Spending hasn’t slowed down at tech, designer brands: Market technician

There are considerable concerns about a slowdown in consumer spending, especially on big-ticket items. However, says Jeff Berman, chief market technician at TheoTrade, customers are still spending on technology and designer brands. Biermann says of companies like Abercrombie & Fitch (ANF) and Lululemon Athletica (LULU) that “people continue to spend on their products” even as real rates have increased. Berman, however, warned that if savings are wiped out, “if we can’t maintain jobs at a certain high level” there could be a “corrective approach”.

video transcript

Akiko Fujita: 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 can come into play when you think the economy Where is it headed Yes, we are starting to see a slowdown. Yes, the expectation is that the Fed is likely to keep rates on hold through the end of the year. But there is still considerable uncertainty about what the current monetary policy stance will mean over the next several quarters. Do you think there’s a bit of complacency in this?

Jeff Bierman: No, I think a tremendous amount of complacency has come into Akiko. In fact, I call it Madhur Daan Bazaar, like the 1967 film. And there’s a song that says, hey, big spender.

Now, I’m hearing your piece earlier where you said, hey, look, spending on some of the higher-ticket items like Tesla, some of the things like NIO has gone up a little bit. In terms of airlines, in terms of accommodation, there’s also been a kind of slowdown in spending and travel for things like Marriott, Hilton, AirBnB. They all come in around 15% to 20%. And so I can see that there are some big things coming out in terms of travel services and what I call status.

But one thing that hasn’t slowed down, Akiko, is spending in what I call technology or designer brands. You’re looking at stocks — TJ Maxx, Abercrombie & Fitch, Lululemon — these are high-end companies, designer brands. They never last. People continue to spend regardless of the actual increase in rates.

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I certainly don’t know why. But at some point, consumers have to look at their credit card balances and think to themselves, Well, if I don’t pay at the end of the month, what could be the impact? And they’re going to have a balance.

And the flip side of that is this is the lowest savings rate in the United States in 40 years. We’re down about 2.5% to 3%. So everyone has used their credit card to its fullest. So although spending has been curbed in some areas, it is not being curbed in all areas.

And with the low savings rate, to me, it’s like some sort of corrective mode that will happen when we can’t maintain jobs at a certain high level. So expect job numbers to slow down. Expect spending to slow down. This is not reflecting in the market as of now. give it time.

Sena Smith: So Jeff, what might reflect when we talk about the potential for potential improvement? What does that improvement look like?

Jeff Bierman: I don’t think it’s going to be that serious in terms of reform, it’s just a monstrous thing, as you know. However, let me put this into perspective, Cena. This is the biggest split I’ve ever seen in 35 years between value stocks and growth stocks. Portfolio managers are literally treating growth stocks as if they were ugly red-haired stepchildren or cancer. They don’t want to have anything to do with it.

In fact, the lower the growth of value stocks, the higher the number of growth stocks. The market is sending a message that we do not want value at any cost. not us. We want development at any cost.

And if you ask me what is the main factor that will take the market on its momentum and eventually achieve that corrective mode, it will probably be somewhere between the mean reversion of growth stocks down and the value stocks coming back. Going to do. in favor of. This is where I see the market starting to take its own kind of corrective approach.

And I sent you a graphic which shows that there are two sectors moving in the market this year. If you break these out– there are 11 sectors in the S&P. Technology, and consumer discretionary are responsible for the entire gain in the S&P. In the absence of those two sectors, the S&P is actually down for the year.

So at some point, XLY, the consumer discretionary sector, has to step up. And the XLY is made of things that are, as I said, high end — Lululemons, Nikes, Abercrombie and Fitches. Those things have to be corrected at some point. And at some point the value will come back into play.

For some obvious reasons, dividends are of no interest to portfolio managers. I’m not sure why.

Akiko Fujita: Yes.

Jeff Bierman: But correctively, it would seem like a place to park your money.

Akiko Fujita: So Jeff, does that mean you see opportunities in value right now and maybe that’s where investors should be looking?

Jeff Bierman: Oh my god, do I see an opportunity? I– some of them– I– they’ve been away from utilities all year. Nobody wants to touch the utility because interest rates are going up. But the truth is that AT&T and Verizon actually offer tremendous yields. Their cash flow is stable. And if the market goes into a corrective phase, this could be the place to put your money for lots of upside as well as a very attractive dividend.

I have the other two areas that they’ve stayed away from, Eli Lilly, except for Akiko — all year, all year, nobody wants to buy — nothing to do with pharma. Pfizer was tossed, kicked to the curb. Bristol-Myers was kicked. These are the places where the biggest value opportunities are because they are at single-digit PEs and yields range from 3% to 6%.

So I think if the recession siren sounds, you’ll find great value in pharma and utilities. And that money will really come out of XLY and out of XLK because it’s been overripe for too long.

Sena Smith: So there are some opportunities in some of the plays that have been beaten recently. Jeff Berman, always good to hear your perspective. Thank you. have a good weekend.

Jeff Bierman: Thanks, Cena. have a nice day.

Source: finance.yahoo.com