BI Weekend: Homebuilder Sentiment, Natural Gas Outlook, Connie Chung

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1:50Bloomberg Audio Studios. Podcasts, radio, news. This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney. How do you think the Fed is looking at tariffs, the uncertainty of tariffs? Let's take a look at the sectors and how they perform. A lot of investors getting whipsawed every day by news events. Breaking market headlines. And corporate news from across the globe. Could we see a market disruption, a market event? Are people just too exuberant out there? You see some so-called low-quality stocks driving this short-term rally. Bloomberg Intelligence with Scarlett Fu and Paul Sweeney on Bloomberg Radio, YouTube and Bloomberg Originals.

2:29On today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide in-depth research and data on some of the 2 ,000 companies and 130 industries our analysts cover worldwide. Today, we look at the outlook for U.S. oil and natural gas heading into the 2026 and why it's well positioned to benefit from structural demand. Plus, we speak with award-winning journalist Connie Chung on the changes she is seeing in the media landscape. But first, prospective homeowners in 2025 were boxed out by high borrowing costs and limited inventory, keeping affordability near record lows.

3:02That's according to the latest research from Bloomberg Intelligence. That pressure is now reshaping 2026 as builders look to ramp up construction to meet pent-up demand while still moving cautiously because of financing costs, labor shortages, and of course, uncertain economic growth. For more, I spoke with Drew Redding, Bloomberg Intelligence U.S. home building analyst. I first asked Drew if lower interest rates will help the home building sector. So we actually think that 2026 is going to be another challenging year from a fundamental perspective for the builders. If you think about the weakness that we've had in demand over the last several quarters, it leaves much of the group coming into the year with backlogs that are down anywhere from 10 to 40 percent.

3:41And that's ultimately what translates into revenue over the next, call it, three to nine months. In addition, I think you're going to see further pricing pressure as builders look to adjust prices to meet market demand. So we're going to have further base price reductions. And I think builders are going to have to continue to lean on incentives because it's something that home shoppers have become accustomed to. And, you know, they're looking for deals when they're out there in the market. So, you know, slow top line growth. And I think that incentive dynamic is also going to continue to pressure gross margins as we get into next year.

4:13You know, on the on the positive side, we do have lower rates. So I do think that orders can grow next year. You know, we're looking at a six and a quarter rate, call it right now. Last year, we're almost 100 basis points higher heading into the spring. So lower rates and community count growth could support orders, but I think that revenue and margins are going to be down this year. What's the relationship historically, Drew, between new housing and existing home sales? So the new home market is historically about 15 % of overall housing transactions, so a much smaller piece of the market. They've performed vastly differently over the last couple of years.

4:54If you look at the existing home market, we've been bumping along a 4 million annualized run rate of home sales for about three years now. And that's about 20 percent below normalized levels. So there's been a lot of pressure because the mortgage rate lock in effect, affordability. We have seen an improvement in demand in the resale market as rates have come down. You know, we're looking at purchase applications, which is the most high frequency data point that we have. So we have seen some improvement. And we think, you know, looking into 2026, you could see growth in the resale market anywhere from five to 10 percent, call it.

5:29But keep in mind, that's off a historically low level. What's the has the tariffs impacted the new home building market? I'm thinking lumber and all the other materials used in building a home. Has that had an impact on the profitability? Yeah, good question. To this point, it really hasn't. We've heard from a number of builders who haven't seen much of a cost increase in 2025. I think you could see as you get into 2026 that become more of a problem. We did an analysis that looked at all the tariffs that have come through, and it shows that there could be a$10 ,000 cost increase per home as it relates to tariffs.

6:07Now, when you think about who's likely to feel that the most, it probably won't be the large single-family production builders. They've got a lot of scale. They've got a lot of leverage. and they've had success in pushing back against their suppliers, I think you're more likely to see the pinch among smaller private home builders who just don't have that scale and ability to push back. So to this point, it hasn't had a big impact, but I think that's something you need to watch as we look in the next year. Are they still building like crazy down there in Florida and Texas and Tennessee and those kinds of states?

