Daybreak Holiday: Inflation Pressure, Markets, Retail
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Thank you so much for joining us on this special edition of Bloomberg Daybreak. Merry Christmas, everybody. Markets are closed for this holiday. I'm Nathan Hager. Coming up this hour, it has been another banner year for the Bulls on Wall Street. Will the new year bring as many happy returns for equity investors as 2024? We will bring you a special stock roundtable with Lori Calvacina, head of U.S. equity strategy at RBC Capital Markets.

and Cameron Dawson, Chief Investment Officer at New Edge Wealth. Plus, we're wrapping up the most wonderful time of the year for retailers. So who were the big winners? We'll ask retail analyst Bert Flickinger, Managing Director at Strategic Resource Group. First, we want to focus on the economy as a whole. The Federal Reserve is coming off its final rate cut of the year.

Jay Powell and company surprised Wall Street, not with the interest rate reduction, but when they changed gears and put their policy focus back on inflation. Once again, we've had a year-end projection for inflation, and it's kind of fallen apart as we've approached the end of the year.

That is certainly a large factor in people's thinking. I can tell you that might be the single biggest factor, is inflation has once again underperformed relative to expectations. It's still, you know, going to be between 2.5 and 3. It's way below where it was. But, you know, we really want to see-we're not

progress on inflation. And that was Fed Chair Jay Powell last week following the central bank's final policy decision of 2024. So what's in store for next year? To answer that, we're pleased to welcome Tom Porcelli, chief U.S. economist at PGM Fixed Income. Tom, great to have you with us on this holiday. And I hate to say inflation's been persistent, but are we going to see progress?

Well, good to be with you, Nathan, as always. And I think, you know, let's let I would reframe it a little bit. We have seen a lot of progress.

I mean, if you just look at, you know, I don't know, pick your flavor of inflation. But if you were to just look at core PCE, core PCE was what, as high as nearly 6%? And we're down to what, 2.8% now. So there's been quite a lot of progress from an inflation perspective. And, you know, what was interesting about Powell's press conference at the recent FOMC meeting was,

He acknowledged, I think, a number of the things that are challenges from an inflation perspective that we can exclude from inflation. So shelter is a great example. They and we all recognize that there are these calculation challenges from a shelter perspective. So you remove it.

And this is how the whole super core idea sort of came to be. Well, what I would say is I'm not a huge fan of super core because I think it also strips out the things that are deflating. And I don't know why you do that. It's part of the consumable basket. So that to me just seems a little intellectually disingenuous. So what I would say is this.

just take headline inflation, take core inflation, strip out shelter. And when you do that, what you see is that inflation is actually pretty tame, right? So if we just use CPI as an example of that, you know, like headline CPI is running at a 1.6% pace, ex-shelter.

and core CPI is running at a 2.1% pace X shelter. So, I was a little bothered by the idea of this notion of sticky inflation. I mean, I think a lot of us expected inflation would remain relatively elevated relative to target, but we continue to drift in the right direction. And I'm sorry, I'll say one last thing on this Nathan, and then I'll stop.

I think about not just the idea of stripping out shelter, but let's acknowledge that in real time, shelter prices are slowing. So that will continue to act as a weight on inflation as that continues to slow down. But maybe more important, when I look at wages, the direction of travel for wages, I think, is pretty clear. I mean, just look at quit rates that are sort of getting clobbered.

You know, that's that's yet another factor that I think we do not have to worry about because wages will continue to slow. So I think the inflation story is is at least a bit more benign than what Powell suggested. So are you thinking then that the Fed could be more open to accelerating the pace of rate cuts more than they said they were planning to last week when they surprised the market with this expectation of just two cuts for all of next year?

Yeah, I think this is the one thing that I actually did agree with Powell on. I think that, you know, look, as a central banker, you know, you relish optionality. And I think you're supposed to, because you want the flexibility to be able to adjust flexibly.

as the backdrop sort of evolved. So I have a ton of sympathy for that. So the short answer is yes. I think you're absolutely supposed to acknowledge that you could see a faster pace of rate cuts and indeed you could certainly see a slower pace depending how the data evolved. But I think, again, the problem for me is he kept on, Powell kept on talking about data dependency, but I...

