Bloomberg Intelligence Podcast

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

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.

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)

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)

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)

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)

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

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.

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.