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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are joined by TD Asset Management head of asset allocation Michael Craig. He will discuss his view on the markets as rates remain high and bond yields grind higher.
MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from tomorrow's Canadian retail sales report.
And in today's low broker education segment, Hiren Amin is going to show us where you can find analyst research here on the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to our guest of the day, let's give you an update on the markets.
We will start here at home with the TSX Composite Index.
We are under some pressure. Nothing too dramatic at this hour but at 19,720, we have a deficit of 64 points, about 1/3 of a percent. Among the most actively traded names on the TSX right now are Denison Mines. Yesterday at this time, we showed you Denison Mines among the most actively traded names been, but it was to the upside.
The uranium plays got a bid yesterday, getting it back today, down a little more than 3%. B2Gold under some pressure today.
At four bucks and $0.11 per share, down a little bit more than 1%. South of the border, investors are trying to make sense of a handfuls ofUS retail earnings this weekend also some concerns about regional banks and what the Fed may do next and bond yields. Bill gets all that in a moment's time.
But right now, the S&P 500, very modest six-point pullback, a little more than 1/10 of a percent. Tech heavy NASDAQ still in positive territory. It actually had his best day for the month of August, were only a couple of weeks in, it's been a choppy month. Yesterday showing on the NASDAQ was the best day in August. Right now it's up 40 points or about 1/3 of a percent.
On deck for tomorrow, and this stock on a sizable booze yesterday, is Nvidia. A lot of excitement around a high potential.
Big gain yesterday, giving some of it back today ahead of tomorrow's earnings. It should be an interesting one. At 456 bucks per share, we will see is a high demand is playing up for them while they do report, but right now we are back down 2 3/4 of a percent.
And that's your market update.
While headline inflation has cooled this year, bond yields continue to grind higher. So what is the market trying to tell us about the future direction of interest rates? Joining us now to discuss, Michael Craig, head of asset allocation at TD Asset Management.
Great to have you back on the program.
>> Great to be here.
>> I don't know if this was in a lot of people's playbooks for the summer with yields in the bond market grinding higher and grinding to multiyear highs, may be in the tenure and further out, we are back to pre-financial crisis highs. What's going on there?
>> It's a bit of ahead scratcher.
There has been some negative news this month. The US got downgraded. That certainly wasn't great for sentiment.
More recently, they have announced higher amounts of funding, so they are actually issuing more bonds than what was expected.
So that's putting a bit of pressure. But it's August. A lot of people are on vacation.
The speculative community has taken a fairly large short position in the treasury so that has pushed it higher.
I would say that we really aren't gonna get a good feel for where we are going to be until about the third week of September, when people are back at their desks and kind of reassessing how these levels are starting to trigger programs from large managers moving from equities to debt. And I would be interested to see where we are at about a month's time once everyone is back at their desks and it worked.
>> You mentioned the summer doldrums, the bond yields are grinding higher, he gets tongues wagging, of course, because people start saying, why not six on a tenure? Is it realistic that bond yields could move substantially higher from here, absent some massive triggering event to mark> I would look at it two ways. There is a move higher and then there's the durability, can it stay at that level for any period of time?
Six seems a bit aggressive.
Can tenure rate move to 5%? I mean, it's possible.
But how long can they stay there? How long can the world kind of function, can companies and household finance at those higher rates as people reset their mortgages or look at the variable lines of credit or companies look to refinance debt moving from coupons of 3 to 7 or eight.
All of a sudden, that starts to affect our demand.
As a definition, is the cost of money goes higher, we will consume less and it will become deflationary. Anything can happen in the near term.
There is limited liquidity right now.
Thanks and come around. But I struggled to see rate staying at a high level for a long period of time without material economic damage being inflicted on the global economy.
So long story short is, for income investors who are looking not so much the next quarter but for longer periods of time, these are fairly attractive income yields that you can get higher from fixed income right now.
>> On the equity side, even though August has been choppy after July was pretty strong in the equity market, they are still holding and considering how much rates have prided higher. I mean, there's no pullback but nothing too dramatic.
What's the dynamic there?
>> Year-to-date returns are still very, very good.
Europe's pretty much been flat since the spring.
When you look at the TSX versus the S&P, they are very different markets, but the S&P is up give or take 15% on the year and TSX is up with dividends maybe three, three and a bit. That is really an example of how this has been driven by just a handful of stocks.
Can they go higher? Absolutely.
Nvidia has earnings tomorrow.
There's lots of capital investment going there.
When you do look at, people start putting Price to sales, your return isn't sales, it's earnings.
You start to use… People start using different metrics to kind of ascribe value.
you do have to take a pause and see what's priced in.
I would see on equity is, again, it's been a tough month for equities,we are going into seasonally very challenging period, August and September tend to be quite tough for equities, again, when we get back to work next month, we look at earnings yields or price what you pay for stock versus earnings, versus what you get for cash versus fixed income, right now, it's very, very tight, the tightestit has been in 20 years, making both cash and fixed income more attractive on an earnings perspective and stocks.
>> We are going to get one event where last summer it turned out to be a big one, Jerome Powell at Jackson Hole.
He'll be there at the end of this week.
Really laying it down, bring the hammer down, there was a big reaction.
what do you think the message would be from him this time around? It's been a whole year of hiking rates, inflation is coming down. What is pal going to tell people? people? people? people?
You look at the old Eurodollar market, the market is pricing in elevated short rates in the US for some time.
We are looking at a terminal rate of 4%.
It was 3% a few months ago.
I'll think the world has changed that much.
So I think financial conditions are already quite tight.
The question is coming down.
You are going to see this space, rental disinflation is going to start to help inflation numbers.
Longer-term, it's a different argument with inflation, but near term, I think that inflationary pressure it continues.
I think it's kind of got what he wanted.
remember, the feds have dual mandate,inflation and employment.
Implement is very strong but it has started to soften.
I don't think this is a time for him to start shifting to a growth narrative but I don't think there is a lot of need to double down on and keeping raising rates, we are kind of at the end of the cycle, maybe get more hiking, maybe not.
I think you might actually start talking about the success of that of anything. I don't think it's going to be as much of a market event is was last year.
>> Interesting stuff, as always, with Michael Craig. We are going to get your question for Michael Craig at a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Lowe's in the spotlight today.
The home improvement retailed Lord delivered a mixed quarterly report. It managed to beat profit expectations despite softer sales numbers.
Lowe's says customers are putting up those big ticket rental projects, that is weighing on revenue.
Apparently, there is still spring and summer cleaning that brought people into the stores. It makes there. The retailer is standing by its annual earnings guidance.
Got the stock up about 3 1/2%.
A quick check in on Zoom Video Communications.
It says revenue is going to come in above the streets expectations for this current quarter.
The videoconferencing platform has seen slower growth following a surge in demand for its services during the pandemic, all is lockdowns. That said, zoom it managed to beat analyst expectations for its most recent quarter. The stock has been on a bit of a rise since it reported after the close of markets yesterday.
