Retail: 'It's hard to envision a recession is just around the corner' on sales data, strategist says

LPL Financial Chief Equity Strategist Quincy Krosby joins Yahoo Finance Live to discuss data showing that U.S. retail sales rebounded in April but didn't reach Wall Street estimates amid a looming recession and a debt ceiling crisis.

Video transcript

BRAD SMITH: We have Quincy Krosby, LPL Financial chief global strategist. Quincy, it's great to have you here with us this morning. First and foremost, you see data come through like this. Where immediately does that pivot your attention to?

QUINCY KROSBY: Well, you look at it but you also see that Americans are traveling. And we know that ticket sales have been higher and yet the planes are filled, we've heard from the airlines. So perhaps what we're seeing is that Americans are being more cautious. They are budgeting accordingly to what they're going to be doing over the summer. And we again, we see that they're traveling.

We also, interesting, heard from Disney. Now that was disappointing. But one of the things that Disney did mention is that Americans and, globally, visitors to the parks. So that's an expensive endeavor. And many Americans, if we're just looking at the US data, plan for that well, well in advance so that they're going to cut elsewhere. But you nailed it. I mean, when you keep hearing recession, recession, even if you have a job, you're beginning to wonder, by hearing this over and over again, when is it going to hit you? When is it going to hit your family?

So again, Americans are being more careful and more judicious in how they spend. We're using our credit cards. And that's something that is being circled right now because we're seeing late payments picking up, not so much delinquencies but late payments in credit card payments and also auto loans, late payments. So all of this points to a slowdown. But when you have an unemployment rate at 3.4%, it's hard to envision that a recession is just around the corner.

- Well, and we'll get more information of course, on that front when we get Target, Walmart, some of the other retailers. The initial read from Home Depot-- does that give you pause? I mean does that-- I know, obviously, it's very different businesses and products, but still what does that sort of initial blush tell us about how consumers are doing?

QUINCY KROSBY: Well, it is concerning because, if we remember, Home Depot would always be the earnings report that basically said, oh, everything is OK. Everything is fine. So to hear from them that there was a slowdown, although the weather-related issues are real, but it is concerning because, again, we know that consumers are slowing down. We know that we're using our credit cards more and more.

One thing about the Home Depot numbers-- I didn't hear this because I haven't been on the call, obviously-- is what are they doing in terms of employment. Remember they introduced higher wages. They said we're preparing for the future. We need to do it now. The question that I have is is this going to lead them towards cost-cutting in terms of their staff and also, again, having to pay for those higher wages that they introduced just recently.

- Yeah. That's a really good point, Quincy. And we'll be listening to the call which, as I mentioned, is happening right now. We'll be listening to them from the other retailers, too. I want to ask you from consumer sentiment to investor sentiment, we showed this chart a moment ago. The Bank of America Fund Managers survey that they conduct every month showed that investors are the most bearish that they have been yet this year.

You see the big decline there in investor sentiment. Of course, this can be a contrarian indicator. Where are we going from here, Quincy? We're heading into debt ceiling talks. You know, what's going to happen with the Fed? Are they indeed on pause, et cetera? What's the sort of setup going into the summer?

QUINCY KROSBY: Well, there's concern. We know that the market itself has been in a tight trading range. And we also know that there are just a handful of stocks keeping this market higher. And they are in the big tech names. So that's a concern in so far as a healthy market has a much broader representation.

That's something that we would like to see. But as we go through these data releases-- and we have a host of them. We have a litany of Fed speakers-- I don't think I've seen this heavy a program of Fed speakers wondering what their message is. Sometimes they come out with a definitive message.

And the question that I have is, are they telling the market, stop talking about the rate cuts that are coming in September of 2023? I don't know because we haven't heard as many. But there is a question because we are seeing the probability for a rate hike in June tick up. Now it's not dramatic, but it has ticked up from very, very low levels last week. So that is a question. And that is something I think that the market is most concerned about.

The market overall does think that we're going to see a deal come out of Washington even if it's, as they say, a temporary default. But overall, there are concerns that there are remnants of inflation left into the economy. And the question is, does the Fed feel that it has to stamp it out now before it turns into a stagflation underpinning? This is something that is of concern but the question is what is the Fed going to do because it is a split Fed now.

And Federal Reserve speakers are coming out with their opinions. But we're going to see Bernanke and Powell at the end of this week. And that's going to be incredibly important as will Walmart and Target as you pointed out. The consumer is spending. That is still good. But it is all predicated on 3.4% unemployment. And that equation has not been ripped apart yet. It's still a solid equation.

- Right. And we heard Cleveland Fed President Loretta Mester this morning saying that the data is showing US rates are not at a sufficiently restrictive level yet to your point about all this Fed speak. I got to leave it there. Quincy Krosby, LPL Financial chief global strategist, thank you so much. Really appreciate your time this morning.