Three Market Factors Everyone’s Overlooking

I am Chris Versace, and I am out in the mountains today, so hopefully my connectivity will be pretty good. We've got Lindsey Bell joining us from New York. Be careful, folks. There could be a fire alarm in her future. She'll tell us more about that. But most importantly, key in the Boston area, keeping an eye on the Celtics given speculation Jeff Bezos may take a bit for the team. We have our usual counselor, Mr. Bob Lang. Team - ow are we feeling this week?

 

Lindsey Bell  00:51

Feeling good, feeling good, minus this fire alarm that might be going off in the hotel room that we're taping this from, that I'm taping this from.

 

Chris Versace  00:59

So you're not staying at the Four Seasons I take it in New York, Lindsey?

 

Lindsey Bell  01:03

 No, the budget didn't allow for that.

 

Chris Versace  01:08

So, so you were while you're up there, are you doing some media hits? You know, tell us what you're doing so folks can catch you elsewhere.

 

Lindsey Bell  01:14

Yeah, I'm doing some meetings, but also media hits. I did mornings with Maria on Fox Business today, tomorrow, I'm doing Bloomberg News. And so, yeah, I'm just kind of making the rounds up here.

 

Chris Versace  01:27

Excellent, excellent, excellent. And hopefully you're seeing one or two of our old street compatriots. Hopefully you'll bump into them and do some exciting things. And speaking of the street, Bob, what's going on with you?

 

Bob Lang  01:39

Not a whole lot. We're finding the weather out here and up in the Northeast here. Believe it or not, we got some cooler weather last night. We got some rain here a few days ago. Kind of odd to get rain in August here and even in the northeast, but we're battling it over here. Unfortunately, Chris and Lindsay, I've been feeling out of place here recently with the I was so into the Olympics for the those couple of weeks, and we've been without it for the past half and and I feel like I'm missing something in my life right now, because I was really every night just parking my butt on the couch, watching all the events and watching the recap of everything, and I haven't had that for the past week or so, so I'm missing something. But you know me, Chris. I'm a big, huge tennis fan. I play a little bit as well too. We do have the US Open coming up, which will be out where Lindsay's out in New York City in about a week or so. So I'll be looking forward to watching some of that competition when that, when that gets started.

 

Chris Versace  02:36

And you and I will be seeing each other a couple weeks, Bob up in the great, great state of New York.

 

Bob Lang  02:41

That's right, New York City. I have a I have an event going on for the traders in my in my chat room. I will be there in New York City. We're taking the team over to the New York Stock Exchange. We're going to be trading for a couple of days, going out to dinner and seeing you as well. It's always been a good time. We've been doing that for the past seven years, and so I'm looking forward to doing that as well.

 

Chris Versace  03:02

Lindsey, did you like that? The way he'd made me like an agenda item. We'll be going out to dinner. We'll be seeing you as well. Did you like that?

 

Lindsey Bell  03:10

Yeah, but you're you are lucky to get on Bob's schedule. Make sure you know that.

 

Chris Versace  03:14

Wow. Lindsey, I feel betrayed. I thought you were going to say that's right, Chris, they have to book time with you anyway. All right. Well, look, folks, the market has been extremely strong over the last several sessions, eight up days, the biggest streak so far this year. You know, to put this in some other terms, the S&P500 haskind of catapulted or rebounded. Choose your words, about nine, somewhere between nine and 10% is it overbought? Not yet. If you're using the classic relative strength index definition, but we could see the market continue to chug higher. I would say, continue to watch some key levels. But with that, let's get to today's episode. We're really going to try and tackle three, possibly four topics. First one out of the gate is going to be which retailer earnings reports the team is focused in on and why this is a big week for retail earnings, and this also has the potential to lead to additional downward revisions for S&P500 consensus EPS. What could that mean for the market? We'll talk about it second. What does Powell need to say on Friday at Jackson Hole? Folks are out there, whether it's Evercore, ISI or some others. Is it 25 is it 50 basis point rate cut coming in September will weigh in. The third big topic is one that you may not be that familiar with, which is this potential Canadian rail strike. This could be a wild card for the economy. It could even be a wild card, what the Fed might have to do in September. But we'll talk all about that, and if we have time, we'll also talk about presidential candidate Harris and the potential tax hikes for corporations that she's talking about. What could it mean for the markets and investors? Don't go away. We'll be right back.

