh our trading desk has
seen you know seven straight down days
very consistent no one freaking no one
you know create creating a big havoc you
know we we had the the deepseek moment
uh obviously uh many months ago at the
beginning of the year and you know
there's no you know concern there was
the this MIT white paper about uh AI uh
not showing maybe the the ROI out of the
gate u you would you would expect to
see. I I think that's a a good report.
It's kind of what we've been saying is
this is going to take years, not months
or quarters for AI to work.
>> So, I think we're in a little bit of a
pit stop, but I I would say talking to
our head trader, it's been consistent,
stable, very orderly. Part of this could
be we're at the end of August. You know,
hedge funds have de derisk and degrossed
their books. Part of it is, you know,
lack of conviction and part of it is
we're waiting for the Fed on Friday and
Nvidia next week and you we'll we'll
we'll get those mile markers and then
make make a move from there. And
>> that's a good point. I mean, we started
off the show today speaking with Jeff
Degraph over at Renaissance. He talked
about this was much more of a technical
sell-off rather than one uh that was
really about fundamentals. This idea
that there are still long-term themes,
particularly with AI uh that still have
the power to move this market higher.
And I want you to take a listen, Brent,
to what Dan Isa over at Wedbush told us
yesterday.
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.
Brent, so when you cut through uh
everything you were saying and the
rhetoric, the general idea seems to be
that when you look at the Palunteers and
the Microsofts and the Nvidas and all
these stocks that have powered this
market higher, they didn't necessarily
rise necessarily because of a onetoone
fundamental belief. It was more about
the structural and longerterm benefits
of AI. Are you in that camp?
Yeah, I mean we we've been in the camp.
Again, I've been Microsoft's biggest fan
forever and I said co-pilot, you know,
wasn't a pilot I would fly with out of
the gate. You know, we we've said this
that the product is young, it's early,
but we're huge believers that it will
become the F-16 or 747 pilot, right? So
it's this this concept of duration which
is like you know the that AI suddenly
you know you're going to open up chat
GBT and create a create you know a card
or a invite for your kid's birthday
which is awesome you can do that on chat
GBT you can't do that in enterprise AI
like a lot of the enterprise AI
capabilities are just really early and
companies are tiptoeing into them and
this is part of the MIT rep report which
is like look a lot of the deployments
there's confusion it's it's hard that
you need better training you need better
data. We're going through
>> we're going through this kind of AI
fatigue, if you will. Everyone's saying
that they have something better, a
better mousetrap. Every buyer's holding
off. Users are like, "Look, I've got
enough." So, we're just in this
digestion phase. We are very encouraged
about what will happen long term. But
again, this is classic of a new
technology unveiling. it's just going to
take time uh to to acquire get the taste
of it and and and use it in the way that
that is helpful. Um so none of this is
surprising.
>> Um and I think it's again it goes back
to it's very it's fairly consistent with
any
>> um new adoption of any new tech. You get
you get excitement. Remember when the
BlackBerry came out and everyone's like
I can put my my computer on my belt
>> and all of a sudden I can write emails
and it was exciting. And then you're
like well how do you actually scroll the
web? you can't on one of those devices.
So like we're we're going through this
adoption.
>> Uh and it's just going to take time. We
are not there's nothing in our line of
sight would say that the AI is not going
to be meaningful in the next couple
years.
>> And you referenced that MIT report. A
lot of people of course made hay about
it. The idea of this sort of a gen AI
divide. But it gets to this idea that a
lot of what they were referencing in
there weren't necessarily the larger
companies that were actually finding if
not use cases certainly a case to sell
their products to other people. So when
you look at so Nvidia which reports next
week and then of course when we get back
to the next earning cycle with the
Microsofts and the the software and
hyperscalers here do you think you're
still going to see that commitment to
capex to continue spending uh to
continue spending uh on AI capabilities?