I don't know if that's quite what it is. And I don't want to split hairs on this, but it really strikes me more as data point dependency. And that to me is a problem. And it's a problem because we all know this, right? I mean, we could do an entire segment on this from one point alone. The data have been very volatile, more so than what we've seen certainly pre-COVID. And so think about the coming, you know, in the next couple of weeks,

We're going to get what? We're going to get a payroll report and then we're going to get a CPI report. What if you get a clunker? What if you get a clunker of a payroll report? The market is then going to immediately start to sort of build in the idea of, oh, well, maybe the Fed is going to have to do more. So I think this is this is part of the problem with data point dependency. Speaking with Tom Porcelli, chief U.S. economist at PGM Fixed Income, he

So what should the Fed be focusing on then, Tom? I mean, at the meeting last week, it seemed as though Fed Chair Powell was really laser focused now on inflation as opposed to potential risks to the labor market. Should they be taking a more holistic approach? Absolutely.

I think that's exactly right. I mean, look, they are a dual mandate central bank. I think that you're supposed to be focused on both of these parts of the mandate. Now, of course, we all recognize that there are points where one will be fine and the other will be sort of deteriorating or accelerating. And so you might want to sort of shift your focus to some extent. But

But I think what we have to acknowledge is that from a labor market perspective, because it's clear that he has shifted, right? He's starting the process of shifting away from labor, which is what they had been focused on over the prior few meetings, which is why they've delivered 100 basis points of cuts at this point. But it's pretty clear that they're shifting back toward inflation now.

I would caution against doing that too forcefully because what we know is that there are some cracks that are forming in the labor backdrop. Now, again, I would hasten to add, just because I'm saying cracks does not mean that I think the floor is going to fall out from beneath labor. In fact, I don't think that's going to be the case at all. I think labor will be fine. I mean, the continued economic expansion is and has been our call over the coming and for the coming year. So

I want to sort of level set for everyone on that, but that does not mean that we should take our eyes off the fact that

Quit rate is getting clobbered. The hiring rate is slowing down. Confidence toward labor has deteriorated, right, per the conference board's labor differential. And that has a very good relationship with the unemployment rate, which is up, what, almost 100 basis points from the nearby low. So, you know, these are our realities. I mean, labor has slowed down, demand at large has

has really slowed down. So I don't think we should take our eye and I don't think the Fed should. And I don't think that they will take their eye off of labor. I just think that

shifting these focuses from like one mandate to the other, I think just lent itself to volatility, particularly as it relates to volatile economic reports, which is what we've been getting. One potential possibility of volatility here we haven't talked about just yet is the incoming Trump administration and how policy could affect the economic trajectory going forward. How do you factor that in? How does the Fed factor that in?

Yeah, I think I think Powell had it quite right when when he said, you know, they just they can't build it into their forecasts at this point. And I have nothing but sympathy for that. The reality is we just don't know what these policies are actually going to be. So for better or for worse, you know, the Fed is going to have to be reactionary. How do you expect the Fed to react to that, given how what kind of uncertainty we have for Trump administration policy?

Carefully. I think that we have to recognize there are extremes from a tariff perspective and from an immigration perspective that could do some damage from an economic perspective. If you get more modest versions of tariff and immigration policy, then it probably doesn't turn out to be nearly as bad.

My view is that I think people are putting a little too much emphasis on the negative, and I think they're putting a little too much emphasis on the positive. And I think ultimately, if we get more modest versions of immigration and tariff policy, I think that our view that this is going to be, you know, sort of a roughly 2% year in 2025, I think will remain firmly intact.

Is a 2% inflation target still realistic for this Fed? I mean, I don't know if it was ever really totally realistic. I mean, just sort of thinking over history. I mean, look, the central banks want an anchor. And 2% is just sort of the number that they landed on. So in that context, I have sympathy for a target. Is this supposed to be 2.0%? That's a completely debatable question.

I mean, there's nothing empirical that really drives home that 2.0% is the right number. And if you think about, you know, where inflation spends most of its time, it's not at 2.0%. So I,

You know, look, should the Fed go to a range sort of like the RBA, the Reserve Bank of Australia, like they do? I mean, I think that that is a reasonable discussion, but the Fed has been pretty clear that that's not going to be part of any of the debate that's happening internally and 2.0% is going to be the target for the foreseeable future.