It popped in the after hours and then it pulled back in the early session today.
Right now, you're a bit flat to the downside. At 66 bucks $0.66 per share, down less than 1%. We'll see how it finishes out the day.
Shares of Dick's Sporting Goods are under pretty significant pressure today.
Down almost 25%. We will be fair, call the 24 and a bit. The US retailer cutting its earnings outlook, pointing to a mix of slowing sales and a rise in retail theft.
The company also missed on both the sales and profit line for the most recent quarter, that's a rare saying it for Dick's, and they are saying cautious consumers are spending less on outdoor goods.
But altogether, the market clearly not pleased about what they are hearing from the name. A quick check in on the markets, the TSX, we'll start there at home.
69 points to the downside, 1/3 of a percent.
South of the border in the US, but of a mixed picture between the Dow, the S&P 500, the NASDAQ. In the broader beat of the market, the S&P 500 is down a bit more than 6% right now little bit more than 1/10 of a percent.
We are back with Michael Craig, head of asset allocation at TD Asset Management taking your questions.
This one right off the hot. Will the Bank of Canada hike in September?
We are going to have Labor Day, come back, then we get the Bank of Canada decision.
>> I don't think so.
We lost jobs in July.
One more employment report for August.
I think they are probably in a wait and see mode, unless they see a re-acceleration of inflation.
Canadian rates are sufficiently restrictive right now. I see no reason why they would have to hike again.
they might talk hawkish, say, here, we will act, if there is a re-acceleration of inflation, but my sense is they won't do it.
>> These hikes we got in the summer after they were on pause for a long while, June and July, taking some people by surprise.
Obviously change the game a bit.
In hindsight, did they make the right moves there? Was there a need for them to get back into the rate hiking game?
>> They did what they thought was the right thing to do.
I think there was nervousness about a re-acceleration of house prices.
I think these last two hikes of really kind of been a bit of a hammer to people and their behaviour.
So was it the right thing to do?
Probably it was too much. But, again, as a central banker, you're going to err on the side of material slow down or even recession. You will take that versus having inflation become onboard.
I think that's what they did. They were more than happy to risk inflation to ensure inflation excitations did not start to accelerate again.
>> So with the mantra that we are waiting for the central banks, even when they finish the rate hiking cycle, they will stay at a higher level for longer to make sure inflation is under control in moving in the right direction, the question I will get outside of the show, when I'm talking to a radio audience or folks outside of those who watch us every day, it's when are the cuts coming? This is not a next week story, and on an excellent story, it's probably gonna be a while, from what they are telling us.
>> our job is to think that the range of outcomes and what's most likely.
For cuts to come, you need one if not two things. You need to see inflation just fall off a cliff and then you're going to get cuts. But if you're going to get inflation to fall like that, it's probably going to be coinciding with the recession and with that, you have to start to see the employment market really soften.
So careful what you wish for because if the bank were to, say, cut 200.6 year, we are in an environment where employment rates are materially higher. I think that's what it's gonna take to see, for them to, maybe they bring it on a touch, inflation kind of moderates, but it's kind of that or we kind of bumble along and they say restricted for some time. And the markets, I will go back because the data is better, but the US market is pricing and kind of 4%, US is at five now, they are pricing in a 4% terminal at four or five years old. It's not much relief longer-term.
So as a household business, I wouldn't be… Putting all my hope that we are going to get cheaper financing next year.
I would advise people to adjust the behaviour to be able to handle an environment where this is, these are the rates that they will be dealing with for some time. And ultimately, we might need to pull back on consumption. We have to be careful that we are now going to go back to a world of zero rates unless something really, really significant happens in terms of unemployment going very, very high.
I think those are things, that's really what people need to be mindful of is careful what you wish for because it will be coincided with a really hard landing.
>> A hard landing of some sort. This one now, we talk a lot about the impact that higher interest rates have on borrowers, but what about the savers? What is the outlook for GIC interest rates?
A year ago, no one would be talking about GICs. It's obviously different.
>> It's… Again, we work with multi-asset so we always look putting portfolios together with bonds, equities and cash or cash like investments. GIC rates are quite high right now. You can get a similar type of return stream from the bond market.
If you like, you could buy GIC for one year and get a pretty high rate or you can buy a bond fund which is essentially similar to cash, you can have volatility to price for your income stream will be at that high rate for much longer and so for an income investor,if you are looking to spend money in a years time, it's a great time to use GICs. You get great returns for euro.
But what investors need to be mindful of is that in one year's time, there is no guarantee that rates are at 5% and the biggest risk for an income investor right now with cash is reinvestment risk.
It's not about, is is the right rate? It's what's the rate going to look like in one, two or five years.
Right now, the market would say not to similar, maybe a little bit lower. But you can take advantage of that today.
Yet think about long-term income flow, not can I get one year and then try to figure it out in a years time.
>> Another question here, this one is about… Hikes again. Inflation on the line for good reason this year.
Our rate hikes making inflation works?
When we first got this question, I was like, where are they getting at?
But when StatsCan report CEPI, they are talking mortgage costs.
>> That's absolutely… It absolutely has been an unintended consequence of higher rates. It's actually totally correct.
Mortgage financing costs are a lot higher and it has this perverse feedthrough.
The bank is trying to crimp demand so, yes, in the near term, in a year-over-year basis, you see higher mortgage rates. In two yearstime… The idea is that over time is that we pull back and reduce consumption to get inflation in check.
Statistically speaking, that's 100% accurate. But in terms of the durability, we worry about the durability of inflation. It's not about 5% inflation next year but 5% inflation in perpetuity, you expect prices go higher year over year over year. There is this initial impact, but that will pass, assuming rates are about here or lower one year from today.
>> I guess part of that cancellation to you is that even though you've made the mortgage cost higher for a household, that would stop the spending in other areas.
If I'm putting more in my mortgage, I'm going to go out less.
> I'm assuming that your income comes up marginally, not enough to overcome that, sewer spending less discretionary on restaurants, vacations, cars, etc.
>> As always at home, make sure you do your own research before making any investment decisions.
we will get back to your questions for Michael Craig on asset allocation in just a moment time.
And a reminder that you can get in touch with us any time.
just email moneytalklive@td.com.
Now let's get our educational segment of the day.
Analyst research is one tool investors can use to size up a potential investment.
Joining us now with more is Hiren Amin, Senior client education instructor with TD Direct Investing. Hiren, was great to see you.
Where can we get some information here in WebBroker when it comes to analyst information?
>> Absolutely, Greg. Great to be back again.
so I think this is top of mind for a lot of investors is when they are doing research on stocks, they want to get the opinions of the pros, and that's where the analysts come in. There is an actual Centre you can go to and I will show you how you can find that.
Here in WebBroker, you click on the research tab. Under the markets column, third from the bottom we have the analyst centre.
