Retail sales held up amid ‘massive increase’ in consumer debt: Strategist
Yahoo Finance Video
John Hancock Investment Management Co-Chief Investment Strategist Matt Miskin joins Yahoo Finance Live to discuss Target earnings, meme stock swings, July retail sales, consumer spending, inventory, and the outlook for retail.
Video Transcript
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BRAD SMITH: Welcome back to "Yahoo Finance Live," everyone. We've got some significant movers this morning. Pops, drops, in the shops. We're watching Target right now. It's down, as you're seeing there on your screen. We're also keeping a close eye on TJX, Lowe's, Walmart, and Bed, Bath, and Beyond as well. After a dismal quarterly report, though, for Target, alongside retail sales data out this morning, investors seeking assets that generate cash rather than ones that grow in value.
So let's take a quick price check on markets with Matthew Miskin, who is the John Hancock Investment Management Co-Chief Investment Strategist. Matt, always a pleasure to get some of your insights here. First and foremost, your reaction to retail sales data that we saw come out this morning. What should the everyday consumer or any investor out there take away from this?
MATT MISKIN: Yeah. Retail sales held up OK. I mean, it doesn't show that we're in a recession yet, but how did we get here? is the key thing to think about. And what we saw in the second quarter was massive increase in credit and debt for consumers, and credit card debt really increased. Overall, you saw hundreds billion more in Q2 of credit card debt, and that was the highest since 2016. So consumers are, in essence, trying to run and run and keep up with this.
But as these retailers and everybody's raising prices on them, they've got to take out credit card debt. And so I think that's helping these retail sales numbers hold in decent, but it's how do we get there? And that credit card debt has raised interest rates because the Fed is raising rates, and that's making-- that's gonna make a burden for the consumer going forward. We'd just be careful over extrapolating the strength of this report.
BRAD SMITH: OK, so while it may be good news for American Express or MasterCard or Visa, at the same time for some of the retailers that are out there that are navigating where consumers are spending and in which aisles, especially as discretionary continues to take a hit, are there certain components of the store holistically that you would be leaning into?
MATT MISKIN: Yeah, Brad. You know, I think about it more and what companies are managing this in the best. You and Brian were just going back on this-- back and forth on this. It was a great discussion. And really what you're seeing is it's a competitive war right now to win that extra dollar of the consumer.
And you see these retailers, some are reporting not great results. Some are reporting better results. And at the end of the day, you know, you've got to fight for the consumer with a lower price point the best you can. You've got to manage your inventory well and you've got to compete really hard for that extra dollar, and it's not easy. But online, you talked about Target and some of the other companies, online has been a place that has seen some of the growth.
I think that's gonna be something that is more of a secular trend, of course. But at the end of the day, each company is gonna run their business so efficiently and run through this gauntlet that's very challenging, and we're looking for higher quality businesses that are managing their inventory better, managing their price points the best, and that's where we're leaning into is the quality factor across the retail space.
BRAD SMITH: Well, Matt, let's talk about stocks that may not be of great quality. I'm checking the meme stocks here. We were just talking about Bed, Bath, and Beyond. This thing is ripping higher. About 31% in the premarket scene. GameStop catching a bid. AMC giving back some of its gains. Blackberry giving back some of its gains. But how do you distill what is happening in stocks like this? I mean, these gains have come out of the blue, and then for the investors on our platform, what do you do? Do you just sit back idly and watch Bed, Bath, and Beyond go up 70% in a session?
MATT MISKIN: Yeah, you do sit back and you don't get involved in this. Unless your time-- unless you're a tactical trader that wants to trade and that's something you wanna do, then that's something you wanna do. But at the end of the day, for investors that we work with, these are places where you can really quickly lose capital.
It's a very inefficient use of hard earned money, in our view, if you're gonna be a long term investor in the market. And we've seen this play out before and again and again. And it just also speaks to where we are in the cycle in our view. This is a late cycle dynamic. This is not something you usually see near bottoms of the market. You see it near tops of the market.
This is a sentiment indicator in our view. The fact that people are willing to throw capital around, trade like this, gamble like this. This is not something you usually see when the Fed is done raising rates, and in our view, that means the Fed's got to, unfortunately, keep raising rates.
BRAD SMITH: Matt. Matt. Matt, do you view this activity as gambling? Is this the same as I'm taking a dollar and I'm going to a slot machine?
MATT MISKIN: It's speculation, yes. Absolutely. It is speculating and at the end of the day, there's a lot of good businesses out there that are generating great free cash flow that have good balance sheets that are great long term investments. We're almost on the other side of this completely. We're looking for high quality income right now. We believe today is a time where you're not gonna see a lot of price appreciation.
You're gonna see-- you're gonna need income to get through the next couple months, quarters, and we wanna find high quality income for clients. That's really what we're honing in for. Instead of speculating in the gambling side of the business or the part of the markets, go to the other side and really try to be mindful of risk management at this point in the cycle.
BRAD SMITH: One of the things that we've been talking about for what seems like about three months now is inventory and how important that has been and how critical it's been to some of the earnings that reports-- actually, all the earnings reports that we've seen come through in the retail sector. Does the inventory even matter if it arrives late? For instance, you have so much of that inventory that is still caught in transit or stuck somewhere along the way to get to the store just so the consumer can see it and then make a potential purchase decision.
MATT MISKIN: The supply chains are still an issue, to your point, and that's what the-- the companies are trying to manage this. But they probably are saying, hey, we don't want that inventory. You know, it is probably stuck in transit, but now they're saying, look, we already have it. The demand slowed a bit. The volume isn't that strong. It's the pricing going up that's really driving the sales.
And if the volume is a little bit slower, meaning the stuff that's coming off the shelves is coming off slower, they almost wanna say, whoops, we ordered that inventory too heavily thinking that the demand was gonna stay there. And lo and behold, they wish it actually wouldn't come, but they've got to account for that. I mean, it goes back to the old accounting books of learning the revenue recognition and everything else, the inventory, first in first out, LIFO, all that good stuff.
But at the end of the day, these companies that are managing the inventory better that didn't really overbuy are holding up much better than those that aren't. It's a competitive world right now. Every company has to manage their supply chains the best they can and the stocks are being rewarded with the companies that are doing better. We're trying to lean into that part of the market with the higher quality, better margin type businesses.
BRAD SMITH: Matt, you just gave me flashbacks to studying unsuccessfully for my CFA, so thank you slash not thank you for that one. Matt Miskin, John Hancock Investment Management Co-Chief Investment Strategist. Good to see you. We'll talk to you soon.