Commonwealth Financial Network CIO Brad McMillan joins Yahoo Finance Live to assess retail sales figures from January, consumer sentiment amid rising experiential spending, and the Fed's interest rate hike outlook following noted growth.
Video Transcript
DAVE BRIGGS: All right, let's get you up to speed now on retail sales. Those numbers coming in higher than expected today. Sales jumping 3% in January. That's the biggest monthly jump since March 2021.
What was happening then? Well, we just got a fresh round of stimulus checks, so that's why that number was huge. Why this one is? Well, let's ask Brad McMillan. Commonwealth Financial Network CEO joins us now for more on the retail state of the consumer. Good to see you, sir.
So I mentioned biggest jump since we got that fresh round of COVID stimulus checks. We had a really tough number in December. What do you make of this one?
BRAD MCMILLAN: At the end of the last-- at the end of last year, we had an awful lot of worry about a recession that was coming. You know, we had the recession. We had the Fed raising rates, and there was a real fear out there that it was going to knock things off.
But then we've seen job growth continue. We've seen consumer confidence actually come back. And that recession that we were going to get doesn't seem as likely, certainly not in the short term. And people are saying, you know what? I've still got a job. I'm still making money. They're going out and spending. And not only that, they're trying to catch up a little bit from the end of last year. People pulled back, and now they're saying, you know what? We're OK, and we're going to go spend, and that's what we saw.
SEANA SMITH: We certainly did see that, Brad. Nearly every category saw a rise in sales. Car dealerships, furniture sellers, electronics among those top increases. When you take into account the large jump that we did just see last month, do you think that momentum is then going to continue given the fact that the labor market, like you've just been saying, has been so resilient?
BRAD MCMILLAN: I do think we're on a momentum trade here. And the thing that really struck me, Seana, about the numbers that came out, it's not just that the sales were good. It's that sales were good in big-ticket items, in cars and furniture. In other words, people were willing to pay up for things that really would make their lives better going forward.
And the other thing was going out for entertainment. So all of a sudden you have a consumer that's willing to make big-ticket purchases. You've got a consumer that's willing to go out and have a good time, and that doesn't say to me a consumer that things are going to get bad in the near future. They're going to keep feeling good, and I think the spending is going to continue.
DAVE BRIGGS: Boy, one number that stood out to me, and I'm still trying to figure out if it's possible-- department stores saw a 17 and 1/2% bump in January. That is-- that is enormous. But, Brad, what's the Fed side of this? How does Jerome Powell see this number when you take into account what we did see in those jobs numbers recently?
BRAD MCMILLAN: I think this is one more piece of evidence that Powell is going to look at it and say, you know what? I was right. I was right to say we need to keep raising rates. I was right to say the economy is still growing. I was right to say that inflation is going to keep going up. And I think this validates pretty much everything that he's been saying, and I think it significantly increases the chance of a rate increase, not just for the next meeting but certainly for a couple of meetings after that.
We're not seeing the pullback that he wants to see. We're not seeing the pullback that everyone thought we were going to see. Instead, we're seeing something that looks an awful lot like the economy is starting to grow again. You know, we've gone from bad vibes to good data. And again, that says to me there's some strength here.
SEANA SMITH: So Brad, then how high do you eventually see rates getting?
BRAD MCMILLAN: Well, there's been a lot of talk about going to 5%. I think the Fed has been very clear we're going to keep raising rates as much as we need to, and there's even some loose talk out there about 6%.
I would look at it a little bit differently, though. I mean, the real story about the rate increases is not that they're happening. It's that they haven't really slowed the economy that much at all. You know, if Powell is looking to increase rates to slow the economy and that's not happening, I think we have to take seriously that they're going to be data dependent.
So I'm not sure that there is a little in this, but I do think the Fed is going to be careful simply because we've got, you know, extensive rate increases that maybe haven't yet hit the system. So I think we're going to continue to see slow but measured rate increases. And they're going to tiptoe up to the edge, but I think at this point, the ceiling is higher than we thought.
DAVE BRIGGS: Yeah, the JP Morgan CFO earlier this week said 5 and 1/2% as a terminal rate. So the talk has gone from hard landing to soft landing to now we're in this discussion about a no landing, which to me I guess I'm just on a plane forever. What does that mean, economically speaking?
BRAD MCMILLAN: Well, if you're talking about what it means to the average person, it's a good thing because that means we're not going to get the recession that everyone's been scared about, at least not for a good while.
And what's interesting to me about this particularly is not so much, you know, are we going to have a recession this year or next? I've always thought it was going to be a very soft recession, if we got one at all. It's that the economy is more resilient, and that means that we've got more room to grow going forward.
It also means that the economy is now able to survive higher rates, and that's actually a really good sign because it means that fixed-income investors can keep getting decent yields. Stock investors can look at that, and the valuations are holding up. In other words, the markets are more resilient. So as earnings go up, as the economy continues to grow, there's probably more upside ahead.
SEANA SMITH: So, Brad, if there is more upside ahead, if you're saying that this is good news then for investors, how should investors be positioned for that type of scenario?
BRAD MCMILLAN: Well if you're already fully invested, then I think it makes sense to stick with your asset allocation. You know, and certainly as I say with higher interest rates, fixed income is more attractive than it's been in a long time. Depending on what your needs are, you can actually take a much, much lower-risk stance than you have in the past.
So I think at this point if you're in a decumulation phase, you want to consider derisking if you can meet your needs.
SEANA SMITH: All right--
BRAD MCMILLAN: If, on the other hand--
SEANA SMITH: Sorry, Brad. Go ahead.
BRAD MCMILLAN: If, on the other hand, you're still accumulating and you want to grow, now is the time to maybe think about taking more risk.
SEANA SMITH: Certainly a lot to consider there. Brad McMillan, always great to get your perspective. Thanks so much for joining us.