Now, this is a central place where you will be able to essentially source where all the different analyst across the industry are providing their ratings on various stocks. Now, when you first land on this page, what you're going to see is the most recent updates that have been made.
Now, clients have the ability to actually use the filters which is fantastic because within the filters, you can actually scan for let's say a five-star analyst and see which ones are recent over here. I'm in the click that.
When you click on a rating which is tells me about a bike, I'm going to keep both markets open, and am going to say maybe we are looking at large market Stocks.
As you click them, it already applies the filters there for you so it's only showing me the five-star analyst rated Analyst Centre showing me anything from the recent today any changes that have been made.
So what you see here in the recent is for example the very top one is Airbnb by Ivan find Seth.
There might be either a price update or a rating changes what you're going to be seeing updated over here. Now also within here, we can see trending stocks.
You will notice there is another tab over here, a sub tab that says trending stocks.
Within here, you will see just that, the ones that are making a bit more of a splash in the markets. And so you can have a look at those and again, you have filters to see the most rated and so that's currently what it's being rated by, the most rated stock. You will see that Amazon is covered, the most widely covered with 38 buys and one whole. And if you want to look at the best rated stock, and we can simply click on that for example we can switch that over and it looks like we've got one of our TSX stocks on the list. In the same vein, you can also do a filters can throat over here as well.
>> We have been looking at it from a company's perspective. How do you find out more about the analystsand maybe look at other companies they are following?
>> I'm going to switch back to more recently over here and what is going to pick one here.
for example, you got Ivan find Seth.
Maybe you're interested in what else he's covering. What unity was you actually have to click on the ticker symbol that you see beside. So we're going to click on Airbnb and it's gonna load up the stock profile here.
Once we go to the stock profile, we are going to go to the analyst tab before Airbnb and this is going to be specific to just Airbnb, so it's going to give you all the information for Airbnb, is price targets in the different ratings provided.
But down here is where we can access all the different analysts now.
If we want to look at Ivan himself, we can click on this, see a little bit of a summary for how successful he has been in the and so they used to measures, the win loss rate, this is described based on what he is rated in the past and whether those have been achieved and then once it has been achieved, what has been the average return based on how that stock is performed.
So let's say we are willing to look at Ivan. He can look at his profile here.
What we are going to see is any other stocks he may be covering or the recent ones he may be covering and you and see some other ones he's been covering our Booking Holdings and Royal Caribbean.
If we want to go ahead and keep tabs on him and check out what else he's been covering, we can then certainly hit the follow.
Once you hit the follow, you can see a list of followed analysts and that's where you can keep track of your favourite ones.
You can see I have a couple of them here from the past.
I click on Ivan again and it will tell me those recent companies are any changes that have been made if I want to look at those. That's a way of keeping tabs on some of our favourite analyst.
>> Great stuff as always. Thanks for that.
Hiren Amin, Senior client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars. now before I get back to your questions on asset allocation for Michael Craig, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.
com or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Michael Craig, head of asset allocation at TD Asset Management, taking your questions. Plenty coming in in the past couple of moments. Let's get to a few of them. We have of you are saying, this is actually Jeff, he's been sending in questions on a regular basis.
Thank you for that, Jeff.
His question, I have several CAD and USD account.
How would your guest approach asset allocation?
Registered versus nonregistered, overall versus individual, growth versus income?
A good question about asset allocation.
>> You got a bit of a garage here and it's a bit messy and have a lot of different accounts.
I think you need to step back and think about what are the purposes of each of those accounts?
And what are the tax implications of each of those accounts, RRSP versus TFSA, very different tax profiles. is this money aside for a house next year or retirement in 20 years? Etc.
you might want to have more higher growth in RRSP.
. . This is where you might want to get some advice.
Ultimately comes down to what you're trying to achieve with each one and maybe you got some money where you are looking to do a bit more active trading.
Maybe this certain account that as well.
Start to allocate across needs versus asset, worrying about the asset you are putting in those accounts, start with the needs first and work back.
>> Start with the needs and then if you want to dig deeper, we find someone to help you work through those needs and get a strategy going for you.
Thanks, Jeff.
Next question coming in. What is your view of low volatility mutual funds are ETFs in this current market?
>> So low volatility it is a style, it has distinct properties. First off, buying companies, low volatility is buying companies with stable earnings and cash flows and not a lot of growth.
You get a lot of utilities, financials.
There is more value until to it. They tend to have less sensitivity to economic fluctuations.
Think about utility, whether it's a recession or bull market, you still go to turn the gas on.
And so it has defensive properties.
In certain years, you will see low volatility performed quite well and others not so well.
It's really a function of where you are in the investment cycle.
So as we go into this year, low volatility has been a poor performer as a factor.
Growth has been fantastic. If your view is that we are going to go into some economic turbulence and you want to have allocation equities, low volatility is not a bad place to be.
The yield on these investments is attractive right now. But if you are of the mindset that growth is going to continue to Parent, low volatility will leg.
It's an ingredient, not the be-all and all investment.
Also in terms of where you are in your life, if you're looking for equity returns with less risk, it's not a bad place to live. If you are a young person trying to build wealth, if you're starting out investing, it's probably not the right place for you as the returns will tend to lag the market over time.
>> For viewers who are interested in more about low volatility funds and ETFs, Thursday show is going to be dedicated to that.
You can get some more questions and ahead of that Thursday show.
Another question here.
This one about Canadian lumber. With your outlook on the Canadian lumber sector given the weakness in the US housing market in our dependence on them for export?
Americans aren't buying wood.
What's going on?
>> The housing market in the US right now, it's a bit bizarre in that the average mortgage rate people are paying is hundreds of basis points below the posted rate.
In the US, it's on portable. If you decide to move, you have to get a new mortgage and you might be going… If you got the lows of COVID, your mortgage might be 3 1/2% and then the rate today are 7 1/2 for prime credit.
What's happened is there's a lot of resale because you love your mortgage but you might not love your house but you are stuck because you can't afford to move.
That has actually led to much stronger housebuilding than you otherwise had because of lack of activity in the market.
There is well-publicized housing shortages in Canada.
I think the is demand for lumber.
All bets are off if we go into a recession, lumber will suffer. It tends to be an earlier cyclical.
It might not be great timing right now.
But I would put it on your radar. If you see some weakness, could be an interesting place, if you have that thesis that we are going into… Because of the population growth in Canada and what's happening in the US versus the average mortgage rates and people not buying new.
>> You talk about those dynamics in the states, the headline of the states, home sales falling in July, supplies at a near quarter-century low.
Can't get out of that house.
>> Too expensive to move.
>> Too expensive to move.
Here's one about the banks. They were in the headlines earlier this year.
There was a real concern about banks earlier this year.
Is that still a concern or how we moved on?
US regionals were in trouble.
>> The S&P came out and downgraded want to regionals today.
