Disappointing Retail Sales Add to Concerns About US Outlook

Summary

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Bloomberg Intelligence Podcast

Episode: Disappointing Retail Sales Add to Concerns About US Outlook
Date: March 17, 2025
Hosts: Scarlet Fu and Paul Sweeney

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Overview

This episode dives into the softer US retail sales figures and their broader economic implications, drawing on insights from leading analysts and asset managers. The guests explore the nuances behind recent performance, the impact of tariffs, and how persistent policy uncertainty is influencing both equities and fixed income markets. The recurring themes are transitory versus structural economic challenges, the outlook for market correction, and investor strategies amid turbulence.

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Key Discussion Points & Insights

1. Retail Sales: Monthly Slump and Sector Winners/Losers

Guest: Mari Shore, Senior Equity Analyst, Columbia Threadneedle Investments
[01:41 – 06:34]

• February Retail Figures: Adjusted retail sales up slightly vs. January, driven by non-store (e-commerce) retail, with most other categories slowing.
  • "When looking at the adjusted numbers for February up slightly versus January, I think the results overall were solid." (Mari Shore, 01:59)
• Nature of Weakness: The overall slowdown is viewed as transitory—largely weather-related—rather than indicating a structural decline.
  • "Most of the pressure that we saw in February was weather driven and ... there has been some improvement in March to date." (Mari Shore, 02:41)
• Retail Sector Divergence: Ongoing trends from 2024 persist:
  • Outperformers: Food, personal care, clothing, general merchandise.
  • Weaker Sectors: Home electronics, sporting goods, department stores (e.g., Kohl’s results seen as part of a broader department store struggle, not a universal retail trend).
• Investment Playbook: Focus on share-gainers, not sector as a whole:
  • "Retail is a low single-digit growth category and it's all about who's winning and who's losing share." (Mari Shore, 03:44)
  • Two buckets of winners:
    1. Value, Convenience, Broad Assortment: Mass merchandisers (Walmart), warehouse clubs, off-price retailers.
    2. Global Brands with Strong Execution: Gap, Ralph Lauren, Tapestry, Contour Brands.

Tariffs and Margin Pressure

• Tariffs are top-of-mind, mostly reflected in guidance but future increases remain a risk.
  • Mitigation strategies: production shifts, negotiating with suppliers, selective price increases.
  • "Higher prices getting passed through to the consumer... in categories like consumer electronics, which would need to take significant pricing to offset worst-case China tariffs." (Mari Shore, 05:59)

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2. Equity Market Sentiment and Correction

Guest: Phil Orlando, Chief Equity Market Strategist, Federated Hermes
[06:59 – 13:19]

• Market Correction Recap:
  • The S&P 500’s outperformance (especially the "Mag 7") led to overvaluation concerns.
  • Recent correction (~11% over four weeks, moved below the 200-day MA) seen as needed for "seasoning" but not clear it’s the absolute bottom.
  • "Generally these things need a little bit more seasoning before the bottom sort of establishes itself... If you're a long term investor, I couldn't disagree with you starting to nibble here." (Phil Orlando, 08:24)
• Uncertainty as a Theme:
  • Policy, margin, and earnings questions abound—few are advocating aggressive buying yet.
• Tariffs and Trade War Effects:
  • Tariffs and trade policy present significant market headwinds, impacting both sentiment and fundamentals.
  • Trump administration’s policy aimed at neutralizing the trade deficit seen as potentially boosting GDP by ~0.5%, long-term.
  • "You look at the quote unquote trade war that Trump is waging here, in some ways it's reciprocal... If he's able to successfully do that, that represents the potential for half a percent more GDP growth." (Phil Orlando, 09:53)
• Long-Term vs. Short-Term Outlooks:
  • Volatility expected to persist short-term due to "air pocket" of uncertainty.
  • Medium/long-term optimism: Correction seen as an opportunity for buyers with a two-year time frame.
  • S&P year-end/future targets: ~7,500 in two years if trajectory holds.
  • "If I'm looking out, how is the market going to return over the next week or the next month? It's highly uncertain and you've got two completely different scenarios..." (Phil Orlando, 12:56)

