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U.S. Retail Sales unexpectedly increase by 0.6% in June

Michael Sheldon, RDM Financial Group at Hightower CIO joins the Yahoo Finance Live panel with the latest market news.

Video Transcript

- First, we kick things off in the new hour with a look at that update we got this morning from the Commerce Department for June retail sales coming in stronger than economists had been expecting overall. The value of retail purchases jumping 0.6% last month after a downwardly revised 1.7% decline for the month of May. The median projection there, just a 0.3% decrease in June sales, so not a bad beat at all. Department store sales as I said, climbed 5.9% for the month. Good enough to be a category leader as we get back to normal and maybe back to wearing clothes in the office.

And for more on the June surprise and the state of the consumer, we're joined here by Michael Sheldon, RDM Financial Group at Hightower CIO, joins us right now. Michael, thanks for taking the time. I guess, first off, your reaction to what that June report says about the state of the consumer in the US now.

MICHAEL SHELDON: Well, today's, you're right-- Thanks for having me, first of all. Today's consumer retail sales numbers were better than expected and it's not a total surprise. If you look at the state of the consumer right now, because of a lot of the fiscal spending that we've had over the past maybe six to 12 months or so, consumers have about a little more than $2 trillion in savings and they're going to use some of that money probably to pay down debt. Some of it will be saved, but some of that money is going to be spent.

And if you look at some of the retail sales numbers, spending on goods are at an all time high, which is not a surprise because of the downturn last year, but spending on services is below the prior high. So if you look at today's report in the last few retail sales numbers, you're starting to see a subtle shift from goods to services and that's probably a trend we'll see as we head through the second half of the year.

- Michael, the big question is, to what extent some of the price pressures we're seeing is likely to slow the spending that we've seen over the last few months. If you look at something like autos, what are you seeing on that front in terms of how sustainable these price increases are likely to be and what does that mean ultimately, from a spending standpoint or consumer spending standpoint?

MICHAEL SHELDON: Well, you're absolutely right. Inflation is sort of the hot button right now and we've seen some pretty large increases in inflation, no matter what inflation reading you look at right now. One of the things to sort of point out is that there are a few of the readings-- there are a few of the components within the various inflation reports that seem to be leading to these big year over year or month over month increases.

For example, if you look at used autos for example, last month used autos were up 10.5% on a month over month basis and 45% on a year over year basis. So granted, that's a fairly small part of the overall inflation picture, but that's a pretty large increase and there are a few other reports or components that are sort of similar to that. Not quite as hot as that.

Our thinking is that as you look ahead over the next several months into 2022, that some of this data will tend to be transitory and will start to cool down somewhat. But that's certainly something that will need to be watched as we head into next year.

- In regards to consumer sentiment, I'd be remiss if I didn't mention the University of Michigan reading we got just a couple hours ago, lower than the expectations there, bracing for 86.5%. Reading came in at 0.8. But on the inflation front, expected rise in prices now at 4.8% versus 4.2% last month. I mean, when you look at that, how important are those inflation expectations looking ahead and maybe factoring into where the consumer is going to be at year end?

MICHAEL SHELDON: Yeah, I think they definitely are somewhat important. Today's first reading on the consumer confidence index, this was a Michigan reading, was a little disappointed. I think it was a four or five month low. It sort of doesn't fit in with much of the other data. If you look at, for example, weekly jobless claims last month fell to a new cycle low. Some of the other confidence data is actually increased quite a bit. Asset markets, whether you're looking at equities or homes, are up on a year over year and a multi-year basis.

So consumers are generally in a pretty good position right now, but today's consumer confidence data was somewhat important. The Fed more importantly, looks at a range of these different indicators and they don't just look at one indicator. If consumers feel that they can continue, that they're going to be worried about prices in the future, and businesses start to raise prices on a more sustained basis, that certainly will get the attention of the Fed. And I think the bigger question is whether this inflation data is transitory and then also, does it lead the Fed to move up the timetable of potentially removing some of the policy accommodation and ultimately raising rates, which we think is probably a 2023 or late 2022 story.

- How have some of the inflation jitters forced you to maybe shake up your portfolio? How are you positioned right now?

MICHAEL SHELDON: Well, I think the interesting thing is for much of the past 10 years, growth has outperformed value. And more recently because of the global economy started to open up last year and we saw interest rates start to rise and corporate profits started to rise, value stocks actually started to do better around November of last year. And value stocks sort of peaked in the end of the first quarter of this year. And then growth stocks once again started outperforming this past quarter and they've been doing that for the past three or four months.

So I think it's kind of a challenging time to try and pick between growth and value right now. So to answer your question, we sort of have a barbell where we have a mix of both growth and value in our portfolios and it's too early to say that sort of the reopening trade and the cyclical stocks are over because we see a multi-year economic expansion ahead. But in terms of overweighting some of these deep value stocks, I think for investors looking ahead as we transition from sort of early cycle to mid-cycle, I think the best thing is really to have a barbell and have a little bit of both growth and value in your portfolios.

- All right, Michael Sheldon. RDM Financial Group at Hightower CIO. Appreciate you hopping on here.