Yeah, I mean we just raised capex by 40
to 50 billion in the last month when you
look at the Q2 number. So everyone's
capex number went higher across the
board. So it's not like Oracle saying
capex and Amazon, Google and Microsoft
are all down. They're all up. So you
know this concept of these are the
railroad companies. We don't know where
the railroad tracks are going. Are the
cities going to pop up? Are there going
to be enough goods to transport on the
tracks? Like this moment everyone is
having on AI which is like all the spend
and no ROI. We've said this repeatedly,
the backlog of all the hyperscaler and
the large tech companies is well in
excess of the capex numbers. So the ROI
is there. Second, Microsoft has said
this, the margin is better in AI than it
was in cloud. Third, they've just
demonstrated two years of margin
improvement
>> and they they've gotten margins flat,
but look at the look at the best CFO in
software, Amy Hood. Look at the one of
the best software companies in AI,
Microsoft. They just gave you two mar
years of margin improvement and they're
giving you huge backlog growth and they
accelerated Azure. Like how is there not
an impact from AI?
>> Uh think we're having some issues with
Brent's connection. We're going to have
to leave it there. Our thanks there to
Brentville, tech sector leader of
software and internet research at Jeff.
And just a reminder, Nvidia is set to
report earnings one week from today.
When we come back, we focus on the
macroe with J Pal and well his trip to
Jackson Hole. This is Bloomberg.
US economic outlook taking center stage
as Fed chair Jay Pal readies to give a
speech at the economic symposium in
Jackson Hole, Wyoming. The speech coming
at a time when producer prices. The
wholesale prices are rising faster than
consumer prices, which the team at
Bloomberg Intelligence calls a classic
red flag that historically signaled
weaker profits for companies. And of
course that would translate potentially
into weaker economic conditions. Joining
us right now is Olu Sola, head of US
economic research at Fitch Ratings. Olu,
great to have you here. I do want to
start off with inflation. We got the Fed
minutes uh just a few uh a couple hours
ago and it does appear that there was a
big debate there about putting way more
emphasis on inflationary pressures than
the labor market.
>> How do you feel about that? I I do think
that um at the last time the Fed had
that meeting, the labor market report
came in two days later. So to some
degree that meeting uh was stale because
my guess is if they had the labor market
report that came the tone of that
meeting would have been different and
the tone of the minutes that we saw
would have been different. I think at
this point the downside risk in the
employment market is real
>> uh in the labor market is real and you
can't ignore that unfortunately for the
Fed inflation is also moving in the
wrong direction right and you also can't
ignore that so they have to look for a
way to square that circle uh with
regards to their next policy move
>> when you looked at the disparity between
the CPI number we got last week and that
PPI number which shocked a lot of people
what does that say to you about what we
should prepare ourselves for
>> I think the P Historically, the PPI is
has been a leading indicator for CPI.
>> So, what we're likely to see is goods
inflation is going to accelerate.
>> And when you actually look at headline,
we have headline um inflation going as
high as 3.8%.
>> Consumer inflation.
>> Yes. Oh, wow.
>> Headline CPI going as high as 3.8%. Over
the coming months into 2020.
>> So, that doesn't sound like an
environment where the Fed would be
cutting rates. I mean, even if you do
have a weak labor market, where does
that I mean, what can Jay Pal say on
Friday that maybe gives investors
comfort that he can thread that needle?
>> I think the only leg they have to stand
on is to say that we don't think this is
persistent
>> and even you don't
>> Didn't we hear that before just a few
years ago?
>> Exactly. It it's not some it's not an
assertion you can make confidently. It's
very very uncertain. the trickle, you
know, the roll out of the tariffs lends
itself to an environment where very
likely we'll still be talking about
tariffs a year from now.
>> So that tells me that it may end up
being a little bit more persistent than
the Fed likes.
>> My guess is that the pace that the
market expects, I think that at a point
it was we were pricing in three cuts
this year to some degree it's now two.
That pace is probably not what we're
going to see. Even if they cut rates,
>> they will make it clear that
>> it's not an aggressive cutting cycle.
>> They're going to take their time and let
the data
>> point them in the direction that's
right.
>> A lot of people of course looking at the
uh CPI and inflation data. Also looking
at the labor market. I I think tomorrow
we're going to get uh some PMI uh data
both on manufacturing and services. Uh
the last report we got, I don't know if
it was from ISM or or from the S&P, but
it was not good on either one. What are
you expecting tomorrow?