I think back to 2008 when there was trouble in the spring and then everything was fine and then summa after there is a big fall. I don't think we are going to see another lead up like moment but the environment that led to the weakness in the spring is still here.
> It was higher bond yields.
>> And as we sit here today, bond yields are actually higher. The Fed did come in with tremendous balance sheet using and I think that's part of the reason we had this rally was that kind of almost a cut, we'll call it that, or they were able to expand the balance sheet briefly.
But those pressures are still there, particularly in the regionals.
there is a regional bank that has a geographical focus and tends to have a limited mix of things to do where is a money centre bank that does wealth, corporate customers, very different risk profiles.
I'd still be a little bit leery about the regionals.
Countertrend rally higher.
At these levels with the backdrop stories, it quite a challenging environment.
>> We went to get back your questions for Michael Craig on asset allocation in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canadian retail sales momentum faded in the spring. The Bank of Canada rate hikes were working their way through the economy.
The advanced estimated from South Canada appoints another flat reading in June following the flat me reading.
And thankfully joins us now to take a look at TD Securities outlook for the retail sales report that we are expecting to get in the morning. Anthony.
>> Thanks very much, Greg. TD Securities is looking for sales to rise 0.
1% in June versus the StatsCan/estimate and market consensus a flat reading. TD Security sees retail sales momentum slowing furtherversus May's weaker than expected .2% month over month advance.
After the slight downward revision that we saw in April's print as well.
When we break it up by sector, TD Securities expects softer auto sales to negatively impact the headline print number. That should leave X autos measure up .4% month over month. If you recall in May, as the chart shows, sales of motor vehicle parts were pretty strong and that accounted fora larger portion of maize headline growth along with food and beverage and other retailers as well. Now, TD Securities see some of that strong momentum reversing in June. Now when we break it out by other sectors, TD Securities sees gasoline stations, they say the gasoline station should provide a source of strength for poor retail sales driven by higher prices of the pumps.
they also see strength in home furnishings and building materials. In May, though sectors both sell more than 1% month over month. Outside of the sectors, TD Securities expects a subdued performance elsewhere as households show more moderation on spending behaviour following another round of Bank of Canada rate hikes and were tempered job market.
>> I was really looking forward to this sort of, I just love the retail sales report. I do.
These are quarterly stats.
For the month of June, we got a flash estimate for July, we got a hike in June, I July, surprise some people, really fascinating to see what effect it has on consumers. Given all that, where does TD Securities think the BOC is going to land with rates or at the fall and into next year?
>> That's the big question.
TD Securities thinks the BOC is done after hiking to a restrictive 5% in July. The growth outlook is showing more signs of strain the second quarter GDP tracking below BOC projections and that should give the bank some comfort according to TD Securities the higher rates are starting to work their way through the economy.
Now, TD Securities does warn that risks remain skewed towards more tightening, although they think October would be more likely than September. The TD Security says that the bank will need to see more concrete evidence of slowing activity and core inflation breaking lower and staying on the sidelines of the fourth quarter now.
Looking ahead to next year, they do continue to look for the first Rekha to happen sometime in the second quarter of 2024. Greg?
>> That's a big questionable at people's mind. Thanks that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is, of course, the heat map function, you get a view of the market movers. We are taking a look at the TSX 60, screening my price and volume. Clearly, Teck Resources is standing out on the screen in terms of being to the upside a little more than 2%. You can see in the materials basket there is some modest strength in the gold miner, Barrick Gold,Kinross. Jump over the financials, you can see the likes of Brookfield, BNN, down about… That sounds familiar.
BN would be the trigger on that one, down a little more than 3%. A bit of a mixed bag and energy space. Now it's not just the TSX 60 you can screen through, you can see the whole list of things. Let's take a look at the S&P 100, and get a grip on what's happening south of the border. What standing at here? It might be Nvidia. The day before it's earnings, a big rally in his name off the AI excitement yesterday, today is giving some of it back, down about 3%. Very interested in the earnings tomorrow from Nvidia in terms of the promise of AI and how it's actually playing out in revenue.
Test was a little firmer to the upside in this session, taking up a lot of real estate but it's only up a very modestsort of a percent.
You can get more information about TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Michael Craig, head of asset allocation at TD Asset Management, take your questions.
Let's get a little deeper into something you touched on off the top of the show.
Can you please comment on why the US markets have pummelled the TSX?
>> Pummelled would be an apt word to describe it. It really is a function of central composition. The TSXis a bit of a technology story, it's been a mega-cap high free cash flow technology story, it's not all tech, it's been in the core group of technologies stocks, Apple, Google, Amazon. Nvidia.
Meta. They have really had a tremendous, accounted for the bulk of the rally this year.and then everything else.
If you will look at like an SNP equity -weighted index,it had an okay year.
In Canada, if you look at the US financials,energy has been pretty average or soft this year, down to touch. So really it's at sector composition and it's kind of dashed to really the belief that AI is going to be a game changer on par with the Internet in the 1990s is kind of how the market is trading.
Whether that happens or not, who knows?
markets tend to overhyped these things in the short term and then forget about it.
That's really the story this year, that kind of core group of mega-cap US stocks that have just gone parabolic.
If you show the chart of Nvidia, the trillion dollar company, trading 100 and change earlier this year, now it's 450.
We are not talking about adding a billion or $2 billion of market, we're talking about adding 500 billion of market capitalization. It's tremendous and that's really where capital has flown to this year.
>> In the past, pundits would've said, be cautious about an S&P 500 that's being moved by just a small basket of names that are all sort of in the same space.
Is that a sort of the state of things with the S&P 500? It's going to get pushed around by these mega-cap tech names?
>> Yeah, the concentration in the S&P is kind of at a decade high in terms of market capitalization of a handful of companies.
The thing with that is, you could've had that call in 1996 and run for four years.
So yes, it's on a great symptom, but it doesn't really make any difference for the next quarter to. He continues on, becomes unsustainable. You could kind of top 10 market Companies in the S&P by decade, they are not static.
There was a time when Exxon was the biggest company or GE.
Certainly, a lot has changed since then.
So be mindful of how much more can some of these large-cap companies grow.
But it's not a market timing system, it's more of an observation. So I would be a little leery of basing my investment thesis because it is a handful of large-cap companies in the US that keep getting bigger.
>> This is an interesting question.
Wondering what's going on a month like this. It is this recent volatility the start of a market correction?
>> I think so, yeah. I think that we are defensively position, so we are… I think August is not the time for a big selloff.
It's more of a grind. September will be, going into September, there is a lot of, the market has priced in a lot of good, there's not a lot of margin for disappointment and we are seeing a position where, again, the difference between equity yield, cash field and bond yield are all about the same wishes to make a lot of sense. If you get a lot more, you need to be compensated as equities are riskier than fixed income, fixed income is riskier than cash, but they are altogether.
I find that to be a bit alarming.
Look, it's not into the world.
Markets go up and markets go down.