Where do you put Fed credibility right now, given that they kicked off the rate cut cycle so quickly, slowed down just a bit, now are projecting so much fewer rate cuts into next year? Yeah, I mean, look, I've been speaking with a number of folks, you know, post-COVID.

the FOMC meeting. And I think a lot of them are sort of scratching their head at, okay, you know, what exactly just happened? And not just at the FOMC meeting that just passed, but over the last few FOMC meetings. So, you know, is credibility being tarnished or dinged up here? No, I don't think that's the case.

I think the Fed has really very, very much earned the credibility that they do have. But I do think people are wondering aloud about, you know, do they have it right? So there's I wouldn't call it a crisis of confidence, not by a long shot. But but I do think people are wondering if if they have the right take on this.

Really appreciate this, Tom. Thanks for coming on with us on the Christmas holiday. That's Tom Porcelli with us here, Chief U.S. Economist at PGM Fixed Income. And as we continue on the special holiday edition of Bloomberg Daybreak, we're going to bring you a special roundtable looking at stocks in 2025. We're going to speak with Lori Calvicina, Head of U.S. Equity Strategy at RBC Capital Markets.

along with Cameron Dawson, Chief Investment Officer at New Edge Wealth. So stay with us. It's 20 minutes past the hour. I'm Nathan Hager, and this is Bloomberg. As criminal ransomware and state-sponsored attacks continue to escalate, a bolted-on approach to cybersecurity isn't cutting it. In fact, the more security tools an organization uses, the more security incidents it has.

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Take your business further at T-Mobile.com slash now. Thanks for being here on this special edition of Bloomberg Daybreak. Markets are closed for the Christmas holiday. I'm Nathan Hager. We now turn from the economy in 2025 to the stock market. 2024 has certainly been a good year if you are a bull on Wall Street. Will it be even more happy returns in the new year?

For that, we're pleased to welcome two of our favorite analysts on this market, Lori Calvacina, head of U.S. equity strategy at RBC Capital Markets, and New Edge Wealth chief investment officer Cameron Dawson for a holiday stock roundtable. Thanks to both of you for being here. I mean, we've had a more than 20% gain, I think, for the S&P 500 year to date. I'll start with you, Lori. Can the market keep up that kind of momentum into 2025?

So thanks for having me, Nathan. And look, you know, I've got a 10% target on the market for 2025, at least where the market closed when we put our numbers out. So we've been looking for 6600. And we think that's going to be another solid year of gains in the U.S. equity market, probably a little bit slower than what we saw this year.

And we do think that we are going to have what some of my colleagues term as potholes, right? Some bouts of 5% to 10% type drawdown. So we don't necessarily think it's going to be a completely smooth ride. But at the end of the day, we think a continued moderation in inflation is going to help keep PE multiples elevated. And we think a solid earnings growth backdrop and a solid economy are also going to help propel this market higher. But there may be some volatility here and there that we have to deal with.

Cameron, we have seen a lot of analysts raise their price targets for the S&P 500, particularly after the election of President-elect Donald Trump. Where are you sitting at this point? Well, it does create an interesting scenario where we're now seeing that overall in the market, we have stretched positioning, stretched sentiment, stretched valuations, as well as pretty lofty growth expectations, depending on where you're looking at earnings estimates.

All of those things don't have to be a death knell for forward returns. They're usually not good timing tools, but it could be that we have to spend some time growing into those higher valuations, which leads us to expect two distinct scenarios for the market in 2025,

We think we're either going to have a talking heads market, a road to nowhere kind of sideways chop that looks like 2015 or 2018, giving us time to grow into those high valuations. Or we have a prince market where we sing, let's go crazy, let's party like it's 1999. And we actually have a bubble scenario

where we have another strong year of returns driven by valuation expansion. But of course, we know what comes on the other side of melt-ups, which is typically meltdowns. So in either scenario, we think that we could have this increase in volatility instead of that low volatility up into the right market that we've been in for the last two years. Love the 80s metaphors. Is this a 1980s moment for you, Lori?