>> It it's the same. You know, we're in the
middle of an economic slowdown without
question, right? Uh yes, you know,
people point to 3% GDP second quarter.
If you strip out inventory and you strip
out trade distortions, it was
essentially less than 1.5 somewhere
between 1 and one and a half for the
first half of 2025.
>> We think that trend is going to
continue. We have 1.5% growth, GDP
growth for all of 2025, annual growth
for 2025. So, we think that slowdown
will continue. We think you're going to
see that in the PPI number, I'm sorry,
in the PMI numbers uh that we're going
to see tomorrow.
>> All right, Olu, we have to leave it
there. And of course, uh those uh S&P
PMI uh numbers, manufacturing and
services out 9:45 a.m. tomorrow. Olu
Samilla, head of US economic research at
Fitch Ratings. As we continue here on
the close with a closer look at the
state of the economy with some big
retail earnings on deck. We're expecting
to hear from Cody. This of course is the
beauty brand. They are set to report
earnings at some point here this hour.
We'll bring you those results as soon as
we get them and have a broader
conversation here about the state of the
retail and apparel industries with an
eye on the health of the consumer. This
is the close on Bloomberg.
Welcome back to the close today. We are
keeping an eye on the health of the
consumer as we await those earnings out
of Cody, the big beauty brand. Uh shares
are down in the after hours trade. Those
earnings have not dropped just yet, but
of course the backdrop coming into that
was a relatively dow report out of Estee
Lauder earlier this morning. Let's bring
Jerome Martis into the conversation.
She's director of consumer research over
at Else. and Jerome, we've gotten
several earnings out of several
retailers and it's been really a mixed
bag. TJX, which always seems to kind of
defy any sort of dower expectations, had
a pretty good quarter. And then you had
Estee Lauder, which just said, "Look,
we're actually going to have to start
cutting prices or at least offering
discounts to get people back into the
store and back onto our website."
>> That is absolutely true. And and mainly
because the consumer is all about value
right now. They're dealing with in high
inflation. The unemployment um number is
going up, so they're concerned about
their own job security. the latest
consumer confidence data shows. But
because of all that, you're seeing that
they're not opening up their wallets
unless they finding a value. They still
want high-end designer clothing, but for
less. And that's why TJX is doing so
well. There's no stopping the American
consumer when it comes to a treasure
hunt experience. And so they're they're
able to get like good value and high-end
designer for less at those places where
whereas they're thinking twice about
buying another perfume, buying
cosmetics. And that's why we're seeing
that companies like Estee Lauder um did
so poorly today. Well, speaking of
cosmetics, Cody, uh, earnings are
crossing the wire right now. The bottom
line number, uh, coming in right now
with an adjusted loss per share of about
5 cents, and that is a surprise. The
Street was actually modeling a profit of
about 1.4 cents a share. On the revenue
side, they did beat uh, net revenue
coming in at 1.25 billion. The street
was looking for 1.21 billion. So, maybe
a testament here to some of the cost
pressures on some of these companies and
their ability or in this case, inability
to pass those costs on to the consumer.
Gross margin also missing estimates
62.3% the street was looking for 63.1%
and we should point out that on a like
forl like basis sales in the most recent
quarter down about 9% uh the knee-jerk
reaction there in the shares still on
the bottom of your screen there down
about 9%. And Jerome this seems to
really be maybe potentially the story
for this quarter and maybe into next
earnings quarter. this idea that you
could see a situation where sales
actually hold up but profitability gets
hurt because those additional costs
where are they going because at least
for right now when I walk into stores at
least for certain items I'm not seeing
huge price increases
>> right and so what's happened is that a
lot of the retailers have been absorbing
those costs in order not to hurt demand
but the latest PPI data is telling us
that that might be a different story for
the second half of the year PPI um which
actually attracts the changes in prices
before they hit the consumer has been
rising faster than expected. And now,
you know, the consu the retailer has
been doing a good job in shielding the
consumer because they've been absorbing
those prices and ordering a lot of
inventory beforehand. But now that will
no longer be the case as those prices
are continuing to trickle up the chain.