 

Chris Versace  05:05

All right, folks, let's get to it. We've got four big topics today, maybe three. We'll see how time goes. But let's dig into the first one. I said we're going to talk about retailer earnings and just setting the stage. Last week, Home Depot lowered its full year guidance, with EPS now declining two to 4% previously had expected only to decline a 1% and it also slashed its comp sales, now expecting them to fall this year between three and 4% also expecting previously just a small decline around 1% but after that, Estee Lauder, you know, slashed us out. Look, Lowe's did the same. You know, team, what are we thinking here? What is going on, and how does this compare to that supposedly super strong July retail sales report we had?

 

Bob Lang  05:53

I would just say that we have to really be cautious here, because a lot of these companies are are cutting their forecast out for the holiday season for the next couple of quarters. And usually this is, you know, don't forget, Thanksgiving. Black Friday is the Super Bowl for retail. And if these companies are cutting estimates and their guidance for the rest of the year and even into 2025. That's trouble for retailers. Now, not all, not every single one of these companies are doing that. I think we heard a couple of like, Walmart didn't cut their earnings as much. But what do you think? Lindsey, I think that this, this could be a problem for retailers going forward. If they're just, you know, being conservative and lowballing it, that's one thing. But I think by and large, with the economy moving much more slowly than it was at the end of 2023 I think that this could be an issue for us and his companies going forward.

 

Lindsey Bell  06:45

Yeah. I mean, my take is, what we've heard from the consumer facing company so far, not just the retailers. We're getting a lot of those companies reporting this week and some next week, is that consumer spending habits, they have a cautionary tone with regards to what the consumer is doing. Despite the retail sales number that we saw, you even heard a caution, cautionary tone from Walmart, I would say. And while they did raise their guidance for the full year was only based on the first half outperformance, they maintained their second half guidance, which meant the third quarter expectations were weaker than what the street was looking for, so it wasn't as like stellar as the market or investors had chosen. I like to say they chose to believe that it was extremely stellar. I even think Walmart's management team was a little more optimistic about their performance and what was reality? Because the reality was that, according to them, their consumer focused on purchases of essential items, less so on discretionary and that while general merchandise goods were positive, we saw a comp that was positive for the first time. And what I don't even know, it was like something like a long, long several, several quarters that was really driven by changes in their business strategy, not so much they even said, not so much driven by economic changes, more so that they're offering an expanded amount of general merchandise goods and their online platform. So anyway, long story short, I think that that what we are hearing from these consumer facing companies is that the consumer is being discerning, to use a word that several of those companies have used with the way that they are spending. They are still focused on more essential items, less so on discretionary items, and there is a slowdown in spending actually happening. And because of that, they are cutting the third quarter guidance, and they're going into the end of the year in a more cautious period. I you know the fourth quarter. I do think the consumer is going to want to have a a positive holiday experience. And I think that they have ways to make that happen, through credit or he locks, that we talked about, they have access to money that will allow them to spend. So I wouldn't be surprised if the fourth quarter for some of these retailers wasn't, wasn't too bad, but, but I think the takeaway for me is that that that the consumer is slowing their spending, and the pressure, the pricing pressure, is expanding from the low end to the middle end of the consumer range.

 

Chris Versace  09:20

 I think you're spot on. I also think that the market could potentially get head faked with this stronger than expected July retail sales print. You know, I've talked about this, but just to kind of reiterate, there were a lot of events in the month of July, Amazon's Prime Day for 2024 bargain Walmart and other competing events that likely pulled forward retail sales from August into July, possibly even in September. But I remember what Amazon had to say. They benefited handsomely from back to school, and if you look at the various items, I think you can kind of pinpoint that. So I wouldn't be surprised if July was strong August is going to be a little weaker. And I think some of these companies that have reported and will report, they see that data already, because as we're talking we're, you know, two thirds of the way through August, they have a pretty good read on how that month is. And for a lot of them, it's the first month in their current quarter. Because remember, you know, they end in July. That's August, September, October. What I will say is this, when we get companies reporting, and we'll talk more about that in a second, one of the things that I'm going to watch almost like a hawk is going to be their inventory levels. Because if the consumer is slowing, inventory levels might build up. If that's the case, it means that they are going to have to clear out aggressively in order to stock for the holiday shopping season. That means margins. That means EPS now, but Bob, I see you're nodding. What do you think?