My senses, and my hit rate on this isn't great, so take it with a grain of salt, it's hard to call markets in the short term. But I am a little bit concerned going into September how things shake up and you are now starting to see employment decelerate.
Poor revisions today, we hear, so it's weaker than we thought.
The US last month, July payrolls were soft, softerthen expectations. It we get a bad payroll number and it's going to be, we are going to see a pretty messy market.
>> Technically, you get the 10% blowback, you get the correction and some people say, this is healthy.
This is a healthy correction for the market. Is this what we are talking about?
Something that's helping in the longer term?
>> You go through school and you think that higher prices bring out sellers and lower prices bring out value seekers and that's how the market is supposed to work.
There so much momentum right now that sometimes higher prices beget higher prices because there is that momentum aspect and same with lower prices.
at the beginning of the year, we pinned the S&P up 4000 in the middle of the year we got to 4500.
Markets can go awfully fair value is. But certainly, next month… I would like to see that spread between earnings yield and bond yield be a bit more excited about equities.
>> Let's use this next question is a final thought for the show before we say goodbye.
A lot of talk about recession for a long time now.
If it's not a threat for 2023, and if not, then why?
>> you saved the hardest for last, unfortunately.
first of all, we tend to think of things in a linear… This linear path to recession. Generally what happens is things are really good and that all of a sudden they are not, you fall in recession.
I always say that in the US, there has been a degree of deleveraging since the financial crisis. So households are actually in a pretty fortuitous situation.
They are in a position where they probably can withstand higher rates better than other jurisdictions.
In Canada, it's the opposite. Our household debt levels are too high and so I would expect to see Canada feel the effects of higher rates more acutely than you see in the US. But in terms of recession, I would still think it's probably 50-50. The likelihood is very high, whether it be catastrophic balance sheet recession or a more garden-variety income, and I think it's more on the income side of things. But look, there's a lot of known unknowns right now and we are stressing it was very high, restrictive levels of rates.
So without a whole lot of historical precedent to kind of guesstimate we where you are going to go. So I would be, as an investor, you think about the things that are worth the value. Bond yields are as attractive relative to inflation as they been in a long time.
Cash is not a bad place to park some money. In stock, outside of the part of the markets that really levitated are actually a lot of good parts in the stock market that have decent yields and high dividends that haven't seen a move this year and certainly you can look to those parts to perhaps look for a more stable income stream. When you get to the growthpart, you are in a momentum type of trade right now.
Those are great companies, don't get me wrong. But is the right valuation for Apple 1 trillion, 2 trillion 5 trillion?
I don't know. It's a concern.
I'm sometimes a little leery about how big these companies have become and how much is priced in and I think you have to be careful right now because we might be too optimistic across that large Sector of the US. Dad always a fascinating discussion, always love having you here and look forward to the next time.
>> My pleasure.
>> Everything to Michael Craig from TD Asset Management.
Be sure to always do your own research before you make any investment decisions.
Stay tuned for tomorrow show. Greg Barnes, head of mining equity research at TD Cowen will be our guest taking your questions about mining stocks.
a reminder that you can get a head start on this question.
Just email moneytalklive@td. Just email moneytalklive@td. Just email moneytalklive@td. Just email moneytalklive@td.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are joined by TD Asset Management head of asset allocation Michael Craig. He will discuss his view on the markets as rates remain high and bond yields grind higher.
MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from tomorrow's Canadian retail sales report.
And in today's low broker education segment, Hiren Amin is going to show us where you can find analyst research here on the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to our guest of the day, let's give you an update on the markets.
We will start here at home with the TSX Composite Index.
We are under some pressure. Nothing too dramatic at this hour but at 19,720, we have a deficit of 64 points, about 1/3 of a percent. Among the most actively traded names on the TSX right now are Denison Mines. Yesterday at this time, we showed you Denison Mines among the most actively traded names been, but it was to the upside.
The uranium plays got a bid yesterday, getting it back today, down a little more than 3%. B2Gold under some pressure today.
At four bucks and $0.11 per share, down a little bit more than 1%. South of the border, investors are trying to make sense of a handfuls ofUS retail earnings this weekend also some concerns about regional banks and what the Fed may do next and bond yields. Bill gets all that in a moment's time.
But right now, the S&P 500, very modest six-point pullback, a little more than 1/10 of a percent. Tech heavy NASDAQ still in positive territory. It actually had his best day for the month of August, were only a couple of weeks in, it's been a choppy month. Yesterday showing on the NASDAQ was the best day in August. Right now it's up 40 points or about 1/3 of a percent.
On deck for tomorrow, and this stock on a sizable booze yesterday, is Nvidia. A lot of excitement around a high potential.
Big gain yesterday, giving some of it back today ahead of tomorrow's earnings. It should be an interesting one. At 456 bucks per share, we will see is a high demand is playing up for them while they do report, but right now we are back down 2 3/4 of a percent.
And that's your market update.
While headline inflation has cooled this year, bond yields continue to grind higher. So what is the market trying to tell us about the future direction of interest rates? Joining us now to discuss, Michael Craig, head of asset allocation at TD Asset Management.
Great to have you back on the program.
>> Great to be here.
>> I don't know if this was in a lot of people's playbooks for the summer with yields in the bond market grinding higher and grinding to multiyear highs, may be in the tenure and further out, we are back to pre-financial crisis highs. What's going on there?
>> It's a bit of ahead scratcher.
There has been some negative news this month. The US got downgraded. That certainly wasn't great for sentiment.
More recently, they have announced higher amounts of funding, so they are actually issuing more bonds than what was expected.
So that's putting a bit of pressure. But it's August. A lot of people are on vacation.
The speculative community has taken a fairly large short position in the treasury so that has pushed it higher.
I would say that we really aren't gonna get a good feel for where we are going to be until about the third week of September, when people are back at their desks and kind of reassessing how these levels are starting to trigger programs from large managers moving from equities to debt. And I would be interested to see where we are at about a month's time once everyone is back at their desks and it worked.
>> You mentioned the summer doldrums, the bond yields are grinding higher, he gets tongues wagging, of course, because people start saying, why not six on a tenure? Is it realistic that bond yields could move substantially higher from here, absent some massive triggering event to mark> I would look at it two ways. There is a move higher and then there's the durability, can it stay at that level for any period of time?
Six seems a bit aggressive.
Can tenure rate move to 5%? I mean, it's possible.
But how long can they stay there? How long can the world kind of function, can companies and household finance at those higher rates as people reset their mortgages or look at the variable lines of credit or companies look to refinance debt moving from coupons of 3 to 7 or eight.
All of a sudden, that starts to affect our demand.
As a definition, is the cost of money goes higher, we will consume less and it will become deflationary. Anything can happen in the near term.
There is limited liquidity right now.
Thanks and come around. But I struggled to see rate staying at a high level for a long period of time without material economic damage being inflicted on the global economy.