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3. Credit Markets and Fixed Income Strategy

Guest: Steve Purdy, Co-Head of Global Credit, TCW
[15:36 – 20:40]

• Credit Market Reaction to Policy Uncertainty:
  • Tariff headlines and policy shifts causing investors (and company execs) to hesitate on spending and capex.
  • "It's occupying the minds of not only investors, but management teams as well. They try to navigate from what headline to the next and define what the next path looks like for their Capex spend and really earnings out." (Steve Purdy, 16:33)
• Equity Pullback Diverts Flows to Credit:
  • Strong equity run higher has made credit more attractive as investors diversify for stability and income.
  • Spending patterns increasingly driven by "wealth effect"—higher home and equity prices. As those moderate, consumer behavior is likely to shift.
  • “Our concern is as investors look at their equity performance, it starts to actually impact what they're doing on a spending basis.” (Steve Purdy, 17:48)
• Credit Spreads Widening:
  • Investment grade spreads have widened 15–20bps since Inauguration on policy fears—seen as healthy and likely to continue.
  • "Credit spreads... are a mean reverting asset class... at these tight levels, the narrative was there's just nothing that could break out... and that has been changed." (Steve Purdy, 18:51)
• Credit vs. Equities in Uncertain Growth Backdrop:
  • With growth downgrades (OECD) and elevated inflation, credit is seen as a safety play, preferred over lofty-equity valuations.
  • "We're not very, very sophisticated in bond land. We just like cash flows. That is the most important thing." (Steve Purdy, 20:10)

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Notable Quotes & Memorable Moments

• Mari Shore on Retail Dynamics

  "At the end of the day, retail is a low single digit growth category and it's all about who's winning and losing share." (03:44)

• Phil Orlando on Correction Opportunities

  "We've just had an 11% correction. That's pretty attractive. If we're a long term holder or a long term buyer, and are looking out two years, this is very attractive." (12:18)

• Steve Purdy on Credit as a Safety Play

  "We just like cash flows. That is the most important thing." (20:10)

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Timestamps for Key Segments

• Mari Shore: Retail Sales Analysis: 01:41 – 06:34
• Phil Orlando: Equity Market Strategy: 06:59 – 13:19
• Steve Purdy: Credit Market Perspective: 15:36 – 20:40

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Tone and Language

The episode maintains a measured, analytical tone, with guests offering reasoned, data-backed perspectives. The hosts prompt for specificity while encouraging broader outlooks, and the guests are candid about both risks and opportunities.

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Summary

Despite disappointing retail sales in February, analysts see much of the weakness as temporary, with sector performance diverging and tariffs looming as a key industry risk. In equities, the recent pullback introduces both caution and selective opportunity, especially for long-term investors. Policy uncertainty, notably around tariffs, permeates both equity and credit discussions, with fixed income markets benefiting from a growing aversion to equity risk. Overall, the mood is cautious but not pessimistic, emphasizing selective positioning, patience, and readiness for volatility amidst a shifting policy landscape.

Transcript

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[Bloomberg Host (Paul)]

Let's stay in the zone of retail sales and what it means then for retail stocks. Joining us now is Mari Shore, senior Equity Analyst at Columbia Threadneedle Investments, joining us from Boston. All right Mari, just talk about the broader landscape. What was your takeaway for retail sales?

[Mari Shore]

Hi, thanks again for having me. Yes, when looking at the adjusted numbers for February up slightly versus January, I think the results overall were solid. We saw the strength led by non store retail while most of the other categories slowed versus January. But again this was very much expected and I think the key question here is is this slowdown transitory or more structural? And while I acknowledge the political turmoil and rising inflation expectations, I think when you listen to a lot of the companies as they reported earnings over the past few weeks, listening to the large credit card companies and large banks, it does seem that most of the pressure that we saw in February was weather driven and that there has been some improvement in March to date. So I actually believe a lot of the pressure that we're seeing is more transitory. But I acknowledge that the backdrop is still very tumultuous and makes it difficult for investors to really stick their necks out here.

