A (3:56)

You spoke a little bit about the different income cohorts there, but I want to double click on that. The K economy has been a really persistent theme as higher income households have benefited from strong market returns, but higher price levels have weighed on lower income households. What are your expectations for the high versus low income consumer next year?

B (4:18)

So next year we do think that there could be some broadening out in consumption growth. Just overall we have a sequential step up in growth that begins to take place starting in 2Q26. So we have consumption growth that starts to slowly inch up from about just under 1% in 1Q26 all the way up to about 2% by the end of the year. What that's going to be driven by. We think that there are going to be some lessening of pressures on the middle income cohorts. And where is that going to come from? It's going to come from perhaps a still moderate labor market. So we're not, we don't think we're going to be seeing these big 100, 150,000 plus jobs being added every month. We're thinking maybe about 60,000 on average per month for most of next year, but just less policy uncertainty, some boost from the fiscal bill. The fact that monetary policy is going to be heading towards neutral. All of those things should be supportive given that the upper income didn't really support slow down this year. We also don't think there's going to be a giant acceleration next year. And so some of that uptick in consumption growth we think could actually come from the middle income. And we also think that some of those tariff pressures on inflation are going to start to dissipate after peaking in the first quarter next year.

A (5:52)

And Simeon, I want to bring the company side into the conversation. What's the early read you've gotten on Black Friday? Expectations into the shopping season were pretty weak. Do you think things could turn out to be better than feared? And are you seeing any differences by income cohort there?

C (6:10)

The overall take is it's mixed to maybe slightly a little worse. I'll answer it in a few different ways. First, the old fashioned tire kicking that the retail analysts have done during the holiday season in our hardline broadline food retail space mixed to slightly a little worse in Alex Straiten's softline world sounded a little bit better. And then if we combine the takeaways that we've had from companies at least who presented yesterday, Walmart, Target and some other category killer retailers sounded about in line. Underlying trends relatively stable. I sat on a panel earlier today with a data aggregator who suggested that the holiday was a little underwhelming. What we don't see and the underwhelming being at a minus 2% run rate for the I guess the November to date period that doesn't include Cyber Monday. What this doesn't account for is the market share shifts. So one of the ongoing themes across the entire retail landscape has been this big getting bigger. We say it a lot, but the narrowing funnel of market share. So the inline updates are probably coming from some of the largest companies. Even if the overall holiday was a little underwhelming, now in line is not anything to write home about. It's harder to get to an in line holiday if you started out below. So in line's okay, but not gangbusters. That's probably the right way to characterize it.

A (7:47)

Megan, same question to you. How is holiday shopping tracking in your space? Have you learned anything surprising about holiday during the conference?

D (7:54)

Yeah, I would agree with Simeon. Relatively in line. I'd say kind of so far so good is what we heard from companies at the conference. We had both Mattel and Sharkninja product companies that sell into many of the larger retailers that are winning that. Simeon talked about holiday matters a lot for both of them. So we're still many weeks ahead of us in terms of pos. But but Mattel talked about positive POS continuing through the Black Friday season. They left their guidance unchanged. Today they're seeing replenishment from the retailers and orders in line with expectations, which was a question just given some of the uncertainty in the landscape. Shark Ninja sells small appliances. They spoke to a strong Black Friday again seeing the fourth quarter and holiday play out in line with their expectations. Maybe a couple themes that stood out and one of them was particularly interesting to me. You talked about the K economy. I think it was very clear. The higher end consumer continues to spend and outperform. Value and innovation continue to be things that consumers are looking for online seem to do better than in stores. That's what we heard from a lot of companies coming out of last week. And then newer channels like TikTok Shop are coming into the mix and brands are seeing strong growth from those channels as well.

A (9:11)

MM and Arunama, I want to wrap this section on Fed policy. How do you expect fed policy in 2026 to influence consumer spending and recovery, especially for those middle and lower income households?

B (9:25)

We still have the Fed on an easing path into 20 in the first half of 2026, so we think 75 basis points in additional policy cuts into next year. But that more or less just takes monetary policy to some estimate of neutral. So the point is that it's not monetary policy is becoming easier, it is simply just getting to neutral. And so if we think about the most interest sensitive types of consumption, it's going to come from housing and it's going to come from durables. And what our housing strategists are thinking is that given this front end of the curve, our 10 year forecast for the middle of next year is still at about 3.75 and so mortgage rates could dip below 6%. So it's not the front end of the curve. It is that belly of the curve there that's important there. And so there could be some pickup in housing. That's going to be important I think for the middle income consumer for affordability. We think it's still going to be an important concern for housing, but perhaps the middle income could benefit from some of those lower mortgage rates that are going to come in.

A (10:40)

Arunima, Simeon and Megan, thanks for all your insights and to our live and podcast audiences. Thanks for listening. If you enjoy thoughts on the market, please leave us a review wherever you listen to the show and share the podcast with a friend or colleague today.

A (10:57)

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