Well, look, I do agree that we're going to have more of that volatility. And I think one thing that makes things so challenging is just this idea of animal spirits being so strong post-election and taking us into the new year. And so on the one hand, we do think that those good vibes get us off to a good start. We heard a lot about companies in particular just seeing activity being frozen in the quarters and months ahead of the election. So we expect some of that to be unlocked.

and to really give us some good vibes. And we've also seen consumer sentiment improve post-election, and that is something that's very normal after elections, including changings of the guard. I do sort of sympathize with that possibility of the Prince market. I think that one of the things that's tough for forecasters in 2025

is that we all put out forecasts and we have to articulate a base case. But the bear case and the bull case, sort of the tails around that forecast, it seems like those are higher probability on both sides of the equation. And those tails are just fatter in the new year. And so I think the idea of kind of 12 months visibility,

I'm not entirely sure that we have it right now, to be honest. I think we do our best as forecasters, but we have to admit that things are going to be changing quite rapidly in the year ahead. There are going to be policy developments out of D.C. And I think Cameron hit the nail on the head in terms of stretch sentiment and stretch valuation. And those things can last. It's very hard to predict exactly when they top out, but they do tend to invoke some pain on the other side. And I think that makes it very, very tricky to time everything next year.

So if we have this kind of froth in the market right now, this lack of clarity, what do you need to see, Cameron, to bring more clarity? What are you going to be looking for in the next couple of months?

For us, it all comes down to earnings estimates. And if you look at what has been the key underpinning driver of the last two years of the bull market has been that 12-month forward earnings estimates continue to rise. And we think in the next month, when we start the fourth quarter earnings season at the end of January, we're going to start putting some of these earnings estimates to the test because this is the first quarter that you had the expectation that

that the 493, those non-MAG7 names, will really start picking up the slack in earnings growth and pulling their weight. The question is, is that a bar that's too high? What you have in the 493 going into next year is a big reacceleration in earnings growth. And so we have to ask the question of, can that part of the market truly deliver?

Or are we still having to fall back on this small subset of MAG7 names that have been such a key underpinning of the overall earnings estimates? So we're watching that 12-month forward number on EPS estimates very closely, because if that starts to flatten out, market returns likely flatten out as well. We're speaking with Cameron Doss and the Chief Investment Officer at New Edge Wealth and

and Lori Calvacina, head of U.S. equity strategy at RBC Capital Markets. Lori, how do you view the earnings backdrop heading into 2025? What do you need to say?

Well, look, I think Cameron raised some excellent points. And if I think about, you know, the earnings environment, I would say sort of three things have been coming up in my conversations. I am looking for 271 on S&P EPS next year. The consensus is about 275. So we're a little bit below, you know, kind of that bottom-up consensus.

But kind of putting that aside, you know, I would say three things is, number one, if you look at this past year, 2024, there was an enormous amount of downward guidance that happened before reporting season actually kicked off. So companies really tried to keep the bar very low. And I think that set them up very well for this year. So I'm very curious to see if companies try to pull

that rabbit out of a hat again in 2025. So, you know, I'm not expecting, frankly, the tone to be all that great when that reporting season kicks off in late January. The second thing is I want to see what companies say about the dollar. We've seen an increase in the dollar year over year, and that does tend to push earnings revisions down. We haven't really seen that yet, but it does tend to hit most sectors in the market, aside from things like financials, REITs, and utilities.

So we're watching to see if we might get some truing up there. And then the last thing that I'm really focused on when we get that January reporting season starting up is what are companies saying about margins and costs? Bloomberg does a great job, the Bloomberg Intelligence folks, of tracking the bottom-up sell-side consensus estimates. And what they're showing in their margin stats is that we've been seeing 2025 operating margins for the S&P really coming down since the middle of 2024, which

And that's really coincided in my work with just increased concerns about cost and inflation. We really do think that we're going to need to see sort of what companies are saying about that cost environment, because strong margins have really been keeping earnings forecasts aloft. And if that story ends, I think it could be problematic for stocks. It's really interesting to bring up those points about the dollar and about margins, the potential for higher costs. That raises the issue of what

policy could mean for companies going forward in terms of Fed policy and fiscal policy out of Washington, D.C. How much does that affect how stocks could travel in 2025 for you, Cameron?

Well, it's been very interesting over the last couple of years how resilient stocks have been to changes in expectations for Fed policy. If we contrast how we started 2024 with six cuts priced in, six and a half cuts actually, into the beginning of the year, and at the end of the day, we only got four cuts and that we had a more hawkish Fed than expected, stocks had this ability to shake that off. The question is, can they continue to do that?

if the Fed does not deliver on those cuts in 2025, that they're now projecting to be two cuts for next year. If we think about how that translates then into the dollar, if the Fed continues to be in this position where they're seen as more hawkish, more restrictive in their policy,

than the rest of the world, which is having to cut because their economies are weaker. The end result is that you have that continued upward pressure on the dollar, which of course, as Laurie pointed out, could mean challenges for company earnings that are relying on overseas revenues.