>> So many of the conference calls we've
had, we've heard the executives talk
about, if not raising prices, the idea
that they certainly have to consider it.
Home Depot, PNG, Nike, just to name a
few. But it gets to this idea of whether
they can because it's one thing to say
we have to pass this on to the
consumers, but then you talk about TJ
Maxx and you talk about the idea that
the consumer is very valueoriented. If I
start seeing a spike in prices at this
store, am I just going to go and sort of
look at a TJX or some other maybe
off-pric retailer and try to find the
same thing or something similar?
>> Absolutely. And we're already seeing
that with a lot of the price
comparisons. So like when you think
about an event like the Prime week, a
lot of the other retailers like Target,
Walmart, they're also competing for
those prices. And that's also why Target
is at a disadvantage because it can't
compete with the likes of Walmart which
is everyday low prices. So unless you
have you're able to provide really be
competitive with Walmart and Amazon,
then you're going to lose a lot of that
customer.
>> A dumb question. I mean, how does
Walmart do that? Is it just I was just
in a Walmart this weekend and I was
actually shocked at some of the prices I
saw. I mean like like significantly
lower and granted things are skewed
because I live in New York City so
everything is is really uh expensive but
it gets to the idea why do they have
that luxury of being able to offer that
and others don't
>> because of their size because of their
size and their relationships with their
suppliers that have been for so long
they have that power to exercise that
power
>> but but long term though or I say long
term but over the next few quarters you
still expect tariffs to be a big story
tariff costs
>> absolutely so when we look at our
current forecast for the current quarter
we're looking at a 6.5% earnings growth
growth rate and that's expected to
decline to 1.1 into the third quarter
and remain in the low digits for the for
Q4. So this underlines the weakness that
we're going to see in the consumer
spending in the second half of the year
as they are being hit with higher prices
than they are now.
>> Wow. All right. Uh that's great data,
Jerome. Always great to have you. Always
a pleasure. Jerome Martis, director of
consumer research over at LEG. And those
tariffs of course that we're talking
about is not just the cost of those
tariffs, but it's also about kind of the
erratic roll out of that policy. It's
raised a lot of concerns with a lot of
retailers out there saying that they
just don't even know how to plan. Our
next guest has warned that the Trump
administration's aggressive trade
approach is really now starting to
damage a lot of trust out there, not
only with companies domestically, but of
course with our trading partners.
Pleased to say right now joining us is
Eno Manak, trade policy fellow over at
the Council on Foreign Relations. And
you know, I am curious about this idea
of the roll out of these tariffs and the
idea that that is giving a lot of folks,
a lot of consumers pause, but more
importantly, a lot of our trading
partners as well.
>> How these tariffs have been rolled out,
it's been very erratic. We've had
moments where there's been an
announcement for new tariffs and they've
been taken away. Uh then we've had
increases over time, threatened uh
increases. So, our trading partners
don't really know how to plan, but
neither do businesses in the United
States. When you think about how you
plan out your purchases, you're thinking
about this in the long term, and you
need to have some sort of stability and
predictability to make those choices.
And right now, we just don't have that.
So, I think the the big thing that we're
seeing today is even though we're having
a bit of a a settling down where we kind
of know the tariff rates, there's no
guarantee that President Trump is going
to keep rates at that place and
otherwise he might just change them,
too.
>> Well, it's funny you bring that up. I
mean, there was a survey out today that
actually showed that at least when it
comes to Canada, the 80% of the people,
the rank and file people that they
surveyed out there don't actually
believe that any trade agreements struck
with the United States would actually be
honored under this administration. the
idea that yeah, you can strike that
deal, you can hold that press
conference, but is there going to be
follow through? And I have to say I I
have no idea whether that's the case
with Canada, but we've heard this from
other nations very quietly. It's been
reported on Bloomberg and on other
places that a lot of these leaders are
concerned that these agreements may not
even matter over the next few months and
quarters if the United States doesn't
stand firm in what it agreed to.