[Bloomberg Host (Interviewer)]

So Mari, what are the, you know, the companies we saw, Kohl's just last week gave a, I guess a disappointing forecast. How representative is that of companies actually seeing some weakness or maybe just we need to be cautious here in our outlook?

[Mari Shore]

I think it's a little bit of both. I mean, when I look at the results today, I think we are back to a lot of the same category and channel trends that we saw in 2024. So that would include relative outperformance in categories like food, personal care, clothing and general merchandise, and then weakness in other areas like home electronics, sporting goods and department stores. So to your question about Kohl's, I mean the department stores continue to lose share and at the end of the day, retail is a low single digit growth category and it's all about who's winning and who's losing share. And so our playbook is to really stick with the companies that are gaining share. And I think there's a couple of ways to do that, but I would not take Kohl's results and extrapolate those across a much broader group.

[Bloomberg Host (Paul)]

So what do you guys like?

[Mari Shore]

So I think, you know, looking at different ways to play that share gain opportunity, I think there's really two buckets. Number one is the companies that offer value, convenience and a broad assortment. And with within that bucket I would put the mass merchants like Wal Mart, warehouse clubs and the off pricers. And I think that bucket remains very well positioned, especially in a weaker macro backdrop. Then on the other hand, you have best in class global brands which are executing very well from a product and marketing standpoint and gaining share. So within that bucket I would put companies like Gap, Ralph Lauren, Tapestry and even Contour brands.

[Bloomberg Host (Interviewer)]

Mari, what are your companies saying about tariffs and their ability to, how they're thinking about passing that along or taking that in their margin. What are you hearing from the companies?

[Mari Shore]

It's a great question. This is very top of mind, of course, for investors and most companies at this, at this point have included the impact of the tariffs that have already been announced in their guidance. However, there is the risk that the tariff headlines continue to worsen in and that is not included in the company's guidance. So I think that does create some risk. As we look forward, I think, you know, the companies are looking at various ways to mitigate the impact. Some of it is moving production around, some of it is pushing back on their sourcing partners. And we saw Wal Mart in the headlines last week along those lines. And then some of it will, you know, the higher price prices getting passed through to the consumer. And you know, I would say to that I think that the price increases for the most part would be modest. But there are some categories like consumer electronics, which would need to take significant pricing to offset, worst case China tariffs. And I think that will be very difficult to engineer in this macro backdrop.

[Bloomberg Host (Paul)]

Yeah, absolutely. Mari, thanks a lot. We really appreciate it. Thank you so much. Mari Shore, senior equity Analyst, Columbia Threadneedle Invest Investments, joining us from Boston.

[Bloomberg Host]

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Bloomberg Host (Paul)]

Equities in the green, just a touch because volume also is quite light. Phil Orlando, chief equity market strategist and head of client portfolio management at Federated Hermes, joins us now. Hey Phil, every note that I get on my desk is it's a tricky trading environment. No one's coming out and saying buy the dip yet. It's all tbd. It's all question marks surrounding eventual growth, margins and earnings. How do you look at it?

[Phil Orlando]

So we don't materially disagree with that, but we did think that the market was ahead of itself in terms of the dramatic outperformance of the Mag 7 versus the Forgotten 493. And so, you know, our call has been that we were hoping for a move down in the s and P 500 that would take the market back to about the 200 day moving average. Now for the S P, that's about 5700 or was about 5700. The stocks got down to about the 5500 level on Thursday and then we had, you know, Friday's nice bounce and then we're doing a little better this morning. So the question is, all right, so we've achieved the move down below the 200 day moving average. You're in correction territory. You know, is this the point we ought to be stepping in? It's been a relatively sharp decline, about 11% in a relatively short amount of time, you know, about four weeks. Generally these things need a little bit more seasoning before the bottom sort of establishes itself. So I guess that's a long way of saying we're getting interesting here. You know, I if you're a long term investor, I couldn't disagree with you starting to nibble here. But in terms of getting an all out, full blown market capitulation signal, I don't know that we're quite there just yet.