6:38Yeah, that's a good question. I mean, during the pandemic, that's where a lot of people were flocking to. There was a lot of construction down there. If you look at inventory levels now in the South, they're actually at the highest level on record. So that's where we're seeing a lot of the weakness in the new home market. There's so much inventory builders have had to get increasingly aggressive on prices to move inventory. A lot of incentives in the market, a lot of base price reduction. So that's really where we've seen the weakness. And if you contrast that to some of the stronger markets, it's really a tale of a couple of regions.

7:12You have the Midwest and the Northeast, which tend not to be boom markets. We didn't see the same type of inventory growth there. And you're seeing a lot more price stability. On the other hand, you mentioned the South, but you also have the West where there was a lot of inventory growth and we're seeing similar price and pressure. So is there still a housing shortage in this country? And if so, how does it write itself? Yeah. Another good question. And the one that's frequently debated, just to take a step back, Like you'll hear estimates of anywhere to, you know, a million to five million unit housing shortage.

7:45But I think, you know, I think it's a more complex answer in that the shortage, so-called shortage, is probably more at lower price points. So there's a mismatch between where there's theoretically demand, which would be at lower price points and what's available out there in the market. So it's really affordability, affordability problem that's holding things back. I mean, the government has talked about all sorts of things in order to boost production and help builders to build more homes at reasonable prices, whether it's dangling carrots in front of local municipalities to get them to reduce their regulations, whether it's trying to knock down the price of building materials.

8:26There's a lot of different things, but I don't really think that there's necessarily any one single silver bullet that's going to solve this problem. I think at the end of the day, you have home prices that are up more than 50 percent since 2019. And I think we need to let kind of the basic laws of supply and demand kind of take course in order to write that. Our thanks to Drew Redding, Bloomberg Intelligence, U.S. home building analyst. We move next to the consumer hardline space, focusing on the retail sector for durable, non-consumable goods like electronics, appliances, tools and sporting goods.

8:55Bloomberg Intelligence recently put out its 2026 outlook for consumer hardlines in North America. And according to BI, revenue gains should extend into 2026 for most consumer hardlines retailers. For more, guest host Isabel Leah and I were joined by Lindsay Dutch, Bloomberg Intelligence Consumer Hardline Senior Analyst. We first asked Lindsay to talk to us about her expectations for hardline retailers in 2026. I think if you look at, you know, the guidance for the rest of the year, I think a lot of these big hardline companies are baking in a lot of uncertainty with the consumer. But the reality is that if we look back to performance to date and results to date, results have largely been better than expected.

9:36And a lot of these retailers are sort of tracking to the upper half of their guidance range for the year because that consumer has stayed pretty resilient. We see strength continuing to come from that higher income consumer while the lower income might be continuing to pull back a little bit. And if you think about companies like Best Buy, Ulta Beauty, Williams-Sonoma, Dick's Sporting Goods, they are bringing premium products, new products, exclusive products to that consumer, and the consumers are willing to pay up for that. What was the one trend that shocked you this year now that you look back?

10:13I think a lot of the trends have been a continuation of what we've been seeing. I think, you know, if we go back to late 2022, that is when the first pullback in that discretionary spend has been. But this is the first year that we've seen more newness. And newness is really a key driver to getting consumers in the store and to fueling transactions. So the best retailers are getting both transaction and ticket growth. But I think those innovation pipelines that maybe were, you know, settled down a bit during COVID, they've picked up again and bringing more newness is driving those transactions.

10:54How promotional do you think retailers will be in 2026 to kind of drive the consumer to the store or to the mouse to click? So promotions are very important to bring shoppers to the store, especially for someone like a Best Buy. Promotions are very key, especially around holiday. We've seen that promotions are about flat in 25 versus 24. And I would sort of expect a continuation of that in 26, unless we see a huge spike in demand, in which case the retailers might be able to pull back on that promotional lever a little bit. But this year so far, it's been about flat. You do see companies like a Williams-Sonoma, very select promotions.

11:40This has been a strategy coming out of COVID. They sort of have stuck with it. They're even sticking with it, you know, through this season going into next year. Pottery Barn was a big focus for them. You know, they need a rebound in that brand and growth is slowly coming back. But they are staying steadfast in keeping those promotions very limited. I was going through your notes and then I read that many retailers are resuming or accelerating brick and mortar expansion plans because this leads to in-store and online sales. And that's just kind of the reverse trend that I was expecting. But you made a point that Gen Z shows a strong preference for in-person shopping.