 

Bob Lang  10:50

I agree with that, Chris, but I was also looking at a couple of charts. I was looking at the XL y, which is the discretionary select, SPDR, fund, ETF, versus the staples. And it basically lays out the same the argument that Lindsey just made Staples new, all time eyes, discretionary, not quite there yet. It's a little bit below the all time high. So what Lindsey said is, you know, people buying, you know, needed goods, staple items, that has been strong. I think Walmart told us that last week. I think target, which reports earning us this week, is going to say the same thing. And you know, it's a matter of, as Lindsey said, trading down right now. And if that trend continues, if inventories build, margins are going to take a hit. And you know, it could be a present quite a few more problems at the end of the year.

 

Lindsey Bell  11:40

I have one thing I wanted to add real fast too, is I went back and looked at Costco to kind of look at this discretionary trade down thing. And do you know they still do the monthly sales reports. I don't know if anyone actually reads them.

 

Chris Versace  11:52

I love those. Hey, I love those. I read them every month, and I compare them against the monthly retail sales report, and it shows that they continue to take wallet share. So there you go.

 

Lindsey Bell  12:04

Yes, yes. As a retail analyst, way back in the day, I hated them because, like, ah, the muffin just flew by. And back again, no, but it's there's a lot to lot of little, good nuggets of info in there. And so Costco is July report their non food comps were up. Low double digits, low double digits. That's huge. So if the consumer is buying discretionary items, they're going to Costco, they're going to Sam's Club. BJs is going to report earnings. We'll find out what they have to say. You know what I thought was also funny within that non store or non food comps, excuse me, is the gift cards were very strong. And you know what kind of gift cards you can buy? Because I buy them there. You can buy like local restaurant gift cards there, but you can buy like Xbox, you can buy Domino's Pizza gift cards, and it's like 20% off. So if you buy $100 gift card, you get it for $80 so my I do that. I do that sometimes too.

 

Chris Versace  13:04

You know, I heard that Costco will offer, and this is probably right up Bob's alley. You can buy like five $500 credit of Southwest Airline tickets for like 450 bucks. That's pretty cheap. But I would tell you also that Lindsay, if Chris is on your Christmas list, if you can get a gift card that allows him to buy as many Costco hot dogs as he wishes, I'm sure he would be very appreciative of that. That would be the gift that keeps on giving. Well, I think I did read that too, that the cafeteria area did well in the month. Have you guys heard that people are having birthday parties at Costco where they do like a treasure hub. They do a treasure hunt in the store, and then they gather in a cafeteria by some of the tables. They get, like, hot dogs and sodas, and then they get a cake from the Costco bakery.

 

Bob Lang  13:51

Brilliant, brilliant idea.

 

Lindsey Bell  13:53

When's your birthday? Chris Bob, and I'll plan it.

 

Chris Versace  13:56

It's, uh, soom, that's all I'll say. That's all I'll say, because then you're going to go, when's your birthday? Oh, how old are you? And of course, we don't talk about that so, but let's, let's move on. We kind of talked about having a number of retailers reporting in the next couple of days. Lows, Macy's target, TJX, Urban Outfitters, yes, Williams, Sonoma, Dollar Tree, raw stores and a couple others on the fringe. We can throw in peloton. You mentioned BJs, Lindsey, Bob if you had to pick one to watch, which one is it and why?