>> Well, that's absolutely right. When you
think about the case of Canada and
Mexico, they are trading partners that
already have a trade agreement with us
and that is being violated by the United
States. So why would they actually want
to sign anything else when the agreement
that they had signed with President
Trump, by the way, has not been honored
by him. So it raises big questions for
our allies about what they are going to
commit to and whether or not there's
going to be a real guarantee uh that the
tariffs won't be changed even if they
make strong commitments. And if you're
looking at some of the things that have
been agreed to, uh, we don't have things
on paper. We don't know what everyone
agreed to so far. There have been 10
deals announced and and not a lot of
text. So, we don't know the length of
the commitments, when they're going to
be implemented or what exactly everyone
is going to do. So, it's a lot of
uncertainty and honestly, it's making it
really difficult for a lot of countries
to sign on to deals. We've talked a lot
on this program about this idea of
President Trump kind of, you know,
reimagining the new world order,
creating a different sort of global
trade system. I've been told by a lot of
people that's the wrong way to look at
it. That if you take the United States
out of the equation,
we still have a global trade system. You
see that in trade flows, uh, that data,
the hard data certainly shows that. Of
course, it's just not data that links
directly back to the US. It's China
trying to find deals in Latin America.
It's Europe trying to find deals in Asia
and in Africa, etc., etc. Are you seeing
the same thing?
>> Absolutely. And we're looking at the
data that's coming out right now. Uh the
CEO of Maris, the shipping company, had
said that outside the United States,
there continues to be strong demand for
trade. Uh and he expects global
container market volume to grow between
2 and 4%. So, what that's telling us is
that the rest of the world is open to
trade. It's just the United States that
seems to be closing itself off. And when
we're thinking about this this broader
issue of are you remaking the world
trading system well at the end of the
day a single country even if it's the
United States cannot remake the entire
system because that means not only does
it change its relationships with
everyone but it forces those countries
to also change their relationships with
each other and right now every other US
trading partner is maintaining the
existing rules and playing by those
rules and not violating them like the
United States is.
Where does this lead us though? And I
mean, let's I mean, let's just be
honest. It does not appear the
administration is about to change tac
anytime soon. They've really sort of
made this a hallmark of what they want
to be and how they think this they can
help the US economy and address what
they are saying are decades of uh just
say misguided policy for lack of a
better phrase. But where do you see this
leading us? And I mean here in the
United States, our economy and whether
it actually leads maybe to some
potential prosperity or does it lead to
something I guess the opposite?
>> Well, we're going to see and we're going
to see as the impact of those tariffs
starts to roll out. Uh in the first few
months, what we saw were companies
absorbing a lot of those costs. Uh but
recent figures suggest that they're
passing a lot of those costs on to
consumers now. And consumers are sort of
responding to that uncertainty. We're
seeing consumption dropping among poor
households uh with cutbacks on
discretionary spending like restaurants.
Uh and just the top 10% of earners in
the United States are now propping up
consumption. Uh this could also change
and we're seeing real fears for low
growth and high inflation in the future,
a stagflation scenario as tariffs begin
to bite. So, I would imagine that going
into the next half of this year, we're
going to start seeing those economic
impacts and it's going to mean higher
costs, not just for consumers and their
bottom line, but for companies that make
things here, because half of what we
import are intermediate products that we
then turn into something else. So, this
is directly attacks on US manufacturers
and innovators in the US economy and
they're going to be hurting pretty soon.
>> All right, Anu, I got to leave it there.
Appreciate you coming on with us. Anum
Monik there is the trade policy fellow
over at the council of foreign of
foreign relations foreign relations
excuse me of course keeping a close eye
here on the potential impact of tariffs
on the market now we should just point
out as we take a look at how markets
close on the day I do just want to
revisit Cody just a second they did just
report earnings those shares down about
10 to 11% in the after hours trade and
of course their press release is
littered with conversations about the
impact of tariffs saying quote that
broader macroeconomic and tariff
uncertainty is fueling cautious retail
Taylor ordering in a more promotional
environment. Something to keep an eye on
that may determine the next direction
for the broader market. This is the
All right, consumers are getting more
selective. We know that. We've been
talking about it all day. But leisure
and entertainment businesses, they're
actually hanging on, at least for now.