So long story short is, for income investors who are looking not so much the next quarter but for longer periods of time, these are fairly attractive income yields that you can get higher from fixed income right now.
>> On the equity side, even though August has been choppy after July was pretty strong in the equity market, they are still holding and considering how much rates have prided higher. I mean, there's no pullback but nothing too dramatic.
What's the dynamic there?
>> Year-to-date returns are still very, very good.
Europe's pretty much been flat since the spring.
When you look at the TSX versus the S&P, they are very different markets, but the S&P is up give or take 15% on the year and TSX is up with dividends maybe three, three and a bit. That is really an example of how this has been driven by just a handful of stocks.
Can they go higher? Absolutely.
Nvidia has earnings tomorrow.
There's lots of capital investment going there.
When you do look at, people start putting Price to sales, your return isn't sales, it's earnings.
You start to use… People start using different metrics to kind of ascribe value.
you do have to take a pause and see what's priced in.
I would see on equity is, again, it's been a tough month for equities,we are going into seasonally very challenging period, August and September tend to be quite tough for equities, again, when we get back to work next month, we look at earnings yields or price what you pay for stock versus earnings, versus what you get for cash versus fixed income, right now, it's very, very tight, the tightestit has been in 20 years, making both cash and fixed income more attractive on an earnings perspective and stocks.
>> We are going to get one event where last summer it turned out to be a big one, Jerome Powell at Jackson Hole.
He'll be there at the end of this week.
Really laying it down, bring the hammer down, there was a big reaction.
what do you think the message would be from him this time around? It's been a whole year of hiking rates, inflation is coming down. What is pal going to tell people? people? people? people?
You look at the old Eurodollar market, the market is pricing in elevated short rates in the US for some time.
We are looking at a terminal rate of 4%.
It was 3% a few months ago.
I'll think the world has changed that much.
So I think financial conditions are already quite tight.
The question is coming down.
You are going to see this space, rental disinflation is going to start to help inflation numbers.
Longer-term, it's a different argument with inflation, but near term, I think that inflationary pressure it continues.
I think it's kind of got what he wanted.
remember, the feds have dual mandate,inflation and employment.
Implement is very strong but it has started to soften.
I don't think this is a time for him to start shifting to a growth narrative but I don't think there is a lot of need to double down on and keeping raising rates, we are kind of at the end of the cycle, maybe get more hiking, maybe not.
I think you might actually start talking about the success of that of anything. I don't think it's going to be as much of a market event is was last year.
>> Interesting stuff, as always, with Michael Craig. We are going to get your question for Michael Craig at a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Lowe's in the spotlight today.
The home improvement retailed Lord delivered a mixed quarterly report. It managed to beat profit expectations despite softer sales numbers.
Lowe's says customers are putting up those big ticket rental projects, that is weighing on revenue.
Apparently, there is still spring and summer cleaning that brought people into the stores. It makes there. The retailer is standing by its annual earnings guidance.
Got the stock up about 3 1/2%.
A quick check in on Zoom Video Communications.
It says revenue is going to come in above the streets expectations for this current quarter.
The videoconferencing platform has seen slower growth following a surge in demand for its services during the pandemic, all is lockdowns. That said, zoom it managed to beat analyst expectations for its most recent quarter. The stock has been on a bit of a rise since it reported after the close of markets yesterday.
It popped in the after hours and then it pulled back in the early session today.
Right now, you're a bit flat to the downside. At 66 bucks $0.66 per share, down less than 1%. We'll see how it finishes out the day.
Shares of Dick's Sporting Goods are under pretty significant pressure today.
Down almost 25%. We will be fair, call the 24 and a bit. The US retailer cutting its earnings outlook, pointing to a mix of slowing sales and a rise in retail theft.
The company also missed on both the sales and profit line for the most recent quarter, that's a rare saying it for Dick's, and they are saying cautious consumers are spending less on outdoor goods.
But altogether, the market clearly not pleased about what they are hearing from the name. A quick check in on the markets, the TSX, we'll start there at home.
69 points to the downside, 1/3 of a percent.
South of the border in the US, but of a mixed picture between the Dow, the S&P 500, the NASDAQ. In the broader beat of the market, the S&P 500 is down a bit more than 6% right now little bit more than 1/10 of a percent.
We are back with Michael Craig, head of asset allocation at TD Asset Management taking your questions.
This one right off the hot. Will the Bank of Canada hike in September?
We are going to have Labor Day, come back, then we get the Bank of Canada decision.
>> I don't think so.
We lost jobs in July.
One more employment report for August.
I think they are probably in a wait and see mode, unless they see a re-acceleration of inflation.
Canadian rates are sufficiently restrictive right now. I see no reason why they would have to hike again.
they might talk hawkish, say, here, we will act, if there is a re-acceleration of inflation, but my sense is they won't do it.
>> These hikes we got in the summer after they were on pause for a long while, June and July, taking some people by surprise.
Obviously change the game a bit.
In hindsight, did they make the right moves there? Was there a need for them to get back into the rate hiking game?
>> They did what they thought was the right thing to do.
I think there was nervousness about a re-acceleration of house prices.
I think these last two hikes of really kind of been a bit of a hammer to people and their behaviour.
So was it the right thing to do?
Probably it was too much. But, again, as a central banker, you're going to err on the side of material slow down or even recession. You will take that versus having inflation become onboard.
I think that's what they did. They were more than happy to risk inflation to ensure inflation excitations did not start to accelerate again.
>> So with the mantra that we are waiting for the central banks, even when they finish the rate hiking cycle, they will stay at a higher level for longer to make sure inflation is under control in moving in the right direction, the question I will get outside of the show, when I'm talking to a radio audience or folks outside of those who watch us every day, it's when are the cuts coming? This is not a next week story, and on an excellent story, it's probably gonna be a while, from what they are telling us.
>> our job is to think that the range of outcomes and what's most likely.
For cuts to come, you need one if not two things. You need to see inflation just fall off a cliff and then you're going to get cuts. But if you're going to get inflation to fall like that, it's probably going to be coinciding with the recession and with that, you have to start to see the employment market really soften.
So careful what you wish for because if the bank were to, say, cut 200.6 year, we are in an environment where employment rates are materially higher. I think that's what it's gonna take to see, for them to, maybe they bring it on a touch, inflation kind of moderates, but it's kind of that or we kind of bumble along and they say restricted for some time. And the markets, I will go back because the data is better, but the US market is pricing and kind of 4%, US is at five now, they are pricing in a 4% terminal at four or five years old. It's not much relief longer-term.
So as a household business, I wouldn't be… Putting all my hope that we are going to get cheaper financing next year.
I would advise people to adjust the behaviour to be able to handle an environment where this is, these are the rates that they will be dealing with for some time. And ultimately, we might need to pull back on consumption. We have to be careful that we are now going to go back to a world of zero rates unless something really, really significant happens in terms of unemployment going very, very high.
