Key Concepts
Consumer confidence, recession, delinquency rates, labor market, inflation expectations, retail earnings, crowded trades, housing market.
Consumer Confidence and Recessionary Signals
The discussion begins with Walmart's stock decline (over 3% today, down 6% YTD) coinciding with a significant drop in consumer confidence. The Conference Board's gauge of buyer sentiment has fallen for the fourth consecutive month, while inflation expectations have risen to a nearly two-year high. Less than 40% of consumers expect stocks to rise in the next year, a 10-percentage point decrease from February. Only 16% anticipate job openings to increase. This data is impacting the consumer space broadly, with losses seen across dollar stores, department stores, luxury goods, and athletic wear.
Guy Adami highlights concerning delinquency rates, specifically serious delinquencies (90 days or more) exceeding 11.5%, the highest level in approximately 14 years. He emphasizes that these rates are growing at levels not seen since the Great Financial Crisis, even before an official recession has begun. He also points to the performance of home building stocks and their commentary as further cause for concern. Adami suggests that the unemployment rate is the "last shoe to drop," and an increase there would exacerbate the situation.
The Labor Market and Conflicting Views
The panel acknowledges the importance of the labor market. While consumer confidence and housing data indicate weakness, the strength of the labor market presents a conflicting narrative. UBS, in a recent note, stated that the consumer "looks visibly tired" but reaffirmed a 2% growth forecast for 2025 (down from 2.3%), indicating a downshift but not a recession. The panel notes the divergence between recession predictions (some exceeding 50%) and the current state of the labor market. The Fed's focus on the labor market is also mentioned.
Inflation Expectations and the Fed's Response
The discussion shifts to inflation. While the consumer confidence data raises concerns about the economy, it also reveals rising inflation expectations. The 12-month mean inflation expectations have increased to 6.3%, up from approximately 5% in November and pre-COVID levels in the mid-4% range. This suggests that inflation is resurging, requiring the Fed to exercise caution. However, the overall sentiment is that the economy is not collapsing.
Retail Earnings and Market Sentiment
Dan Nathan points out the poor performance of retail stocks following their recent earnings period. He notes that Walmart, a previously crowded trade, has failed to bounce back, indicating a shift in market sentiment. Costco, another crowded trade, is also facing increased scrutiny regarding valuation.
Political Divide and Potential Convergence
Nathan mentions the University of Michigan consumer data, which revealed a significant split between Democrats and Republicans, with Democrats expressing a more negative outlook. He suggests that the risk lies in a potential convergence of these views, particularly if the housing market weakens and inflation continues to rise.
Synthesis/Conclusion
The panel presents a mixed picture of the US economy. Declining consumer confidence, rising delinquency rates, and weak retail performance suggest potential recessionary pressures. However, a strong labor market and differing opinions on the severity of the situation create uncertainty. Rising inflation expectations add another layer of complexity, requiring careful monitoring and potential action by the Federal Reserve. The performance of crowded trades like Walmart and Costco serves as a cautionary tale about the importance of valuation, even in seemingly robust sectors. The potential convergence of political views on the economy could further amplify any emerging weaknesses.
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