 

Bob Lang  14:32

I'm going to be watching TJ Maxx. I'm kind of tied with TJ and Ross Stores. It kind of similar to similar things, but I think TJ really hits the heart of where the consumer is shopping. They reported a really strong earnings report back in May. Stock went up and came back down, and it bounced right back up, and it's been very, very strong. In my experience, we often see when a company comes out with strong earnings, maybe it's a surprise to the upside. That usually runs about three quarters in a row. So this would be number two, and then maybe the next report that TJ comes out in in November. Again, this is very non scientific data, and this is interpretation from me. It's just my anecdotal evidence, but if we see three quarters in a row, we might see another quarter after this one, but I'll be watching TJ Maxx especially to see how much the consumer has been spending. Again. You know, a lot of sales from TJ Maxx are oriented towards furnishings, and also some some back to school stuff as well, too. So if they have good earnings report this week, it'll, it'll, it'll be something I'm I'm looking forward.

 

Lindsey Bell  15:41

Go ahead, Lindsay, you know me. I'm watching target because of what I've just said previously. I think not only is it the most important earnings report for the week, but it's almost acting as an economic indicator for the week. Of course, we have jobless claims, but I think this is going to be another telltale read, a big read on the consumer for the week, and I think that it's going to either confirm or show a different story from what we you know, thought was what we heard from Walmart.

 

Chris Versace  16:06

So their grocery business isn't as big as Walmart work Costco. Does that make you a little nervous that perhaps they might be losing some foot traffic out to these other guys?

 

Lindsey Bell  16:15

Yeah. I mean, they have a greater discretionary mix than than a Walmart will. They also have a higher income consumer than a Walmart would have. So the interesting thing is, is, is Walmart taking the target customer right now? Are they trading down? So I think we're going to find that out. And I think from what I read in analyst reports, it's what I've seen, is earnings expectations for the quarter have come down, and also it's looking like for the third quarter for target. A lot of analysts are talking about how comps and traffic for target are doing is great in the third quarter, which is the back to school season for the that's important for target. So it's going to be an interesting and important report. It might have repercussions that spread across the marketplace.

 

Chris Versace  16:58

So not not to cycle back to Costco, but do you know what the average income is for Costco, the members compared to Walmart shoppers?

 

Lindsey Bell  17:07

I don't know, but I know it's high. It's like high income, isn't it? What is it?

 

Chris Versace  17:10

It's for Costco, it is 125 to 150,000 for Walmart, it's closer to 80 to 85,000

 

Bob Lang  17:19

I suspect target would probably be closer to where Walmart is than Costco, right? Chris?

 

Chris Versace  17:25

Yeah, I think that's right. I think that's right. So, so the one that I'll be watching this week is not one that either of you've mentioned or one we've talked about. It's going to be William Sonoma, and the only reason for that is because their consumer tends to skew higher. And I want to see you know, are they putting up the comps that people think that they are? Are they still seeing people shop? What's their outlook? And then I kind of, you know, want to compare that to some of the names that we have mentioned, just to see where are consumers continuing to shop? I will share too. I think the biggest risk that we see is something that you touched on Lindsay, is that these companies deliver good results for the July quarter, but they don't change their guidance for the full year, which means the back half of the year is probably a little weaker than expected. So we're going to have to do some analyst math. I think Bob put it all together. What does it mean?

 

Bob Lang  18:20

Yeah, it just means that we have to be paying very, very close attention to the consumer data. The retail sales really hit at the heart of where the consumer is in the economy. The consumer represents about 70% of the GDP for the United States. And we want to really have a good idea of if that growth is continuing now. And yeah, we did see that strong retail sales last month. And you know, it may slow down for the August reading, which comes out in September, and which is just out before the next Federal Reserve meeting, which comes out the middle, towards the end of September. So I think the Fed as a committee, is looking at the growth of the economy. They're looking at inflation, they're looking at jobs. And I think Lindsey said it best last week is as long as the consumer, or long as the average American has a job, they're going to continue to spend I mean, my paraphrase you there, Lindsey, but I think that's kind of what you mentioned last week. And I think it's very right and very appropriate to talk about that, but you got to pay attention to what the consumer is doing.