12:16Can you talk to us more about that and how each generation is different? Sure. Yeah. In-store shopping is definitely back and just meeting the consumer where they are. So retailers, I think, are more focused on all channels, whether they have an app, their online site, their brick-and-mortar stores. But brick-and-mortar as a whole, you know, we are seeing more openings than closings. And that has been a trend for the past couple of years. But when we think about sort of the retail real estate market, the demand has been solid coming out of COVID. And so vacancy is starting to get low, and there's really no new properties being built.

12:56So these retailers looking to expand, which is great for their businesses, you know, they really have to work hard to do so and find good space to open stores because there's just not that much of it. But Best Buy has talked about Gen Z's preference for in-store shopping. So has Ulta Beauty. And so we're definitely seeing that across the board, but especially that younger generation. There's plenty of retail space on Lexington Avenue and 58th Street in Manhattan. Lindsay, John from the Highlands writes in, and he wants to ask about Ulta Beauty, Elf Beauty, Sephora. How does that category look for 2026?

13:33So demand has showed a strengthening sort of in the back half of 25. I think that momentum can continue into 26. I think for Ulta in particular, they have done a great job, you know, elevating their assortment and bringing on exclusives. And that has really helped them. Comps are going to get tougher next year, and they need to continue to drive growth. And I think for them, you know, leaning into their salon services could be a key way to do that. Leaning into wellness is a key way to do that. There's multiple levers that they can pull. The categories that are showing the most strength is really fragrance and skin care.

14:12And we would expect that demand to continue into next year. Our thanks to Lindsay Dutch, Bloomberg Intelligence Consumer Hardline Senior Analyst. Coming up, 2026 should be a big year for natural gas producers. We'll explain why. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries. You can access Bloomberg Intelligence via B.I. Go on the terminal. I'm Scarlett Foo. And I'm Paul Sweeney. And this is Bloomberg.

14:40Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at Vanguard.com slash audio.

15:22That's Vanguard.com slash audio. All investing is subject to risk. Vanguard Marketing Corporation Distributor. I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast. Now, every day we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.

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16:35This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. The U.S. continued strong oil and gas production in 2025 with crude output near record levels and export growth. One sector that performed particularly well is liquefied natural gas, and that is set to continue into 2026. According to BI, natural gas exposed E &P's financial performance will gain momentum next year as winter fully kicks in and raises U.S. gas benchmarks. For more on this, we're joined by Vincent Piazza, Bloomberg Intelligence Senior equity research analyst. We first asked Vincent what the outlook is for natural gas demand in 2026.

17:12From our perspective, we are definitely more constructive on natural gas commodity relative to oil. And there are three key drivers for natural gas in 2026. Number one, we have structural demand growth, and that's from LNG exports and also pipeline exports down into Mexico. We have what the other presenter hinted at was AI demand growth. That's also a strong structural growth driver for 2026. The demand side is really quite clear. It's really the production side is running a little hotter this year versus last year. And that is our biggest risk to our 2026 call. That's the first key driver. The second key driver is relatively robust free cash flow yields as balances tighten.

18:04So there is a great deal of cash flow sloshing around for this group that gives them a great deal of optionality. And where we think that optionality is going to be targeted, aside from base and supplemental dividends, is really M &A. Natural gas M &A, lagged oil M &A. We think that turns in 2026. We saw the first real big hint of that in 2024 and 2025 when Expand Energy was created via the seminal acquisition combination between Chesapeake and Southwestern Energy. That created a Goliath, the largest natural gas operator, natural gas producer, independent producer in the lower 48. We think that'll drive incremental M &A because the biggest central theme for us in 2026 is concentration via consolidation.

19:05We think that continues for the natural gas operators as it did for the oil-centric names in 2025. What are the folks down there in domestic production, what do they do with oil around these prices here? They don't grow. We think production has peaked. We think you will see a change in sentiment as we see more focus on natural gas relative to oil. What is interesting for the natural gas producers, as you produce less liquids, so less crude, you also produce fewer molecules of what's called associated gas. That's great for the natural gas guys because that means balance is tightened. So when you think about relative prices, that's a net benefit for the natural gas producers relative to the oil producers, since associated gas is roughly, call it one-third of total production of natural gas.

