eToro Global Markets Strategist Ben Laidler joins Yahoo Finance Live to discuss the U.S. retail sales jump, inflation, supply chain disruptions, recessionary factors, investor sentiment, and the outlook for the economy.
Video Transcript
- Let's dive into those January retail sales numbers now. Blowing past expectations, coming in at 3% on the month. Joining us now to discuss retail sales and the markets is eToro Global Market Strategist Ben Laidler. Ben, good to see you here.
Big report. Do you think this report feeds this growing narrative on Wall Street amongst economists of a no-landing scenario where we don't see the economy slowing down, and inflation still remains high?
BEN LAIDLER: I think it does, or I'd never bet against the US consumer. But I think the rally we've been seeing is very fundamentally driven. And the resilience for the US consumer is part of that. The seventh down month for inflation. This, maybe, two hikes away from the top of the Fed cycle, I think that all builds that narrative of just less inflation and interest rate shock that drove markets down last year.
But also combine that with the rest of the world, right? We have the reopening of the second biggest economy in the world with 80% lower natural gas prices taking an imminent European recession off the table. I mean, put all that together, and there's plenty of technical reasons why this market is rallying. But it's really all about the less bad fundamentals.
- Does anything within this report change the Fed's calculus?
BEN LAIDLER: So we're all looking at the same things, right? You know, wages are sticky. Services is sticky. That's absolutely a sort of concern here, and we're all right to watch it. You know, but if we're talking about inflation, supply chain's disruption has collapsed. Housing lead indicators have collapsed. Goods' prices are coming down really hard.
I mean labor and services is always the lagging indicator. And that shouldn't surprise us. We're going to have to wait for this. This is a marathon not a sprint to get inflation down. But I don't think there's too much here that takes the undermines that declining inflation story.
And it definitely takes that recession story off the table for a while.
- I want to pick up on the last point, Ben. It's Julie here. Because that seems to really be receding, the recession talk seems to be receding that is over the past month or so, call it. I mean, what would say to you the recession's absolutely not happening, or we're out of the woods, or what's like an all clear sign for you?
BEN LAIDLER: We're definitely seeing us a reacceleration right now. And I think part of that is let's not forget what happens when inflation falls. I mean, consumer purchasing power sort of begins to come back. And I think that's part of what we're seeing right now and maybe what we have to look forward to for the rest of the year.
But let's not get complacent. We're still in a race between the lagged impact of this dramatic hike in interest rates and us potentially being able to sort of dodge that recession. And the strong retail sales numbers, the resilient consumer, the resilience of corporate America at an absolute minimum, that just buys us a little bit more time to sort of thread that arrow, which I'm a bull.
So I think we're going to. There are plenty of risks out there. But, again, I do think the fundamentals have absolutely improved this year. And we'll pushing on an open door. Because I also think the technicals are very, very supportive as well.
- Ben, a couple of weeks ago, we got a really blow out jobs' report. Now a blowout retail sales' report, notably in department stores. Those gains are huge. Does it raise the case now or the situation that the Fed may have to go more than 25 basis points on rate hikes at its next meeting?
BEN LAIDLER: Very possibly. I mean, maybe not at the next meeting. But, you know, I think they're on path for 25 at the next meeting, maybe we put 25 on the table for the meeting after that. But take a step back, big picture, we're getting fairly close to the top of this cycle.
I think the bigger question is, how long do they keep rates high? And, again, this is where this sort of race comes in. I think they're going to pause, they're going to wait. They're data dependent. They're going to be watching these services, these labor numbers, these sticky bits of inflation as much as the rest of us. But I think it's more about the length of a pause rather than, do we have a dramatically much higher to go here?
- Obviously, we're talking pretty short term here, short to medium term. And you recently tweeted something that caught our attention that has to do with how long people are now holding stocks. Can you talk us through that, and what the implications are for their investments?
BEN LAIDLER: Well, I would say there's two implications. So if you look back, historically, a few decades ago, the average holding period for stocks in the US was five years. Last year, it was 10 months. And there's a lot of reasons for that, the rise of high frequency trading, et cetera, et cetera.
But, absolutely, investment holding periods have got shorter. And I don't think that's good news. I mean as Warren Buffett likes to say, it's time in the market rather than timing the market. The more you're charting the portfolio, the more that's costing you, the more taxes you're liable for, et cetera, et cetera.
But bringing it back to the here and now, I think one of the big sort of technical supports for this market, and we saw it yesterday, right, we didn't get a great inflation number. And the market ended the day flat, is that a lot of people are being caught out of this market, maybe by open trading, maybe by those short holding periods, they've been caught out of the market.
Cash positions are very high. We've had fund outflows this year. And, I think, that's very bullish. You know, aside from the fundamentals, this is going to work out one of two ways. Either the fundamentals are going to keep improving, and that money is going to be forced into the market, out of this pain trade. Or we're going to have that inevitable pullback. And even then, I think you're going to see those high cash positions get trimmed down.
- While we've got you, Ben, we do know that retail investors, you believe that they're kind of a key unsung market support more now than ever. Some retail investors have also piled into memetic names. If you are a retail investor that's reading this retail sales' data this morning, should you be more or less appetite or apt to get into some of those memetic trades at this point knowing that there is this at least one month strength that you've seen in some of the department stores, some of the discretionary categories even that consumers had kind of shied away from?
BEN LAIDLER: So I mean retail investors have been a big anchor for this market. So US household allocations to equities are about 50% higher than they have been historically. And a lot of people are worried about that. It was the first bear market for a lot of these investors. But they didn't sell. They have actually been buying the debt, two to one, versus people that have been selling. They think about this market in years or decades rather than days.
So, I think, they've been a massive anchor, and they are not the only one. I mean, I would just a quick shout out to corporates and share buybacks. We had over $100 billion of share buybacks announced in January. This is even with the new 1% share buyback tax. That's three times higher in terms of announcements than we've seen in sort of previous January's. And, remember, this is the biggest single buyer of US equities.
So, again, I think there's a number sort of unsung supports for this market, whether it's retail investors, whether it's stock buybacks before we even talk about the improving fundamentals.
- EToro Global Market Strategist, Ben Laidler joining us this morning. Thanks so much for the time. We appreciate it.