Our next guest company is bracing for
how tariffs might impact consumer
sentiment. It's forging ahead with an
expansion, diversification if you will,
adding water parks, family entertainment
to its well, what was once just a
bowling empire. I'm pleased to say
joining us right now is the CEO of Lucky
Strike, Tom Shannon. Tom, great to have
you here on the program. You know, it's
so funny. You know, we talk about, you
know, you being kind of a bowling giant.
Uh but when I start to look at your
portfolio, I look at some of the moves
that you made. We're talking about a
much more diversified business, water
parks and other sort of uh areas of
leisure and I am curious what the
rationale behind that was when you
started to go down that path. It
>> it's really interesting Roma when we
looked at these adjacent businesses
almost by accident. We realized that the
economics were virtually the same as
bowling in terms of margin return and
who the customers were. And so we said
these are exactly what we've been doing
successfully for almost 29 years now
except they're at a larger scale. So as
an example, we now have five water parks
and the average unit volume of those is
about $17 million versus our average
unit volume on the bowling side of about
3.3 million. So for basically the same
amount of effort, time, managerial
attention, we're doing things with five
and six and 7x the scale. So um it it's
it's a really exciting adjacency. And
the other thing is that it gives us the
ability to crossell between the bowling
the family entertainment centers which
are branded boomers and various water
parks uh that have their own brands.
Well, I am curious that when you talk
about the differences between those
businesses, what does that spend look
like in ter and I don't necessarily mean
in terms of aggregate spending, but like
the frequency of spending, the amount
that they spend when they actually
arrive. Which one typically does better
or is more resilient?
>> I'd say they're both pretty resilient.
So, if you take the bowling business,
there's fundamentally three aspects.
There are three customer groups. There's
retail, which is just walk-in. There's
the league bowler, which is organized
play, and they'll commit to a typically
32- week season, and then there's the
the event business, which is everything
from children's birthday parties up to
high-end corporate events. Um, and they
all act very differently. For example,
right now, the league business has been
up for the last consistently really
since co. Um the retail business has
trended positive over the last couple of
months and the corporate business is
still a drag but in aggregate uh the
bowling business is trending up. The
water park business I think is sort of a
permanent fixture because if you live
far from the water if you if you're not
in in a coastal area you know and it's
90° all summer how do you entertain the
children? And so we have water parks in
the Inland Empire of California, uh, in
in North Carolina, in outside of
Illinois. And I think that business is
extremely resilient.
>> When when it comes to broader consumer
trends out there, we've been talking on
this program a lot about tariffs and of
course the hit that we see on uh, actual
physical consumer goods and how that
might affect spending. One of the areas
that we've seen that continues to be
resilient and has been really for
several years now even during the
pandemic was the idea of services. The
idea that people may not want to go out
and buy a discretionary item, you know,
a lipstick or uh you know, a new piece
of clothing, but they are willing to go
out to go bowling to go to a restaurant,
do things that provide them some
satisfaction in the short term. Do you
think that holds up even in the face of
any sort of economic downturn that may
sort of arise over the next few months
and quarters?
I I think there's definitely a shift
from people consuming
things to experiences and you see that
in for example the price of hotel rooms
around the country. It seems like
they've doubled or tripled over the last
5 years. So people are out they're
traveling a lot more. Uh restaurants if
they're good tend to be very busy. So I
think we're in the sweet spot of the
economy. Uh and I don't really see
anything changing that. The beauty of
where we are is we're very high value.
So, you know, the average walk-in retail
customer probably spends $35 with us,
which is not a lot of money, frankly.
And it gives us the ability actually to
add products and services like upgrading
our food, which we've made a concerted
effort to do, and it's actually quite
good. Food for us was always an
afterthought. Now, it's a core offering.
And I think by doing these things, we
have the opportunity to earn more money
from the consumer when they visit. But
if you had a severe downturn, then
people may trade down to us as a higher
value offering than going to an
expensive restaurant.
>> We've been through three major
recessions since I started the company
back in 97. There was, you know, 911,
there was financial crisis and COVID.