[Bloomberg Host (Interviewer)]

So Phil, to the extent that this market's pullback has been generated in large part by uncertainty about some economic policies coming out of the Trump administration, whether it relates to tariffs or whatever, that doesn't seem to be changing anytime soon. Does that continue to be a headwind, do you think, for this market?

[Phil Orlando]

Well, you know, that's a really good question, Paul, because if you ask the average strategist or whatever, that continues to be a significant headwind. You asked that question to Federated Hermes. We've got somewhat different views, you know, based upon, you know, listening to what the President was talking about during the campaign last year. Looking at the economic data, right now We've got a $1.2 trillion balance of trade goods deficit. At the end of last year. GDP in the fourth quarter on a chain dollar basis was $23.5 trillion, which means that we've got about a 1/2 of 1% deficit in terms of GDP growth last year for no reason other than what was going on with trade. So you look at the quote unquote trade war that Trump is waging here, in some ways it's reciprocal that these countries are waging tariffs against us. And to some degree the President is trying to, you know, neutralize or level the playing field. And if he's able to successfully do that, that represents the potential for half a percent more GDP growth. Now, one of the President's goals and one of Treasury Secretary Scott Besant's goals is that we want to generate trendline GDP growth of 3% or higher on a sustainable basis. Well, if you could figure out a way to neutralize this $1.2 trillion trade deficit, that, that significant step in that direction. And so we're looking at what's going on right now as sort of a necessary step to try to achieve that economic goal. Neutralize the trade deficit, boost GDP growth.

[Bloomberg Host (Paul)]

It's just a matter of phase one versus phase two and how long the difference between the two lasts. Right. Because phase two in theory should also be growth incentives like deregulation and tax cuts. Does the longer that gap persists, does that worry you or no?

[Phil Orlando]

Well, again, we, we're taking a long term view here and that when, when, when you, when a new President comes in office, typically you'll want to implement the more difficult policies early. You know, Swallow the bitter medicine in, in year one. That way the, the, the positivity associated with those fiscal policy initiatives will begin to bear fruit in year two and beyond. So as we're modeling all of this out, you know, we're saying, okay, yeah, we're gonna, we're gonna have a hit to GDP growth in the back half of 24, in 1H25. But, but as some of this stuff actually occurs and we get the tax cuts later in the year and then, you know, as this grows into economic growth in, in calendar 26 and calendar 27, what we're then saying, okay, based upon our analysis, that suggests we've got a 7500s and P500 two years from now. Discount that back a year. That's a 7,000 forecast. Discount that back a year. We thought we'd end last year at about 6200. We got up to about 6150. So I think we figured out the trajectory in terms of fair valuation. But you've got this, this air pocket that's occurred because of the volatility and uncertainty associated with how is this policy going to be implemented? What are the near term impacts? So we're taking the longer term view, saying, okay, we've just had an 11% correction. That's pretty attractive. If we're a long term holder or a long term buyer and are looking out two years, this is very attractive. If I'm looking out, how is the market going to return over the next week or the next month? It's highly uncertain and you've got two completely different scenarios to, to consider whether or not you're investing long term versus short term.

[Bloomberg Host (Interviewer)]

Hey Phil, thanks as always for joining us. Really appreciate it. Phil Orlando, chief equity market strategist ahead of client portfolio management at Federated Hermes, joining us there with his market call.

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[Bloomberg Host (Interviewer)]

Looking at the I and Go function on the Bloomberg terminal gives you the indexes and the performance for the fixed income space. The Bloomberg US AG fixed income index is up about 2.08% this year. The best performance has been in the mortgage backed securities business. A little bit more on the risky profile there. Let's talk about the fixed income markets and how they're dealing with a lot of this uncertainty policy uncertainty coming out of Washington, dc. Steve Purdy joins us, co head of Global Credit at tcw, based in Los Angeles. Steve, uncertainty has kind of been the word so far here in 2025 how the fixed income market's been dealing with it.

