July retail sales rise 1.2% amid COVID-19

Marcum, LLP CEO Jeff Weiner joins Yahoo Finance’s Zack Guzman to discuss the outlook on the markets after July retail sales increased 1.2%.

Video Transcript

ZACK GUZMAN: Of course, we got some more data points to digest here in terms of the slowing recovery-- the latest there being US household spending on retail rising 1.2% for the month of July, returning back to pre-pandemic levels, as we see there, but notably much slower than the 8.4% clip we got back in June, raising a lot of questions about how this recovery might stall out, especially considering a lot of those unemployment benefits rolling off at the end of last month.

And here to discuss that as well as where the market could trade from here is Jeff Weiner, Marcum LLP CEO. Jeff, when we look at it, you might think that that would cause a reason here to take a little step back in the markets, with the S&P 500 sitting close to all-time highs here. And when we think about that, what's your take on how maybe the market still might be pricing in the idea that we could still get a deal rather quickly here out of Washington?

JEFF WEINER: Well, I think the market has room to run up. I think one of the key things will be we'll probably test new highs if a vaccine or a therapeutic is developed. But you know, the stimulus package or lack thereof, and Congress going on recess, is certainly not going to help the economy in the short term. It's not going to help retail sales.

There's a lot of people who are relying on those extra $600 a week checks or supplements to actually put food on the table and go to stores and buy non-necessities. So while I think the market could test new highs, in the short term, it's going to be in a trading range.

ZACK GUZMAN: That's kind of interesting as to see why we got Goldman Sachs raising their target for if all goes well here, saying that the S&P 500 could reach 3,600, noting a couple of things-- one, improving prospects for an early vaccine, as well as what we're seeing play out right now in the bond market-- the 10-year back up to 0.69%, the yield there.

What is your thought on that front? Because, obviously, there's a lot of optimism around vaccine research. But even what we hear out of Dr. Fauci is saying that, you know, rolling it out might take until the back half of 2021 to get it to most Americans. That still seems like a long way that we're going to see the unemployment rate and all these other economic indicators showing relative stress for the time being.

JEFF WEINER: Well, you know, Zack, you just said it-- the 10-year's at 0.69%. If Goldman is right and the S&P can go from 3,300 to 3,600, that's about a 10% move. So if you have a choice-- the real issue is there's no place else to put money. Fixed income yields are at almost historical lows. They're not attractive. Real estate is problematic, although multi-family has probably been the best place to have money in real estate-- although we'll see what the effect of the $600 a month decrease that unemployed people are now getting as a multi-family.

But when you really look at people with money to invest, if you can potentially get 10% in the next six months on your S&P investment, there's no place else that compares.

ZACK GUZMAN: Yeah, I mean, what we've seen here, at least in the earnings season so far, is a lot of low expectations-- so not necessarily difficult for a lot of these companies to top those expectations. But just one question out of what we saw in the retail report, because digging in a little bit further when you look into so-called control group there-- the subset that excludes food services, car dealers, building materials, and gas, sometimes more looked at in terms of the underlying trend there, up 1.4% versus the prior month as well. That was better than expected.

So I mean, maybe there is some sort of strength here to think that the US consumer isn't necessarily in as bad of shape as some people fear. But obviously, so much of what happens with the economy hinges on those households' shoulders here when we think about consumption the main driver of the economy. So how important does that, then, make getting a deal ASAP out of Washington, DC? And why is the market not trading lower off of not getting one?

JEFF WEINER: Well, it's twofold, Zack. First of all, I think you're seeing a generational shift in people's consumption habits. You know, I know I've been at home or basically working from home for the last five months or so. My consumption habits have changed. You know, if it wasn't for you today, I wouldn't be in this shirt and tie.

So you know, my work clothes most days are gym shorts and a sweatshirt. So you know, I haven't been out buying new work shirts or ties or suits or shoes. And a lot of people are in the same boat. So I think, you know, you mentioned car deals, you mentioned food-- you know, the staples, the necessities, the stay at home necessities are really doing well.

But we're also, at the same time, seeing a historical amount of retail bankruptcies. Every week, you're reading about the latest major retailer to fall by the wayside while Amazon is looking to snap up real estate that was formerly occupied by JCPenney and Sears.

So we're seeing what I call a generational shift in what people are buying it, where they're buying it, how they're buying it. And non-essential retailers, and we can put food and gas and auto dealers into appliance manufacturers-- you know, we're selling more Apple TVs and flat screens today than we were pre-pandemic. So there's really a shift going on in what people are buying and where they're buying it. It's really accelerated that trend that Amazon started 20 years ago.

ZACK GUZMAN: You're definitely not wrong-- electronics enjoyed quite the boost in the latest retail report there, jumping 22.9% in electronics. It's a big boost. And on the flip side, seeing weakness in sporting goods and hobby stores, down 5%. But you're addressing kind of the split that we've been discussing on the show recently, which would be this tug of war between tech companies that necessarily haven't seen weakness like the retail names you're mentioning, and cyclicals-- some of those other ones out there when we think about, I don't know, cruise stocks or some of these airlines out there that notably are waiting on what other aid might come through here in this fourth phase. So I mean, if you think about risks in the market right now, would it be too early to start thinking about some of those names like the airlines that might be tied to consumer sentiment here in the back half of 2020?

JEFF WEINER: You know, I don't know if it's too early. We may not have seen the worst of it yet, the longer this lasts. I know this is August-- I'd typically be planning my Christmas vacation now. That's not even a thought. So I'm not buying airline tickets. I'm not making hotel reservations. You know, people's patterns and consumption has changed.

So I'm not sure that the travel and leisure industry has seen the worst yet. So if you want to take a macro bet, that industry's going to come back. On a micro level, I'd be a little skittish on picking exactly which companies-- you know, you may have airlines go through bankruptcies in six months. [INAUDIBLE] holders may get wiped out, but-- so I'm a little skittish in jumping into individual names. As a sector, there's probably some immediate downside risk. But long term, it will come back, I just don't know when.

ZACK GUZMAN: Timing always one of those issues to discuss here. But we'll see. As we know, a lot of the aid to airlines rolling off at the end of the next month here. So we'll keep an eye on that. But Jeff Weiner, LLP CEO, appreciate you taking the time.

JEFF WEINER: Great seeing you, Zack. Take care.