So if we think then in the context of financial conditions, we still are in a place where financial conditions are very loose, very easy and considered to be supportive or even stimulative for growth. The question for 2025 is how that progresses. If the Fed continues to remain relatively hawkish to the rest of the world, could we see financial conditions tighten and thus feed into risk asset prices?

What's your view on that, Laurie? Do you think financial conditions are going to tighten and can companies continue to sort of look past some of the hawkishness that is starting to build up in the Fed?

It's a great question, Nathan. And I'll tell you, after this last Fed meeting, there were sort of two things that jumped into my mind based on sort of Fed conversations and Fed policy impact on data from the past year. And the first one was, if I think back to what I was reading from companies in our transcript reviews,

know, really earlier on in the year, one of the big points of uncertainty that companies were struggling with was just the sort of uncertainty over the path of interest rates. And so to the extent that we're bringing some of that uncertainty back, I do worry a little bit that it could weigh on corporate confidence. The second thing is, if I think about my own modeling for S&P earnings, I have

I've been talking about this a lot in my meetings with investors lately. It's not that the debt burdens are unmanageable, but I have one line item in my earnings model where we try to forecast interest expense relative to sales, and it's based on a variety of macro indicators. And long story short, that part of my model always behaves very, very well.

and the interest expense has tended to be pretty low. What I've noticed the last couple quarters is that the interest expense line item has been coming in a bit hotter than my forecast. And then I also recently took a look at the effective interest rates that S&P 500 companies are paying on the debt they have outstanding, and that's moved up pretty meaningfully.

So overall, I look at this as it just seems like it's getting a little bit harder for companies to manage their debt burdens from an interest rate perspective. And so I do wonder if maybe that could dampen corporate confidence just a little bit in the new year. And Cameron, what do you see as potentially the biggest headwind to the rally as we get into 25?

I would certainly agree with Lori. The idea is that a lot of companies were banking on the Fed bailing them out in 2025. It was a survive to 2025 kind of mentality, mostly within the small and mid cap line of things where we tend to see less profitable companies, more reliance on short term debt and higher overall debt levels.

And so if we think about the Fed staying tighter and interest rates staying higher, that would certainly create a challenge for companies that were expecting the exact opposite to happen. So that could effectively weigh on some of this hope and dream for a cyclical recovery because you're not getting the support from lower interest rates and just create an earnings headwind that is not contemplated in the market that's trading still at 22 times forward earnings.

So it certainly would be a challenge and potentially something that would come right into terms with this high valuation. Stay with us. We're going to continue this conversation with Cameron Dawson of New Edge Wealth and RBC Capital Markets, Lori Calvacina. See what areas of the markets you two like in 2025 as this special Christmas edition of Bloomberg Daybreak continues. I'm Nathan Hager and this is Bloomberg.

As criminal ransomware and state-sponsored attacks continue to escalate, a bolted-on approach to cybersecurity isn't cutting it. In fact, the more security tools an organization uses, the more security incidents it has.

According to new research from Google, companies that use 10 or more security tools average 14 incidents per year. That's more than double the amount for those that use fewer than 10 tools. To proactively manage cyber attacks, organizations should invest in productivity tools across email, documents, and video conferencing that are secure by design, hopping off the treadmill of software patching and lightening the load on their embattled IT and cybersecurity teams.

To learn more, visit g.co slash workspace slash more secure. From the Delta Sky Club to the Jet Bridge, Delta Airlines relies on 5G solutions from T-Mobile for Business to power operations and serve customers faster. Together, we're putting 5G into the hands of ground staff so they can better assist on-the-go travelers with real-time information throughout the airport. This is elevating customer experience. This is Delta Airlines with T-Mobile for Business.

Take your business further at T-Mobile.com slash now.

Thanks again for being with us on this special edition of Bloomberg Daybreak. I'm Nathan Hager. Markets are closed for the Christmas holiday, but we continue our market roundtable now with Cameron Dawson, Chief Investment Officer at New Edge Wealth and RBC Capital Markets Head of U.S. Equity Strategy, Lori Calvacina. And as we wrap up this conversation, let's talk about some areas of the stock market that you both like in 2025. How about we start with you, Cameron?