I think those are things, that's really what people need to be mindful of is careful what you wish for because it will be coincided with a really hard landing.
>> A hard landing of some sort. This one now, we talk a lot about the impact that higher interest rates have on borrowers, but what about the savers? What is the outlook for GIC interest rates?
A year ago, no one would be talking about GICs. It's obviously different.
>> It's… Again, we work with multi-asset so we always look putting portfolios together with bonds, equities and cash or cash like investments. GIC rates are quite high right now. You can get a similar type of return stream from the bond market.
If you like, you could buy GIC for one year and get a pretty high rate or you can buy a bond fund which is essentially similar to cash, you can have volatility to price for your income stream will be at that high rate for much longer and so for an income investor,if you are looking to spend money in a years time, it's a great time to use GICs. You get great returns for euro.
But what investors need to be mindful of is that in one year's time, there is no guarantee that rates are at 5% and the biggest risk for an income investor right now with cash is reinvestment risk.
It's not about, is is the right rate? It's what's the rate going to look like in one, two or five years.
Right now, the market would say not to similar, maybe a little bit lower. But you can take advantage of that today.
Yet think about long-term income flow, not can I get one year and then try to figure it out in a years time.
>> Another question here, this one is about… Hikes again. Inflation on the line for good reason this year.
Our rate hikes making inflation works?
When we first got this question, I was like, where are they getting at?
But when StatsCan report CEPI, they are talking mortgage costs.
>> That's absolutely… It absolutely has been an unintended consequence of higher rates. It's actually totally correct.
Mortgage financing costs are a lot higher and it has this perverse feedthrough.
The bank is trying to crimp demand so, yes, in the near term, in a year-over-year basis, you see higher mortgage rates. In two yearstime… The idea is that over time is that we pull back and reduce consumption to get inflation in check.
Statistically speaking, that's 100% accurate. But in terms of the durability, we worry about the durability of inflation. It's not about 5% inflation next year but 5% inflation in perpetuity, you expect prices go higher year over year over year. There is this initial impact, but that will pass, assuming rates are about here or lower one year from today.
>> I guess part of that cancellation to you is that even though you've made the mortgage cost higher for a household, that would stop the spending in other areas.
If I'm putting more in my mortgage, I'm going to go out less.
> I'm assuming that your income comes up marginally, not enough to overcome that, sewer spending less discretionary on restaurants, vacations, cars, etc.
>> As always at home, make sure you do your own research before making any investment decisions.
we will get back to your questions for Michael Craig on asset allocation in just a moment time.
And a reminder that you can get in touch with us any time.
just email moneytalklive@td.com.
Now let's get our educational segment of the day.
Analyst research is one tool investors can use to size up a potential investment.
Joining us now with more is Hiren Amin, Senior client education instructor with TD Direct Investing. Hiren, was great to see you.
Where can we get some information here in WebBroker when it comes to analyst information?
>> Absolutely, Greg. Great to be back again.
so I think this is top of mind for a lot of investors is when they are doing research on stocks, they want to get the opinions of the pros, and that's where the analysts come in. There is an actual Centre you can go to and I will show you how you can find that.
Here in WebBroker, you click on the research tab. Under the markets column, third from the bottom we have the analyst centre.
Now, this is a central place where you will be able to essentially source where all the different analyst across the industry are providing their ratings on various stocks. Now, when you first land on this page, what you're going to see is the most recent updates that have been made.
Now, clients have the ability to actually use the filters which is fantastic because within the filters, you can actually scan for let's say a five-star analyst and see which ones are recent over here. I'm in the click that.
When you click on a rating which is tells me about a bike, I'm going to keep both markets open, and am going to say maybe we are looking at large market Stocks.
As you click them, it already applies the filters there for you so it's only showing me the five-star analyst rated Analyst Centre showing me anything from the recent today any changes that have been made.
So what you see here in the recent is for example the very top one is Airbnb by Ivan find Seth.
There might be either a price update or a rating changes what you're going to be seeing updated over here. Now also within here, we can see trending stocks.
You will notice there is another tab over here, a sub tab that says trending stocks.
Within here, you will see just that, the ones that are making a bit more of a splash in the markets. And so you can have a look at those and again, you have filters to see the most rated and so that's currently what it's being rated by, the most rated stock. You will see that Amazon is covered, the most widely covered with 38 buys and one whole. And if you want to look at the best rated stock, and we can simply click on that for example we can switch that over and it looks like we've got one of our TSX stocks on the list. In the same vein, you can also do a filters can throat over here as well.
>> We have been looking at it from a company's perspective. How do you find out more about the analystsand maybe look at other companies they are following?
>> I'm going to switch back to more recently over here and what is going to pick one here.
for example, you got Ivan find Seth.
Maybe you're interested in what else he's covering. What unity was you actually have to click on the ticker symbol that you see beside. So we're going to click on Airbnb and it's gonna load up the stock profile here.
Once we go to the stock profile, we are going to go to the analyst tab before Airbnb and this is going to be specific to just Airbnb, so it's going to give you all the information for Airbnb, is price targets in the different ratings provided.
But down here is where we can access all the different analysts now.
If we want to look at Ivan himself, we can click on this, see a little bit of a summary for how successful he has been in the and so they used to measures, the win loss rate, this is described based on what he is rated in the past and whether those have been achieved and then once it has been achieved, what has been the average return based on how that stock is performed.
So let's say we are willing to look at Ivan. He can look at his profile here.
What we are going to see is any other stocks he may be covering or the recent ones he may be covering and you and see some other ones he's been covering our Booking Holdings and Royal Caribbean.
If we want to go ahead and keep tabs on him and check out what else he's been covering, we can then certainly hit the follow.
Once you hit the follow, you can see a list of followed analysts and that's where you can keep track of your favourite ones.
You can see I have a couple of them here from the past.
I click on Ivan again and it will tell me those recent companies are any changes that have been made if I want to look at those. That's a way of keeping tabs on some of our favourite analyst.
>> Great stuff as always. Thanks for that.
Hiren Amin, Senior client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars. now before I get back to your questions on asset allocation for Michael Craig, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.
com or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Michael Craig, head of asset allocation at TD Asset Management, taking your questions. Plenty coming in in the past couple of moments. Let's get to a few of them. We have of you are saying, this is actually Jeff, he's been sending in questions on a regular basis.
Thank you for that, Jeff.
His question, I have several CAD and USD account.
How would your guest approach asset allocation?
Registered versus nonregistered, overall versus individual, growth versus income?
A good question about asset allocation.
>> You got a bit of a garage here and it's a bit messy and have a lot of different accounts.
I think you need to step back and think about what are the purposes of each of those accounts?
And what are the tax implications of each of those accounts, RRSP versus TFSA, very different tax profiles. is this money aside for a house next year or retirement in 20 years? Etc.
you might want to have more higher growth in RRSP.
. . This is where you might want to get some advice.