 

Chris Versace  19:20

I think it comes down to degrees. You know, if they are going to spend nothing, to spend more, they're going to spend less. And as we're talking it looks like they're spending less, but you you almost had a perfect segway there, Bob, to our second topic. When you were talking about the Fed, everybody knows that. You know the market has been pricing in various rate cuts. Some think the Fed will start in September with 25 some still think that they may open the door to a 50 basis point rate cut, but in my opinion, that makes what Fed Chair Powell is going to say Friday at Jackson Hole very important, and yet, I don't think he's going to say that much.

 

Lindsey Bell  19:56

I agree with you, Chris. I don't think he's going to say that much, but I will say you. I also agree with your your point on it being important. In fact, I think this speech combined with the September meeting is actually going to be quite consequential for Powell and the Fed in terms of reputation and credibility. Forget the transitory mistake. We are at a very look like I think this is now their time to either or shine or screw it up in a big way. And you don't know where they're going to land, because the it's a fine needle that needs to be threat like, yeah, yeah, no. They talk about, I mean, just to go over, what we quickly know is like, they'll say inflation has eased substantially, which it has from 9% right? But that that rate of decline has stalled out, and there's some sticky parts like, like shelter and auto insurance has remained very sticky. And then you've got the the job situation is it, it's starting to weaken. We're going to get revisions on Wednesday of this week that are expected to be pretty bad. So, and that's a mill, up to a million jobs.

 

Chris Versace  21:06

That's a crazy number. And at the same time, not, not, not to steal your thunder, Lindsay, but you know, you look over the last couple days, disco, right, announced layoffs, MasterCard announced layoffs. And there's, you know, a sea of, I would say, see, but a growing list of other companies that are announcing layoffs as well, Cisco, for example, Intel came out, and again, some others out there. So I do think that the employment situation is going to come to the forefront of the conversation. But you know, Bob, I watch Powell talk and testify in front of Congress, he doesn't give anything up, right? He always talks about, we're in between meetings. Wouldn't it be appropriate to comment? He says the data is getting better. I agree with Lindsay. I think he's going to come out and say that they have more confidence, more comfort in starting a rate cutting cycle. But I still think he's going to keep his cards super close to the vest, even if everybody knows it.

 

Bob Lang  22:04

I agree with that Chris and I think that chair Powell will be coming out and basically reiterating the same thing he said in July, at the end of July, at the last meeting. Of course, you know, this week, we're going to be getting the reading on the on the minutes from that meeting, uh, midweek, so we'll be, uh, digest.

 

Chris Versace  22:21

Nobody cares. Nobody cares.

 

Bob Lang  22:23

I do.

 

Chris Versace  22:25

It's the past  look. I might read the Costco monthly retail sales reports, but no one is going to read this report. And I will tell you why, because we've had more recent inflation data, other economic data. We've had a couple fed heads come out Bostic in particular. So I look, will I read it? Yeah, I'll skim it, but it's going to be a non event. Bob.

 

Bob Lang  22:46

Fair enough. Chris, but you know, as I'm a Fed nerd, and you know that, and I've been following the Fed for years and years and years, I will be reading it with my first cup of coffee or a second cup of coffee during the day, and enjoying what I'm reading, as I know-

 

Chris Versace  23:04

Wait you have your second cup of coffee at 2pm in the afternoon.

 

Bob Lang  23:09

Well, it's a big cup of coffee.

 

Chris Versace  23:11

You are woefully under caffeinated and not supporting Starbucks at all.

 