Well, we are looking more at value areas going into 2025. We're not buying value broadly. We think that there are a lot of low quality and value traps within the overall value style. But the degree of underperformance has been so

So pronounced versus growth that we think a lot of companies are just simply being ignored. If you look over the last two years, growth or value has underperformed growth by over 60%, which just leaves room for more valuation kind of buffer for those lower

lower-priced companies. So we're being selective. We're putting a quality overlay on that value side of things, looking for good cash flow, good return on invested capital, but looking for names that are trading at a discount simply because they have been left behind over the last two years. It feels like growth has been the place to be, though, for quite a while. Lori, what's your view?

I would just say on growth versus value, in our year ahead outlook, we gave value a tiny edge just because growth has been so crowded and so overvalued. But one of the things that has come up in conversations over the last few weeks has just been there's not as much opportunity and value as there was six months ago. And growth has really been fighting back in terms of defending its earnings dominance. So I

I wouldn't completely give up on things like the MAG-7. I would look for opportunities on the value side of the market, but I do think until we really see the earnings growth leadership seeded from growth to value, I think that growth is going to continue to fight back and you're going to see volatile trends.

I will say in that context, one of my favorite sectors has a good mix of growth and value within it. And so our fresh money idea for 2025 at the sector level is communication services. It's cheap. It's had positive earnings revision trends. There has not been a lot of talk about politics in this sector, which I frankly like, just given how a number of things could go in multiple directions.

And when I look at my industry work, there's pretty broad-based appeal by industry within that sector. So that's really the one we're emphasizing. You know, on more of the value side, I see opportunity in smaller cap financials, especially regional banks. And on more of the growthy side, areas we've been highlighting have been things like software and IT services, which still have pretty reasonable valuations and very strong earnings revision trends.

It's going to be interesting to see which of any sectors can stay politically agnostic heading into 2025. But in terms of the sector level, Cameron, what are you looking at?

Well, we find opportunities across sectors, and we're more focused on the quality factor, quality style of investing, which is just to say that if we look over the last three months, there has been a big deterioration in the performance of quality names versus low-quality, high-beta, high-momentum parts of the market. But what's interesting is that high-beta, high-momentum, low-quality are all in the 99th-ish percentile.

Yeah.

And, Laurie, I know you said that you wouldn't count growth out just yet, but can the MAG-7 continue the kind of momentum that we've seen over the last several months?

You know, it's a great question. And I think one of the reasons why this rotation has gotten started, it hasn't really been smooth. But one thing you're seeing in the MAG-7 names is a deceleration of earnings growth in terms of expectations that are embedded in the market and the individual companies for 2025. So whenever we see hot growth,

growth momentum areas with accelerating earnings growth, if I think back over the last couple decades in my career, it tends to make investors very skittish and it tends to make any sort of missteps really magnified in terms of negative price reaction. So I do think that that is a high hurdle. That being said, the value part of the market is just not stepping up and taking over leadership.

And so when we look at 2025 earnings growth expectations, the MAG-7, I believe it's down in the single digits, but so is sort of the rest of the market. And the rest of the market has not able to surpass that MAG-7 earnings growth. And when I take a look at it slightly differently and I look at the relative PE between

a basket of top 10 market cap names in the S&P and I compare that with the rest of the market. And then I do the same analysis on long-term earnings growth expectations. The relative PE is tracking the relative long-term earnings growth expectations. They're almost an identical chart. So MAG7 is getting that superior valuation

because the earnings growth expectations longer term are still vastly superior to the rest of the market. And until you see something change in terms of long-term earnings growth expectations, that could be MAG7 falling apart, that could be rest of market really surging. But until something changes, I think that you're going to be stuck in elevated relative valuations for that top 10 MAG7 cohort. And basically, the bottom line is they deserve the premium valuations that they're getting from an earnings perspective.

Thanks for this, Lori. And great to have you with us on as well, Cameron Dawson. That's New Edge Wealth Chief Investment Officer Cameron Dawson with us, along with Lori Calvacina, head of U.S. Equity Strategy at RBC Capital Markets. And we're going to wrap up our Daybreak Christmas special with a focus on the retailers this holiday season. Who better to do that with than Bert Flickinger, Managing Director at InDesign.

strategic resource group. Happy holidays, Bert. I think it was a pretty happy holiday kickoff in terms of shopping season. So how'd the retailers do? Good kickoff, as you said, Nathan, and a stable finish adjusted for inflation. November, December sales should be up about 1% given that two-thirds of American consumers as reported on the Bloomberg Terminal are living paycheck to paycheck. Good results for retail overall.

