U.S. markets opened higher this morning following strong retail data, which saw sales up 0.9% in April despite surging inflation. Jim LaCamp, Senior VP of Investments, Morgan Stanley joined Cheddar's Opening Bell to discuss.

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Markets Open Higher As Stocks Look to Bounce Back Amid Downturn

let's get some more insight with Jim Beauchamp senior VP of investment at morgen Stanley, Jim got to jump right into retail sales data that out. Obviously in the last hours show it showed an increase of about 9/10 of a percent. In terms of consumers spend retail consumers spend in the month of april. What's your reaction to to those results? Well, my reaction is, how long can this last? Because when I look at revolving credit for consumers, it's just been skyrocketing. We've gone from having a fair amount of consumer savings all the way down to having a tremendous amount of consumer debt. And you look at the retail sales that's great. It's a good number. But again, a lot of these figures are warped and skewed because we have significantly higher oil and gas prices, energy prices and higher food prices. So those sales numbers are going to go higher. And then you look at the industrial production numbers out today, the capacity utilization numbers, they're pretty good. It doesn't suggest that we are going into a recession. So all this tells me is the Fed is going to be more emboldened to be honest. I still aggressive path and this is dangerous. It's a dangerous path because energy prices are still so high. Look at oil prices this morning, Russia and Ukraine hasn't been solved and we're canceling leases oddly. So we have a lot of issues still to work through to get those inflation numbers to come down and if they don't come down, the Fed is not going to stop. And if the Fed doesn't stop, the market's gonna have a big problem. And I think this is why we're seeing a lot of positive openings, like we're seeing this morning, but the closes haven't been so positive. I think that's such a good kind of response there because the reality is top line, this number seems good. But when you dig into it a little bit and certainly you have the layer of earnings and earnings like walmart, you see a little bit of of shift in the consumer. Certainly the consumer seems still relatively healthy, but their patterns are shifting. And I say that with something like walmart where the cfl this morning even kind of pointed to the reality that they're seeing a little bit of the substitution effect, you know, seeing people buying off brand deli meats or by a half gallon of milk, showing that consumers are a bit more price sensitive and a bit more conscious, dare I say, especially in this unique environment picking because they are buying things like consoles are spending on travel, just really a bit more picky when it comes to their overall spend. What does that say to you about exactly where the consumer is at and truly how price sensitive the consumer has become and maybe will become over this next quarter. Yeah, it's really interesting Alice, because if you look at consumer surveys consumer sentiment numbers and even investor sentiment numbers, it's all really pretty negative. But on the other hand, you look at senior loan officer surveys and they say business lending is still good, business is good. You look at the industrial production numbers today, up 1.1% the capacity utilization numbers today, we're showing that more factories are working even harder now. So it's kind of a tale of two cities. But the big problem is with consumers, I think you are going to see this substitution effect and you're gonna see a reverse wealth effect. And what that means is people are going to look at their four oh one case, they're gonna look at their account statements, they're gonna feel less wealthy. And so they're gonna spend less money on higher end items. And I think we're gonna be seeing that in the numbers over the next six months is a little bit uh bit of backing off of the high ticket items all of that. And then you get a Home Depot report right? That shows a solid beat on the top and bottom line shows that consumers are spending, especially in home renovations. How do you read the context of a retail sales data that that we got a walmart earnings report. And how do you compare that to what we're seeing with Home Depot? I kind of akin did earlier in our show to, to the reality of that a lot of the home improvement sector is really out of necessity. And we've all been living in our homes. Is that enough to explain it? Or is there something else happening there? Well, interest rates are still pretty low, but but people are having to do more with their homes because there's no inventory of new homes. Uh Homebuilders have have are not finishing homes out. I mean here in in our region, D. R. Horton isn't finishing out any two story homes until they get a better read on the lumber supplier, a better supply chain news uh for lumber. And you're seeing a lot of homes being started, but not a lot of