20:00So lower oil, actually good for natural gas. Which NatGas players are best positioned? I know Bloomberg Intelligence doesn't do buy-hold-sell on individual companies, but surely there are some that are more attractive than others. Yeah, absolutely. So again, on this central theme of concentration via consolidation, expand has really gone out there and created a dominant player into the central basins. um eqt as well um those are the two key names for 2026 given their size and relative importance in the market not only in the lower cost basin of appalachia in the northeast but also near seaborne export markets around the gulf uh around haynesville as well so expand eqt those are two names that we have focus ideas out for 2026.

20:58You can take a look at that on the terminal within the Bloomberg ecosystem. Nice. What's OPEC Plus doing these days? How much do we care about those folks if we're a net exporter these days? They are still the dominant player, the dominant governor of oil markets, they will still drive 2026 supply balances. From the demand side, we think we are past that peak growth demand. Here in the U.S., we pumped out roughly 13.6 million barrels per day. We think we're past the peak there as well. In fact, the other central theme that we talked about for the oil players is really capital discipline. You're going to hear a lot more of that, similar to what we talked about in 2024 and 2025.

21:53Investors, what your guys are telling people, Paul Scarlett, is we don't want to see the production. We don't want to see a higher spending. What we really want to see is that free cash flow coming back to the investor base. All that sunk capital during the initial stage of the growth in shale, we are now at a maturity phase. We want to see those higher dividends. We want to see the base dividends. We want to see supplemental growth in dividends with buybacks taking a little more of a backseat in order to clean up any equity issuance via M &A market. Our thanks to Vincent Piazza, Bloomberg Intelligence Senior Equity Research Analyst.

22:34Staying with energy, we now look at how one of the nation's largest utility companies is faring. Exelon Corporation primarily engages in the generation of electricity from nuclear, fossil fuels, hydroelectric, and renewables. For more on the company's recent data center boom and some of the challenges in managing a large energy grid, we spoke to Calvin Butler, CEO of Exelon. We're critical to the development of AI data centers and large load, quantum, and we take that responsibility very serious. And from a standpoint of building that infrastructure, protecting that grid, it's going to be the backbone of all this.

23:12We always say that the energy sector is 5 percent of the GDP, but we power the next 95. And we take that very seriously. You take it seriously. So walk us through some of the plans you're making, how you're preparing for this transition, for this increase in demand. Yeah, thank you, Scarlett. But what we have done, we've done a few things, is one, understanding for your listeners, Exelon, we are truly a transmission and distribution company. You know, proud to have six utilities operating the electric gas side through the pipes and wires. So having said that, being the backbone of that, we're encouraging those data centers and large developers to come into the states in which we operate.

23:55and we put together a comprehensive plan to get them online up and running sooner rather than later. Speed is everything for them. And so what it takes is a coordinated effort. And we've worked very hard to move upstream to get them online so they can do what they do, which is on the technology side. Now, as we do that, we have to keep in mind, first and foremost, the affordability factor for all of our communities. And that's where we're working with them to identify sites that are more ready to put their equipment and their technology in place. We had a couple of governor races in New Jersey and in Virginia, and affordability was one of the big issues.

24:40And in New Jersey, the governor-elect, who actually won, one of her number one issues was bringing down electric utility bills. So this is an issue, i.e. we got to fund, we got to, I guess, create and develop these data centers, but we got to do it in a way that it doesn't cause everybody's power bills to go up. How do you think about that transition? Paul, you're absolutely right. It was a race in both New Jersey and Virginia, an issue, and we believe it's going to be an issue in the 2026 elections because affordability, pocketbook issues are going to be key. So let me tell you what we're doing from Exelon perspective.

25:19We are protecting our residential customers. You know, we serve almost 11 million customers. So as important as it is for data center development, it's more important for me to protect the other customers in this process. So we've come up with what we consider a rather innovative solution in creating a tariff, a transmission security agreement. So what that does is we require a letter of credit or a cash deposit from these large developers speculating or identifying what their 10-year revenue projections or cost projections coming back to our utility is. And any time that they do not meet 80 % of that load projections or cash projections, we draw down from that deposit.