[Steve Purdy]

First of all, thanks so much for having me. Really appreciate being back on. You know, it's funny, Donald Trump told us when he campaigned that tariffs were his favorite word in the dictionary. And now that we've gotten tariffs, the market is reacting pretty dramatically. I think there's an assumption that a lot of things are bluff and that there wouldn't be dramatic policy shifts. But as all these headlines keep hitting us, that is where our market is focused right now. It's occupying the minds of not only investors, but management teams as well. They try to navigate from what headline to the next and define what the next path looks like for their Capex spend in really earnings out.

[Bloomberg Host (Paul)]

As an investor, what's the path of least resistance right now as the equity market kind of struggles for direction, how does that wind up impacting the credit market? Do we get more inflows, outflows? Has that work?

[Steve Purdy]

Yeah, no, that's an excellent question. I mean clearly we've had an unbelievable run in equities. The last few years has been the only game in town and particularly the max seven people have kind of ignored our asset classes. I think this last change in sentiment has really widened people's perspectives as to where else they can put their capital, including the credit markets are going to be a big beneficiary that as people look for income to stabilize their overall portfolios. And we agree at the same time, some of the real challenges that are being addressed in the equity market are also plaguing the credit markets. And what that really comes down to is what a future earnings look like. And we have this strange, you know, there's a strange relationship between the stock market and the real economy. Typically the real economy drives the stock market, but we feel like over the last year or so it's almost become the reverse. And a lot of the spending we've been seeing, particularly from the wealthy cohort, is driven by the wealth effect, meaning home prices are up and more importantly equity prices are up. So our concern is as investors look at their equity performance, it starts to actually impact what they're doing on a spending basis. And that's what we heard from companies right now, is people are getting a little spooked by policy, a little spooked by the price action in the equity market. And that is causing them to change their behaviors, which we think will actually flow through the earnings as we look forward to the next few quarters.

[Bloomberg Host (Interviewer)]

Steve, for the longest time when Alex and I would speak to fixed income pros like you, we would hear discussion about how tight credit spreads are are in this time of, I guess, growing uncertainty. Are those spreads widening at all?

[Steve Purdy]

Yeah, you know, the narrative over the last year has been what could possibly move spreads wider? And we've been kind of underweight credit spreads on the narrative that credit spreads on like equity are a mean reverting asset class, they don't go up into the right, they tend to rotate and gyrate around a baseline. And at these tight, tight levels, the narrative was there's just nothing that could break out from the economic growth, particularly United States of America. And that has been changed. Spreads rallied from October when it looked like Trump was going to be elected all the way through Inauguration Day. All that was on the optimism of animal spirits and how that would continue to keep the economy chugging and credit spreads compressed. Once we saw this administration in action, however, we've seen a move wider. And so, you know, credit spreads have gone on the investment rate side from kind of the high 70s, which are the all time lows for the last decade plus and widened out about 1520 basis points. So to us that feels healthy. It also feels like the direction of travel will continue in our minds over the course of this year.

[Bloomberg Host (Paul)]

But if the underlying issue is that we don't know what the economic growth outlook will be for the United States economy. Look at the OECD downgrading growth and upgrading inflation. I mean, doesn't that wind up hitting credits in some capacity?

[Steve Purdy]

It really does. I mean we're, we're not very, very sophisticated in bond land. We just like cash flows. That is the most important thing I see.

[Bloomberg Host (Paul)]

So it's like, it's like a safety play, even with the risks.

[Steve Purdy]

Correct. You know, we still think that this is a good place for investors to be compared to where the lofty valuations are on the equity land. Even still, after a 10% pullback, we think this is a much better place for investors to kind of really rely on some of the stronger parts of the economy while not leading into quality valuations.

[Bloomberg Host (Interviewer)]

Steve, thanks so much for joining us. Really appreciate it. Steve Purdy, he's co head of Global credit at TCW out there in L A TCW Trust Company of the West. Huge, huge asset manager both in fixed income and equities.

[Bloomberg Host]

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