Gibbs: Yields Don't Show "Winning Long-Term Strategy" for Economy

broadest benchmark of U.S. stocks. Yields are on the move today. For more, we want to welcome in Erin Gibbs, chief equity strategist of Slatestone wealth, joining us here at the big board. So let's start with the conversation about rates yields on the move. We've been in back and back and forth on yields. Now yesterday the Treasury Secretary stepped up its long term bond buyback plan saying they're going to double 1020, 30 year buybacks. How important is that relief when it comes to stocks? It is a relief. I think it's going to be everybody's going to view it as so temporary because we're just facing so many other headwinds from from the Iran crisis and oil prices and just sticky inflation that, you know, best is trying to do is best. It is kind of funny that he's using a playbook that Janet Yellen started, that he used to criticize. But that's an aside from what is actually happening in the market. Just kind of funny. But it's ultimately it's it's temporary. Whatever he's going to do, it's not going to be able to get those yields lower because yields are about confidence. They're about confidence in the U.S. treasuries and confidence in the economy and confidence in how much inflation we're going to have. And that hasn't been resolved yet. So, I mean, you make a great point about it being temporary because look at us today. You know, we're soft in the pre market right now. Yield on the ten year right now up five basis points. We're sitting at 470 on the ten year. Now what does that tell you. What does that say to you. Yeah I mean I thought that we might like this might give us a few weeks before we try to hit that. 475 again, because I think that's really one of the could be a key selling point for or a key mark for the ten year. And we know that really has a much bigger impact on the U.S. stock market. But yeah, the fact that it just like popped right back up after 24 hours doesn't say a lot that this is a winning long term strategy. Let's talk about where we sit now. Like, yes, we're a little soft, but we're still closer to all time highs than not. But one of the biggest stories this year has been the outperformance of small caps, the Russell 2000, up more than 20% year to date compared to with the S&P 500. We're up more than 10%. I forget the exact number where we're sitting right now. What do you make of that outperformance of small caps? So I know it sounds crazy that small caps are more than double the S&P 500. And they're up, you know, 23%, 24%, depending on which index you're using. But this actually is rational. This is not exuberance. This is about small and mid-cap stocks underperforming since 2022. And it all has to do with rates. It all has to do with Federal Reserve rates. When in 2022, when the fed raised rates by 5%, that hit those companies, the small companies that are much more highly leveraged, you got to take on more debt to grow when you're a younger company. So suddenly you're refinancing every year, six months, and now you've got a 5% increase. You can't absorb it. Profit margins deteriorated, balance sheets deteriorated. It really hurt those stocks. And they had to wait until we saw some cuts this year, as well as them just not taking on much debt. In fact, their debt levels were lower than the rate of inflation over the past three years. So this is all about companies having stronger balance sheets than they had before, getting better interest rates, and then also having that growth behind them, because now they can do business again, they can take out loans, they can reinvest and do the CapEx. So these companies used to trade at a 30% premium during low interest rate levels. They're now trading at a 30% discount. And so this catching up is like they still have another 20% to run just on a valuation basis, not even considering the fact that they have higher growth rates. So I know it sounds extreme that they're doing so well, but they could honestly do this next year too. Okay, okay, let's pivot over to retail. We're in the heart of retail earnings season. We got Walmart the heavyweight out today. They beat expectations. The outlook looks to me like a stronger than expected same store. Sales did come in a little weaker than expected. And then the way they're achieving their outlook is part of it is they're going to also do some tariff refunds. They said to keep prices low. The stock has been selling off in the premarket and this one hasn't been an Outperformer this year. No target's been the one that's made the comeback. What do you make of where we sit with this earnings season when it comes to the retailers. Well I think Walmart is just that bellwether of how the U.S. economy or the U.S. consumer is feeling. So regardless of whether, you know, okay, it was like slower growth, but it came from drug prices. Like there's a lot to delve into with them. But ultimately, it's a really big you can just take away that the U.S. consumer is being more cautious. They aren't buying as much or purchasing as much as faster. So they yes, Walmart beat, but it was still slower growth. Okay. And so I think it also they talked about the K shaped economy like big expensive items. We're doing well. The higher end consumer is doing well. But the lower end prices in the groceries and so on are hurting. And so I think this is just very much a representative of how the U.S. consumer is feeling. And until we get those oil prices down, I don't think we're going to see really big numbers coming out of them just yet. I wonder if that's also why target has been doing we know for years target had some missteps with just, you know, yeah, like we're on this side. No, we're on this side. And so they couldn't make anybody happy for a while. But, you know, so now they've returned to, I don't know, the target era and maybe they're getting the upper income shopper back, making a return. What's your thought. I think so as well because we're we're definitely seeing this bifurcation of either you're a high end consumer with discretionary income and you're happy to go to target and buy all new towels. Or we see on the lower end like Ross store. TJ Maxx also doing really well. Yeah. Tjmaxx Ross hasn't reported yet. I think what will be interesting to see, just to really get a better sense, like the whole picture, is when we see the Dollar General and Dollar stores report. And that will give us a bigger sense of like, especially on the low end side, how those consumers are doing. Let's talk about a few picks that you have. You always come with picks. I love that Etsy is on your list. And it's like they read your mind over at Bank of America. They have upgraded it to today to a buy from neutral. They've set a price target of 105. You've had your eye on this one. It's up year to date strong. You still see more momentum to come. What's going on. I still see Etsy. I this one I like. Part of it is because they sold their division called Depop to eBay. Yeah. And so that really helped the restructure. It gave them some extra cash to reinvest it. And it just made them more streamlined and focused. So I think that's part of the reason they've been upgraded is that was actually a really good sell for them. And so I think we're going to see increased growth. And so it's just becoming a better, well-managed, more profitable company. And so that's that was the big catalyst for me. And then you've also got American Eagle Outfitters on your list today. Yeah, I bought something for the first time. I'm not their target demo. Neither am I, neither am I, but it's been a big underperformer so far this year, better on a year over year basis. Why do you see an opportunity now? So I know that the headlines have been tough. It's definitely holding the stock down and that's around the American Eagle brand and women's wear and how they fit their sizes. That aside. But that aside, what's really driving all the revenue growth, all their growth is coming from Aerie, which is a different brand. So I think they should just change their name to Aerie, drop American Eagle, and the stock will go right up because they're actually doing pretty well from a fundamental perspective. No, you make a great point because what I purchased was actually from the Aerie side of the business. I was like, oh, this is really nice. There are some things here that yeah, my, I'm, I'm not going to say the number, but at my age. Yeah. So they, they, they could just do a little better in repositioning. Yeah. Aerie is doing very well. And it's what's really driving all the growth right now. Okay. And the last pick on your list and there's a theme today you have this is the retail sector RL Ralph Lauren. What's the idea here. So once again they have been killing it on earnings reports. I mean just constantly beating top and bottom lines for we know that the high end consumer is doing well. But they're still very picky about where they're going to spend. Ralph Lauren just has been able to constantly hit like the exactly the right marketing, exactly the right tone. They've just been doing exceptionally well. They've really well run strong, like strong balance sheet. Nothing wrong with this company right now. They haven't made any missteps. And as long as they keep doing as well as they're doing and they have this growth, we're going for it because they're they're growing in the U.S. as well as Europe and as well as Asia. So keep doing what you're doing, Ralph. Keep doing what