There are a lot of concerns about a slowdown in consumer spending, particularly on big-ticket items. However, customers are still spending on technology and designer brands, says TheoTrade Chief Market Technician Jeff Bierman. Bierman says of companies like Abercrombie & Fitch (ANF) and Lululemon Atheletica (LULU) that “people continue to spend” on their products “regardless of the actual rate hikes that have occurred.” However, Bierman warns that there could be a “corrective mode” if “we cannot maintain jobs at a certain high level,” given that savings have been depleted.
Video Transcript
AKIKO FUJITA: Kind of follow-up on what we were talking about at the top of the show, you know, how much of the market is actually reading some of the lag factors that could come in when you think about where the economy is headed, yes, we are starting to see the slowdown. Yes, the expectation is the fed is likely to hold rates going into year end. But there’s still a lot of uncertainty about what current existing monetary policy will likely mean in the next several quarters. Do you think there’s a bit of complacency that’s kicked in?
JEFF BIERMAN: No, I think there’s a tremendous amount of complacency that’s kicked in, Akiko. As a matter of fact, I call this the sweet charity market like from the 1967 film. And there’s a song in there that says, hey, big spender.
Now, I listen to your piece before where you said, hey, look, spending has come in a little bit on some of the high-ticket items like Tesla, some of the things like NIO. There’s also been a sort of a slowdown in spending and travel in terms of airlines, in terms of lodging, things like Marriott, Hilton, Airbnb. They’ve all come in about 15% to 20%. And so I can see some of the big-ticket items have come in terms of travel services and what I call a status.
But one thing has not slowed down, Akiko, is the spending in what I call technology or in designer brands whatsoever. You’re looking at stocks– TJ Maxx, Abercrombie & Fitch, Lululemon– these high status kind of companies, brand designers. They just never tick down. People continue to spend regardless of the actual rate hikes that have occurred.
I’m not sure exactly why. But at some point, consumers are going to have to look at their credit card balances and think to themselves, well, if I don’t pay off at the end of the month, what might be the ramifications? And their balances are going to build.
And the other side of this is, this is the lowest savings rate in the United States in over 40 years. We’re down at about 2.5% to 3%. So everybody’s pretty much tapped out on his or her credit cards. So although spending has been curbed in some areas, it’s not being curbed in all areas.
And with the low savings rate, to me, it spells some type of like corrective mode that’s going to take place if we cannot maintain jobs at a certain high level. So expect the job number to slow down. Expect spending to slow down. It’s just not being reflected in the market just yet. Give it time.
SEANA SMITH: So Jeff, what could then be reflected when we talk about the chance of a possible correction? What does that correction look like?
JEFF BIERMAN: I don’t think it’s going to be that serious of a correction, like, you know, just a demonizing thing. However, let me put this in perspective, Seana. This is the greatest bifurcation that I’ve ever seen in 35 years between value stocks and growth stocks. Portfolio managers are treating growth stocks literally like they’re the ugly redheaded stepchild or cancer. They want to have nothing to do with it.
As a matter of fact, the lower the growth the value stocks go, the higher the growth stocks go. The market is sending a message that we don’t want value at any cost. We don’t. We want growth at any cost.
And if you were to ask me what the linchpin is that’s going to get the market to turn on its heels and finally get that corrective mode, it’s probably going to be somewhere between the mean reversion of the growth stocks coming down and value stocks coming back into favor. That’s where I see the market start to do its kind of corrective mode.
And I sent you a graphic that there are two sectors that carry the market this year. If you remove the– there’s 11 sectors in the S&P. Technology, and consumer discretionary are responsible for the entire gain in the S&P absent of those two sectors, the S&P is actually down for the year.
So at some point, the consumer discretionary sector, the XLY is going to have to make a move. And the XLY is made up of things, like I said, high end– the Lululemons, the Nikes, the Abercrombie & Fitches. Those things are going to have to correct at some point. And value at some point will come back into play.
For some apparent reason, dividends have no interest to portfolio managers. I’m not sure why.
AKIKO FUJITA: Yeah.
JEFF BIERMAN: But in a corrective mode, that would seem to place to park your money.
AKIKO FUJITA: So Jeff, is all of that to say that you see opportunity in value right now and that’s where maybe investors should be looking?
JEFF BIERMAN: Oh, my goodness, do I see opportunity? I– some of the– I– they’ve been shunning utilities all year long. Nobody wants to touch utility because interest rates have been rising. But the fact of the matter, AT&T and Verizon actually offer tremendous yields. Their cash flow is steady. And if the market does go into a corrective phase, this could be a place to park your money to get a lot of upside as well as a very kind of juicy dividend.
My other two areas is they’ve been shunning, except for Eli Lilly, Akiko– all year long, all year, nobody wants to buy– have anything to do with pharma. Pfizer, thrown, kicked to the curb. Bristol-Myers, kicked to the curb. Those are the places where the greatest value opportunities are because they’re at single-digit PEs and yields that go from 3% to 6%.
So I think that if the recession siren is sounded, you’re going to find great value in pharma and in utilities. And that money will actually come out of the XLY and come out of the XLK because it’s just been overcooked for too long.
SEANA SMITH: So some opportunity in some of those recent beaten down plays. Jeff Bierman, always great to get your perspective. Thanks. Have a good weekend.
JEFF BIERMAN: Thank you, Seana. Have a nice day.