homes being finished and if there's no inventory and right now, home affordability has gone down because a mortgage rates have gone up, there's no inventory and no affordability. People are going to have to do more with the homes that they have. And I think that's what we're seeing, You mentioned kind of all of this in totality, the picture that it paints in terms of inflation in terms of the still elevated demand amid a supply kind of challenge that we're seeing. That's leading to some of that inflation is only going to embolden the Fed to proceed with higher interest rates to hopefully on the supply side is giving the demand side tap some of that demand down all of that though. And to some people that we have spoken to and many out there, they have pointed that giving a higher risk of not hitting that soft landing and ushering us into a recession, Just want to get your thoughts in terms of where you see a recession. I know you mentioned remember you don't see it really happening right now, but if we don't hit the soft landing and this inflation kind of continues, the consumer starts to pull back in a way that we may be sliding slightly seeing right now, does it ultimately get us there? I think we run a very clear risk of running into a recession for next year. The Federal Reserve Board has never raised rates with a yield curve. So flat, this is very dangerous. And I wonder how raising rates continually raising rates here chronically um is going to fix the issues that we have with energy. I don't think it will. I mean we have some major issues with energy. Not only is there a policy problem, but we still have a Russia Ukraine war and energy is very, very big part of the inflation picture. So I really don't see how that fixes it. The good news is if you look at the inflation numbers and the supply chain numbers, they've come off the peak just a little bit. Doesn't mean they've come down a lot, but it does insinuate that these things are starting to decelerate And that's the only thing that gets the Fed in my view to start backing off if you start seeing much better inflation numbers and much better uh news out of the supply chain. So the problem with that is look at oil today. I mean $114, uh, nothing is being fixed. There, nothing is being solved there. The Russia Ukraine thing is only accelerating it. But our policy over here isn't particularly friendly towards lower energy prices either. So. I don't know how the Fed really fixes that. I think it's a very narrow path that they're going to have to walk to walk through a very sticky wicket. Yeah, a lot of what you're explaining really, especially when it comes to the energy sector is out of the hands of the Fed, All it can do is try to tamp down, you know, on, on demand and that ultimately makes it really hard to stick that soft landing to the reality that historically if it hasn't really been able to stick that landing and kind of prior situations of course, none like what we're seeing right now this unprecedented time. We've never had to find a $9 trillion dollar balance sheet before. In 2007 we were at 488 billion. Now we're nine trillion in 2018 we started talking about reducing it and at that level, it was portrayed now it's nine trey. This is going to be a gigantic task and they've never tried it before. So it's got to be a lot of hubris to suggest that they know exactly what's going to happen here. The reality is we haven't done this before. We have no president. So nobody knows, nobody knows. We'll all just have to continue to wait and see and try engage as much as we possibly can before I have to let you go here, morgan Stanley cut its year end smp target predicting the Has a 15% drop ahead of it. Just want to get your insight on this. And in terms of, you know, whether you agree with it or not. Well, that's the bear case. Um, and really, if you look stocks have come down quite a bit right. I don't think we're there yet. I don't think we're at the bottom yet because and yesterday's clothes is a very good example. There's just not any sustainable rallies and you're gonna get bear market rallies that are very sharp and, and make everybody think that we're out of the woods. But bear market rallies usually have short covering in them. So they, they're sharper. The reality is I think we're closer to a spot where the risks are evenly balanced. And what I mean by that is we could have 15% downside. Yes, I agree with mike on that, but we could also have 15% upside. I think we're getting to a spot where the risks are going to be both in both directions here and for investors. I think you still have to be cautious. There, there's only a few groups that are working very well. Obviously energy is has got better relative strength, but there's not enough groups where you can feel a diversified portfolio. So I think caution is still in order. Here. Certainly seems like a time to be cautionary amid so much uncertainty being factored into the market. Jim really appreciate your time and your insight, Jim Beauchamp, senior VP of investments at morgan Stanley.