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Retail sales: ‘Underlying real demand is still quite strong,’ strategist says

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Nuveen Chief Investment Strategist Brian Nick joins Yahoo Finance Live's Jared Blikre and Akiko Fujita to detail how the retail demand appears to be consistently strong and runs down where to invest effectively in the infrastructure sector.

Video transcript

JARED BLIKRE: But first, we want to get back to those retail sales numbers that we got this morning. We're going to bring in Brian Nick. He is a Nuveen chief investment strategist. Brian, thanks for joining us today. Just taking a look at the headline numbers for October, the headline number up 1.7%, besting Street estimates. I'm just wondering because it seems like this is another data point that is surprising to the upside here. What do you make of all this?

BRIAN NICK: Yeah, we had really good data across the board this morning on the demand side. The retail sales data came in well in excess, I think, crucially of the CPI release that we got last week. So this is not just consumers paying higher and higher prices for the same number of goods. They're also buying more stuff than they were the previous month.

Now a lot of that increase was gasoline, and that's basically where consumers are treading water. They're filling up their cars, and the gas price continues to move up. But most of the increase in retail sales is things that have not gone up in price by as much. And that tells us the underlying real demand is still quite strong. People are still spending down that excess savings that they got during the stimulus. And they're probably putting some of those higher wages that many people are earning to work, buying goods, mainly goods, not so much services, for their homes.

AKIKO FUJITA: Brian, how much of this, do you think, is a pull forward? We had a guest on earlier who said that, look, people are actually going out and buying earlier because they've heard all the warnings about the supply crunch that could be coming especially around the holiday season. I wonder how you look at that dynamic in the context of the data we got today.

BRIAN NICK: Yeah, the seasonal adjustment process may have wreaked some havoc with this. If people are doing their Christmas spending in October, that would mean that you would expect November and December to be incrementally just a bit weaker. It's not really what we're seeing, though, from economists revising up their expectations for the fourth quarter GDP growth. But we got really good news on industrial production, which is going to be crucial to increasing supply. We had better than expected auto production. So some signs that while demand continues to increase, supply is increasing, too.

Ultimately, I think what we need to get to for this economy is a place where people are spending roughly on services what they were pre-pandemic. And they're just not back to that. So the goods consumption has really been through the roof and has been durably high throughout most of 2021. Until and unless that normalizes, we're still going to be on, I think, a little bit of an inflationary environment. Those good prices aren't going to get breathing room to come back down, even if supply increases a lot.

JARED BLIKRE: And then how do you see this playing out in the markets? We've seen value and cyclicals surge recently. I note that XLI, the S&P 500 ETF that tracks the industrial sector, are making a fresh record high only today. Is this going to continue, or has this trade gotten a little bit too priced in maybe?

BRIAN NICK: I think we're certainly seeing the market's pricing in a re-acceleration in the global economy, and specifically, in the US economy. It seems quite clear that Q4 is going to be a pretty big improvement over Q3, which was disappointing. Whenever you see that acceleration story taking hold in the market, the tendency cyclicals performing better, you can see a little bit of a steeping in the yield curve, which we've seen as well.

But really kind of good news for equity markets across the board, a sign that earnings should be well supported when the Q4 season comes in, in January, and really, an overall positive environment for stocks. Stocks like positive economic surprises. We got them this morning on homebuilder confidence, industrial production, and retail sales. That's a pretty nice trifecta for investors.

AKIKO FUJITA: Brian, over in DC, we've officially got the signing of this infrastructure bill. I'm looking at some of the EV names that have seen huge pops over the last several sessions. Obviously, names like Lucid and Rivian have their own headlines they're moving on. But how are you playing this particular bill? I mean, there's the EV play. There's the climate play. There's the broader sort of traditional infrastructure play. Where are you putting your money in anticipation of some big gains on the back of this?

BRIAN NICK: Well, the first thing I'd say is that the overall economic impact of this bill is nowhere near as large as all the stimulus that was passed in the last 18 months. So this is not replacing the ARPA bill that was passed in March. And a lot of those effects have started to fade. The CARES Act certainly from 2020, those effects have faded as well.

So this just doesn't have the economic oomph that those bills had. It's doing more targeted spending. We like the infrastructure story a lot for 2022. We think people can do that through publicly traded infrastructure securities or equities. We like, actually, infrastructure better than REITs and publicly traded real estate for next year. And we also are always embracing the ESG story as well.

The question is, where does the targeted spending go? I think investors should be, you know, diversified in terms of how they're trying to play that story. A lot of times, you'll see companies that sort of have, you know, a flash here when they're kind of a hot news story. And then, you know, they don't perform as well over time. So what we're looking at, if you think for 2022, is probably limited fiscal impact, but probably targeted impact that helps areas like industrial, clean energy, both public and private, as well as potentially materials if there's a lot of building that starts to happen next year.

JARED BLIKRE: And before we go, I want to get your take on the US dollar. The US dollar index really breaking out higher, strengthening over the last week. The euro is down about 2 and 1/4% over that time period versus the US dollar. This is presenting potentially headwinds to certain multinationals, talking about headwinds to Bitcoin in the last hour. What's your take on the dollar right now?

BRIAN NICK: The dollar is going to perform well, and it looks like the US economy is outperforming its closest peers, which, for the moment, it does. We're getting really good data out of the UK, out of the eurozone. It looks like unemployment is falling pretty quickly in those areas. But if you think the US has got the hottest economy heading into next year, we may also end up with relatively higher interest rates. And that tends to be what supports the dollar.

So people think the Fed is going to be first out of the gate with rate hikes next year, which we're not sure about, but the market has priced that in for July. That's going to be very supportive of the US dollar because people at the end of the day want to hold currencies that have some kind of yield attached to them. And for now, in the developed world, the US looks like the best game in town.

JARED BLIKRE: And we thank you for your thoughts and for being here. Brian Nick, Nuveen chief investment strategist.

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