Bob Lang  23:16

No, I'll be I'll be at Starbucks later in the day, but, but to be to be honest, I really don't think that the chairman is going to say much different than what he said in the press conference after the last meeting. I do agree with Lindsay, though, that this is an important meeting to set up the crowd out there, the traders, investors out there for what the next move is going to be I've said for the past two or three months that the Fed is pivoting, but they really don't know exactly where that pivot is going to move. They're turning the crank. They're going to pivot out to a dovish policy. What chair Powell said at the last meeting, and meeting before that is one rate cut is not going to matter, and he's correct. It's not going to matter at all. Beans. What, what matters is that they start that rate cutting cycle, and that could lead into 3, 4,5, 6 rate cuts before they're done, which could happen in 2026. I do, I do believe that they are going to take a gradual approach. They're not going to speed through this thing. If they do, they've run the risk of overheating the economy, especially if we ramp up into the end of the end of the year with with holiday shopping and holiday holiday sales Lower, lower gas prices that that comes out over the next over the next few months. So I do think they have to be careful. They have to be calculating. They have to measuring those risks, as they always talk about. But I think by and large, nothing's going to be different. And I think the market has gotten ahead of that Chris and I think that what the problem is going to be maybe towards the end of the week, towards the end of the end of August here, as we move into the fall months, I think what the problem is going to be is that the market has gotten way ahead of where the Fed is right now. And if that's the case, there's going to be some disappointment on the markets. Could come down.

 

Lindsey Bell  25:04

Yeah, hasn't been a problem all year.

 

Chris Versace  25:08

What are you being sarcastic? You better be sarcastic.

 

Lindsey Bell  25:12

No, I'm serious. Like at the beginning of the year, we're looking for what? Six, seven rate cuts.

 

Chris Versace  25:17

The market was way out over its skis. Okay? They were addicted to hopium for these rate cuts in the very early part of the year.

 

Lindsey Bell  25:25

And the market did fine

 

Chris Versace  25:27

Until April came around.

 

Bob Lang  25:29

Dropped 4% in April.

 

Lindsey Bell  25:31

Oh, yeah.

 

Bob Lang  25:32

Pretty good sizeize drop in man, small caps have been basically kneecapped all year long, so except for about for about three weeks there so.

 

Chris Versace  25:39

Let me just wrap this up, and then I'll hand it to you Lindsay to tell us what it means. But I think that the bigger risk on Friday is that Powell, to the extent he plays the straight shooter, is the big concern is that, what if he's not as dovish as the market thinks he might be? You know, we know he's not going to be hawkish. That's a given. But the question is, how dovish will he be as he keeps those cards, like I said, close to his vest, but Lindsey, wrap it up. What does Jackson Hole mean? What's the key takeaway for folks who are listening?

 

Lindsey Bell  26:10

 Look, what I would say is Jackson Hole hasn't historically created much of a reaction in the market. For the most part, there's always an exception to the rule, right? 2022 was one of those. When he got kind of hawkish. On price stability. But I don't expect the market to react significantly. I do think the key is going to be that he's going to talk about what Bob said, that the pace of rate cuts is going to be gradual, because that's the best chance that we have at a soft landing. If we're cutting aggressively, it means that we're in deeper trouble than we think we are. But also, to your point, I do think that people are looking for any sort of Douglas tones. They're looking for what he has to say about growth, because he hasn't really talked so much about growth. He did say in July that, you know, he doesn't want to see the job market get much worse than where, where it's at, and that was before the July jobs report came out. So I think it's going to be a non event in terms of market reaction, but I think it's going to be a big event in terms of what he says and how people extrapolate that into September. So I think it's going to be one piece of the puzzle as we work our way to September 18.

 

Chris Versace  27:19

 I agree, and that's another reason why folks will have to keep coming back and hearing how we put those puzzle pieces together in one puzzle piece that I'm watching, and I think you guys are too, is this, this thing that apparently is going to happen in Canada on Thursday, a dual rail strike that has the potential to Really upend North American rail traffic. And, you know, I don't want to get out ahead of this and be all Oh, the sky is falling Chicken Little. But you know, when we've seen strikes and work stoppages, you know, the big question is always duration, right? If it's relatively quick, it might be a little bit of a blip, but if it's extended, not a couple days, but it moves into a week, two weeks, three weeks. That's where the bigger risk comes, not only to the economy and potential renewed supply chain issues, but that could really throw a thorn in the inflation, deflation, you know, narrative that we're seeing in the marketplace, and it could be a wild card for the Fed you guys think.