And what we found was a tremendous
amount of resiliency in the retail
walking business over those those eras.
>> Hey, real quick, uh, Tom, before we let
you go, I am curious. I mean, do you
have any material tariff exposure that
you've been having to manage?
>> No, we don't.
>> And you don't anticipate to see anything
in that area?
>> Well, I mean, we have very, very little
that we import from China, for example,
and it tends to be very low cost and not
an important part of our business. So,
we're sort of I don't want to say we're
immune from tariffs. We're but we're
we're not we're not exposed to tariffs
in any meaningful way.
>> All right, Tom, got to leave it there.
Tom Shannon there is the CEO of Lucky
Strike, which has of course one of the
best tickers on the street, LU CK. And
as we talk about well, experiences and
well, let's just say entertainment. We
had the pleasure to catch up with Jeezy,
your favorite rapper's favorite rapper.
He came back to talk a little bit more
about the 20th anniversary of a seminal
album, some of his new business
ventures, including an energ
collection with East Side Golf. Here's
what he had to say. Take a listen.
>> Edge is an energy drink and it's also a
mixer for spirits. Um, you know, anybody
who likes to drink their nice spirits or
whatever, Edge is a great uh mixer for
that. But it's also Andy Drew drinker as
well. And I'm um very to very excited to
announce our partnership with Anna Bush
and Eagle Rock and uh it's it's yes it's
it's great.
>> That's a big deal. I mean starting any
sort of consumer products brand
particularly in the food and beverage
space you have to have that shelf space
that shelf visibility and obviously a
partnership with a behemoth like Eagle
Rock and Heiser Bush. I mean how did
that come about? I mean were you able
was it a pretty easy to convince them to
come on board? Well, no, it was it was
one of those things where we all sat
down in the room and really just talked
about the vision
>> and um and we were all on the same page.
Everybody was aligned and uh and Bush,
you know, how they they you know,
they'll thing within themselves, but
also Eagle Rock and starting and based
out of Georgia and uh and just work our
way from there. And you know, I've had
um experience with spirits before from
Avon Tequila obviously to Nod, but this
is our new thing and I'm I'm very
excited about this. It's a non-alcoholic
beverage, but but you are promoting it
as something you can use as as a mixer.
Is that the primary focus or do you want
people mainly just
>> I think a little bit of both because I
think that you know you need everybody
needs edge. You know, you need edge when
you're making experience and you need
your edge while you getting some energy.
So, uh, you know, it it goes twofold for
me for sure.
>> Yeah. Well, one of my producers, she
just slams Celsiuses at her desk all day
long. But but but it gets to the point
there's a lot of competition in this
space and I am curious as how you want
to stand out because when I think enter
drinks drinks you think Monster and
Celsius and obviously you've had new
entrance in like obviously with the with
the Paul brothers and uh and then a lot
of other folks as well. So how are you
going to stand out in that?
>> Um our marketing for sure is is is
great. I love our package and I love our
marketing but our product like I don't
get behind or get involved with things
that I don't consume or deal with as a
lifestyle. You know what I'm saying? And
for me it's like the sugar content is
low. Uh the the taste is amazing.
There's no aftertaste and it's
refreshing to drink. So it's not like
when you drink those energy drinks when
you like you feel like you're drinking
an energy drink. This is something that
you probably drink, you know, just on a
Saturday evening hanging out at the
crib.
>> The sugar content's low. That's for
health reasons. You decided to do this.
>> Yes. Yes. I mean, you know, as far as
me, you know, you know, I definitely um
practice and preach a healthy lifestyle
>> and uh we actually had a conversation
about the sig content. I hadn't bring it
down and they was open to that. So, um,
I was definitely, um, you know, pleased
that they understood that I didn't want
to be out here selling things or getting
behind things that wasn't going to be
healthy for people.
>> So, we're going to see this on
storeshelves. We're going to see
presumably in bars as well,
>> the whole thing. Yeah.
>> In nightclubs. All right. So, so you're
doing a lot there and that's just
getting started that launches in
September.