1% sounds pretty tepid. What does that tell us about 2025? Concerns ahead in 2025, Nathan, we're already seeing it in the wipeout of chain drug, chain dollar, specialty Best Buy consumer electronics. The only ones that are really winning, Nathan, is food and off price, and the rest are struggling, and twice as many consumers for decades.

So Thanksgiving, Christmas, Hanukkah, New Year's are buy now, pay for part of it now, pay for the rest of it later. Does that tell you that we're going to see a downturn getting into 2025 if the consumer continues to be selective as it has been throughout 2024? Yeah.

Nathan, yes. To your present point, we're expecting a strategic resource group downturn. The XRT and the Bloomberg Terminal, the S&P Retail Index is at an all-time high going into this last week of December. And Walmart's pretty heavily valued. Target's probably undervalued with the Taylor Swift tailwind that'll really help them the rest of this month and into the new year. But most of retail's struggling. What

What's really a leading indicator on the terminal, Nathan, is that restaurant sales on a cash-on-cash basis were negative last month for the first time in about four years. So where do you see consumers concentrating their spending in 2025? Is it just going to be all about staples, or is there room for some of those big-ticket items to get a little bit of a look at least?

Big ticket items, Nathan, as Bloomberg's reported well since Black Friday, is AAA is expecting record travel, close to 110 million travelers, most by car. But they're going to be spending on experiences. So 70% of the

The expenditures, to your question, is going to be on an experience that's 30% on retail. Retail people save the best while there are great bargains between today, Christmas, and Hanukkah Day into New Year's. The smart shoppers will outsmart the stores and wait until calendar day.

2025 for desperation discounting as the retail ice age accelerates and more retailers contract or some even collapse into bankruptcy and have to liquidate more and more inventory.

I wonder if that points to an opportunity for some retailers on an aspect that we've talked about in the past, providing more of an experience on the brick-and-mortar side. Is that something that's a possibility into next year? So does that point to an opportunity for retailers to provide more of an experience along the lines of an aspect of retail that we've talked about in the past, Bert? Yeah.

Nathan, you're raising a really important point about experiences. And yes, they're doing it well in London, Dubai, Paris, Toronto, and throughout the Asia-Pacific region. They're not doing it in the U.S. And we're seeing Saks Fifth Avenue not investing in windows for the first time in their history.

And we're seeing the ones who have experiences are winning. Specifically, Target, wall-to-wall on Taylor Swift's heiress tour, release of her book, her music, her licensed merchandising, big win for Target. Kroger Company, always a big partner of Disney.

big winner experientially, wall-to-wall from Disney to societal good for people from all walks of life, especially for people who are nutritionally and economically challenged. So win for Kroger, win for Target, not a win for the rest of retail in terms of experiential, which is so important this time of year.

How do you see retailers making that kind of investment in an experience? Do they have the wherewithal to do it?

Nathan, it's ironically or idiosyncratically, it's an investment, as you said, rather than an expense. It's almost analogous to retail crime. The Kroger Company and Costco and Target invest in crime prevention for shopper, worker, and vendor security the same way they invest in

experiences to really excite and delight shoppers of all ages where Walmart treats everything as an expense. And one of the things in the attachments we sent for another day, another time, is Walmart fails worldwide where they don't get subsidies. And in the U.S., taxpayers subsidize Walmart, Target, Amazon, Aldi,

And Costco, at the expense of retailers that pay their own way, like Kroger, CBS, et cetera. So the retailers that are subsidized do not invest in experiences and oftentimes do not invest in security, which is the ultimate consumer and commercial irony across America.

It sounds like a challenging backdrop heading into 2025 for retail. Thank you for this, Bert. Really appreciate it. Our thanks to Bert Flickinger, Managing Director at Strategic Resource Group, along with Lori Calvacina of RBC Capital Markets, New Edge Wealths, Cameron Dawson, and Tom Porcelli at PGM Fixed Income. Thanks to you as well for listening on this Christmas day.

I'm Nathan Hager, wishing you a very happy and healthy holiday season. But stay with us. Today's top stories and global business headlines are coming up right now. ♪

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