 

Lindsey Bell  28:22

Yeah, I mean, I agree with you, Chris, it's, it's something not a lot of people are talking about, but it could have huge implications for inflation. From a food perspective, that's where the pain point is for most American consumers, right? And this is happening just months before the election, too. So, I mean, that's what I'd be looking at, is, is the inflation impact. Hopefully it only lasts a day or two, but I think it's also another, the other thing I'd add is it's another sign of, you know, that the angst that that exists between employer and employee. You know, unions are still very small portion, represent a very small portion of us employees. But obviously they've shown increasing power, and the employee base has shown increasing interest in them over the last several years. I don't think like that's going to change significantly. There's an imbalance there between, you know, I talk about this in my newsletter, this shift all the time. There's an imbalance between the employer and employee relationship, which is as a result of the employee contract being out of balance. So I don't know. It's just something to watch to see how that that develops. And I think it's just a sign of bigger underlying trends there.

 

Chris Versace  29:40

Bob, could this turn out to be a big nothing? Is it possible that union Joe Biden comes out, talks to the Teamsters and say, Hey, boys, get in line. This is an election year, you know? We'll we'll make you whole later. But we can't risk a big apple car getting turned over for the economy here now, when we're so close.

 

Bob Lang  29:58

Well, just a few years ago, we had a rail strike here in the United States, and one that was stopped right before the workers hit the picket line. So I think there is a lot of fear out there that something like this could last for quite some time, or there's the potential for disruption here. And I think a lot of these companies that are transport oil from from Canada down to the United States, they do that through through rail. And if that's disrupted, you could have a good spike in oil prices, at least in the short term. That certainly could be the result of a disruption in in Rails. But certainly moving product from Canada down here and vice versa, from from here up to Canada around the holiday time is going to be a big disruption for businesses as well, too, and the longer, longer it lasts, the worst it's going to get. You know, I will tell you that union workers these days, especially after President Biden's been in office for nearly four years, have a lot of leverage with some of these companies these days, and they've been able to negotiate great deals for themselves. And this could just be another opportunity for them to pick off a little bit more off of some of these Canadian rail companies if they really turn the screws on these companies.

 

Chris Versace  31:05

Okay? So I think, when it comes to this particular topic, though, what does it mean? Takeaway is, we don't know exactly. We're going to have to wait and see and kind of you know, check out what that duration is, and based on the clock, we'll have a better sense of what the economic impacts are supply chain disruptions and potential re inflation pressures emerging. Let's turn quickly panel to our last topic earlier this week, where it is Vice President Kamala Harris, and presidential candidate is proposing to raise corporate tax rates 28% from 21% but on the other hand, and if she does this, that's one thing, of course. You know this is campaigning. She needs to get elected. Needs to get passed all of that. Let's not jump the gun. But there's also the expiration at some point, of the tax of the Trump tax cuts. So what I want to put forth out there is whether it's 2025 or 2026 there is the potential for corporate tax rates to be higher. And yet, you know, when we look at consensus EPS numbers for the s&p500, at least, for 2025, that's up a whopping 15% year over year, compared to 2024 and usually about this time of year, when you look forward, it's this, you know, rule of thumb, 10% that tends to get adjusted, usually lower. But does this, does this pose a bit of a concern, or should it be a concern for folks as we start to think about 2025.

 

Lindsey Bell  32:31

I mean, I think it's already on corporate minds right now. I think as we're going into the election period, I think it's part of what you're seeing. It's not just the consumer that's slowing down spending, and confidence, corporate confidence, is slowing down as well. And so part of that is because they we don't know who's going to be in office. So that means we don't know what's going to, what tax policy is going to look like, and that's going to, that's going to have a huge impact, like you just said, on the bottom line for a lot of these companies, and what has an impact on the bottom line is going to have an impact on the SG and a line too, probably. So so it is certainly a concern to watch going forward, of course, then, then you can offset that with, what does it mean for our deficit? Right? So, right, right? I think it's it just adds to the storyline that I've been talking about, like there's a stalling in hiring for a lot of reasons. What's happening with interest rates, what's happening with the election, but also, nobody talks about the fact that these tax changes could have an impact.