>> Um, in addition to that and of course
your tour that you're doing for the Thug
Motivation anniversary, you also have a
capsule collection of clothing with a
company called East Side Golf.
>> East Side Golf. So, so, so golf is my
thing. Um, you know, I'm working on my
handicap now. I'll let you know how that
goes.
>> Um,
>> wait, how long have you been golfing?
>> Uh, three uh two and a half.
>> Okay. So, you just got into it. Yeah,
about two and a half.
>> Was that just why? just
>> it was it was um you know I actually
went out and and and went out with some
of my um mentors and and and was blown
away about how much peace was out there
and how much just tranquility and just
being able to be in a space where you
could have these, you know, these dope
conversations with people you respect
and learn about them as they learn about
you. And then I started actually getting
some business done out there and I'm
like, "Huh,
>> this is my thing." So I love golf. you
know, all my guys, I definitely um
introduced them to the game as far as
like just come out here and check it out
and they all fell for it, loves it, and
uh we golf all the time now.
>> And for our viewers who aren't familiar
with East Side Golf, this is a
blackowned apparel company. Uh it has um
an edge to it, if you will. The idea
that it's not sort of the stayed old
school golf club.
>> It came It came from uh well, first of
all, we're we're making golf cool.
>> We're making golf culture because I I
just I think that it deserves that. and
uh we want to look good while we out
there, while we having fun. So, East
Side Golf is a um um a black established
golf uh clothing uh company and we
actually partnered with the owner uh was
a great great uh colleague of mine
>> and uh it came out of the east side of
Atlanta and he's actually a golf pro.
>> Um so, it's a big thing. It's a big
deal. if you're ever in the South or if
you're ever in uh Detroit, anywhere
where they really wear it, like you'll
see it as if it's a it's a staple in the
community when it comes to golf.
>> And we've seen a big expansion in the
world of golf where you're seeing more
people who look like us involved in that
sport. I mean, obviously, you can go all
the way back to Tiger Woods and he
obviously brought a lot of people, but
now I think about uh the brands that
have East Side Golf, Trap Golf, and
quite a few others that have entered
this space as well.
>> How far do you think we can take this?
Does this become something that is
primarily for your people, your culture,
or do you see it broadening out beyond
that?
>> I think it broadening out beyond that. I
I've seen um kids from all, you know,
different walks of world uh different
walks of life wearing uh East Side Golf.
I mean, and and actually know what it
is. So, I definitely respect that.
They've partnered with everybody uh from
Jordan uh to Mercedes-Benz and now uh
Jeezy,
>> you know what I'm saying? So, we're
doing the Jeezy uh East Side Golf
Collaboration, and it's bringing the
snowman um
>> uh the snowman logo to golf.
>> So, the snowman's golfing now. Imagine
that. You know what I mean?
>> And that was part of my conversation
with rapper and entrepreneur Jeezy. That
was part of it. If you go over to
bloomberg.com, you can watch the full
interview. We talked a lot about golf.
We talked a lot about energy drinks. And
of course, we talked a lot about his
current tour and some of the troubles
he's had in getting to the tour. Shout
out there to the Uber driver, Tanner.
All right, let's take a look at the
after hours trade here. We should point
out that despite the big sell-off,
futures right now are indicating a
slightly basically flat open. We'll see
how that sort of plays out as we get
into the morning cash session and of
course keeping an eye on some of the
retailers, those Cody earnings, that
stock down about 10% in the after hours
trade. We're going to get some big
earnings in the morning here. Walmart is
going to provide us a nice read here on
the health of consumer. of course they
have a lot of pricing power and we'll
probably hear a great deal about what's
going on with regards to tariffs and
costs. We're also going to hear from
Ross Stores uh after the market closes
as well as two software companies into
it and workday set to report earnings.
We'll have full coverage of that here on
the close. But don't forget quite a bit
of economic data to parse as well weekly
jobless claims monthly S&P global PMIs
as well as the leading index and
existing home sales. And of course, all
eyes on the Jackson Hole Economic Policy
Symposium, which officially kicks off
tomorrow. We'll have full coverage of
that right here on The Close, right here
on Bloomberg.