 

Bob Lang  33:34

I agree with that. And also the fact that companies are going to be crying about this, this one two punch of higher wages and then higher taxes affecting their bottom line. I'll tell you this. I don't, I don't really see that a lot of these firms who have been subject to pay more wages have really been hurt all that much. I'm not going to paint a broad brush say every, every company is is, quote, unquote, lying about how they've had their arm twisted and with with increases in the wages I saw. General Motors actually reported great numbers. They didn't talk so much about the pain that was administered by the unions, with, with a change in contract, but other companies did. But I'll tell you that, you know, the higher tax rates could be a problem, especially if it gets up to that, you know, 28% level. I agree with Chris, though, in the fact that it's more posturing, it's more political rambling. Right now, to throw these numbers out there, trying to get something passed without especially if we have a split Congress and set it, it's going to be difficult for any candidate to get something like that across the finish line. But I do think that the talking about it is big thing. Let's not let's not forget, though, if former President Trump gets in there, he's talking about an aggressive stance with tariffs, and those taxes are going to have a big effect. I think Lindsay talked about tariff taxes having a huge effect on inflation, on a negative from a negative standpoint. So tariff taxes are up. Yeah, inflation could, could certainly creep back into the economy.

 

Lindsey Bell  35:04

Individual taxes also expire, which obviously benefit the higher income more so than the lower income, but, but there's also the child tax credits, there's higher standard deductions, things like that. So it impacts the individual, which impacts spending too.

 

Chris Versace  35:20

Agreed, agreed. It sounds like one way or another, that when we look at at least from a market perspective, we are going to have to pay more attention to this one way or another. The odds are that any tax rates are going to go higher. The extent that does happen, it means we're going to have to revisit EPS expectations for the market that will call into question the market multiple. So it's another thing to watch over the next couple months, and with that, folks, hang tight. We'll be right back. We'll wrap up today's podcast.

 

Chris Versace  35:56

All right, folks, we are into the home stretch where we share with you our own takeaways from the conversation that we had today. Bob, why don't you kick us off?

 

Bob Lang  36:06

Yeah, so we have the big Jackson Hole symposium, which is being hosted by the Kansas City Fed this week, and all eyes and ears are going to be on chair Powell. Is he going to throw some meat out there to the ugly lions who are looking for something to chew on here? The problem being, for me, is that markets have risen quite sharply. We're right near all time highs on the s&p500 and the Dow Industrials as well, too. Not so much on the NASDAQ and the Russell 2000 right now. But I think that if he throws a bone to the market, we could make a good run into the end of August. August has been, traditionally been a poor, poor month leading into September. But if we have a if he's again, if he throws a bone to the markets and says, Yeah, you know what rate cuts are on the table, and we'll be talking about it at the next meeting, then it could be off to the races, regardless of the fact that we're we're super overbought in the short term.

 

Lindsey Bell  36:57

So my takeaway is, I'm just going to add on to that and say something we haven't said yet. Part of, I think, why the market has done well is because of the move, and we haven't talked about this in depth yet, so I'm just going to give it a the quick synopsis is that part of the reason I think the market has done so well is because of the move that we've seen in interest rates. I mean, in just the last three weeks we saw we saw interest rates go from four and a quarter to 3839, that's a difference doing the work for the Fed already, and I know maybe next week we'll dive into that more. But can't overlook that.

 

Chris Versace  37:35

Totally agree, and I think it supports something we did talk about earlier, which is that the market is really anticipating that that rate cutting cycle potentially starting either sooner or larger than what could happen, but it is something we'll have to pay attention to. My surprise learning out of our conversation today is something that Lindsey said, and I will be taking her to task with it next week. That is the big event this week is earnings from Target. I'm fascinated by that, because I kind of see target being left behind a little bit. I talked with Bob, you know, several months ago about how I think the target is a little lost, and you know, we will see how that pans out. I'm curious to see what they have to say about the back half of the year. But folks, that's just more fodder for us next week. Hopefully we'll have a little more on the potential Canadian rail strike. We'll have more on retailer earnings, and you can bet we'll be breaking down all that Fed Chair Powell has to say. So be sure to tune back in next week for another edition of What Does It Mean? We'll see you then.