Ultimately comes down to what you're trying to achieve with each one and maybe you got some money where you are looking to do a bit more active trading.
Maybe this certain account that as well.
Start to allocate across needs versus asset, worrying about the asset you are putting in those accounts, start with the needs first and work back.
>> Start with the needs and then if you want to dig deeper, we find someone to help you work through those needs and get a strategy going for you.
Thanks, Jeff.
Next question coming in. What is your view of low volatility mutual funds are ETFs in this current market?
>> So low volatility it is a style, it has distinct properties. First off, buying companies, low volatility is buying companies with stable earnings and cash flows and not a lot of growth.
You get a lot of utilities, financials.
There is more value until to it. They tend to have less sensitivity to economic fluctuations.
Think about utility, whether it's a recession or bull market, you still go to turn the gas on.
And so it has defensive properties.
In certain years, you will see low volatility performed quite well and others not so well.
It's really a function of where you are in the investment cycle.
So as we go into this year, low volatility has been a poor performer as a factor.
Growth has been fantastic. If your view is that we are going to go into some economic turbulence and you want to have allocation equities, low volatility is not a bad place to be.
The yield on these investments is attractive right now. But if you are of the mindset that growth is going to continue to Parent, low volatility will leg.
It's an ingredient, not the be-all and all investment.
Also in terms of where you are in your life, if you're looking for equity returns with less risk, it's not a bad place to live. If you are a young person trying to build wealth, if you're starting out investing, it's probably not the right place for you as the returns will tend to lag the market over time.
>> For viewers who are interested in more about low volatility funds and ETFs, Thursday show is going to be dedicated to that.
You can get some more questions and ahead of that Thursday show.
Another question here.
This one about Canadian lumber. With your outlook on the Canadian lumber sector given the weakness in the US housing market in our dependence on them for export?
Americans aren't buying wood.
What's going on?
>> The housing market in the US right now, it's a bit bizarre in that the average mortgage rate people are paying is hundreds of basis points below the posted rate.
In the US, it's on portable. If you decide to move, you have to get a new mortgage and you might be going… If you got the lows of COVID, your mortgage might be 3 1/2% and then the rate today are 7 1/2 for prime credit.
What's happened is there's a lot of resale because you love your mortgage but you might not love your house but you are stuck because you can't afford to move.
That has actually led to much stronger housebuilding than you otherwise had because of lack of activity in the market.
There is well-publicized housing shortages in Canada.
I think the is demand for lumber.
All bets are off if we go into a recession, lumber will suffer. It tends to be an earlier cyclical.
It might not be great timing right now.
But I would put it on your radar. If you see some weakness, could be an interesting place, if you have that thesis that we are going into… Because of the population growth in Canada and what's happening in the US versus the average mortgage rates and people not buying new.
>> You talk about those dynamics in the states, the headline of the states, home sales falling in July, supplies at a near quarter-century low.
Can't get out of that house.
>> Too expensive to move.
>> Too expensive to move.
Here's one about the banks. They were in the headlines earlier this year.
There was a real concern about banks earlier this year.
Is that still a concern or how we moved on?
US regionals were in trouble.
>> The S&P came out and downgraded want to regionals today.
I think back to 2008 when there was trouble in the spring and then everything was fine and then summa after there is a big fall. I don't think we are going to see another lead up like moment but the environment that led to the weakness in the spring is still here.
> It was higher bond yields.
>> And as we sit here today, bond yields are actually higher. The Fed did come in with tremendous balance sheet using and I think that's part of the reason we had this rally was that kind of almost a cut, we'll call it that, or they were able to expand the balance sheet briefly.
But those pressures are still there, particularly in the regionals.
there is a regional bank that has a geographical focus and tends to have a limited mix of things to do where is a money centre bank that does wealth, corporate customers, very different risk profiles.
I'd still be a little bit leery about the regionals.
Countertrend rally higher.
At these levels with the backdrop stories, it quite a challenging environment.
>> We went to get back your questions for Michael Craig on asset allocation in just a moment's time.
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Canadian retail sales momentum faded in the spring. The Bank of Canada rate hikes were working their way through the economy.
The advanced estimated from South Canada appoints another flat reading in June following the flat me reading.
And thankfully joins us now to take a look at TD Securities outlook for the retail sales report that we are expecting to get in the morning. Anthony.
>> Thanks very much, Greg. TD Securities is looking for sales to rise 0.
1% in June versus the StatsCan/estimate and market consensus a flat reading. TD Security sees retail sales momentum slowing furtherversus May's weaker than expected .2% month over month advance.
After the slight downward revision that we saw in April's print as well.
When we break it up by sector, TD Securities expects softer auto sales to negatively impact the headline print number. That should leave X autos measure up .4% month over month. If you recall in May, as the chart shows, sales of motor vehicle parts were pretty strong and that accounted fora larger portion of maize headline growth along with food and beverage and other retailers as well. Now, TD Securities see some of that strong momentum reversing in June. Now when we break it out by other sectors, TD Securities sees gasoline stations, they say the gasoline station should provide a source of strength for poor retail sales driven by higher prices of the pumps.
they also see strength in home furnishings and building materials. In May, though sectors both sell more than 1% month over month. Outside of the sectors, TD Securities expects a subdued performance elsewhere as households show more moderation on spending behaviour following another round of Bank of Canada rate hikes and were tempered job market.
>> I was really looking forward to this sort of, I just love the retail sales report. I do.
These are quarterly stats.
For the month of June, we got a flash estimate for July, we got a hike in June, I July, surprise some people, really fascinating to see what effect it has on consumers. Given all that, where does TD Securities think the BOC is going to land with rates or at the fall and into next year?
>> That's the big question.
TD Securities thinks the BOC is done after hiking to a restrictive 5% in July. The growth outlook is showing more signs of strain the second quarter GDP tracking below BOC projections and that should give the bank some comfort according to TD Securities the higher rates are starting to work their way through the economy.
Now, TD Securities does warn that risks remain skewed towards more tightening, although they think October would be more likely than September. The TD Security says that the bank will need to see more concrete evidence of slowing activity and core inflation breaking lower and staying on the sidelines of the fourth quarter now.
Looking ahead to next year, they do continue to look for the first Rekha to happen sometime in the second quarter of 2024. Greg?
>> That's a big questionable at people's mind. Thanks that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is, of course, the heat map function, you get a view of the market movers. We are taking a look at the TSX 60, screening my price and volume. Clearly, Teck Resources is standing out on the screen in terms of being to the upside a little more than 2%. You can see in the materials basket there is some modest strength in the gold miner, Barrick Gold,Kinross. Jump over the financials, you can see the likes of Brookfield, BNN, down about… That sounds familiar.
BN would be the trigger on that one, down a little more than 3%. A bit of a mixed bag and energy space. Now it's not just the TSX 60 you can screen through, you can see the whole list of things. Let's take a look at the S&P 100, and get a grip on what's happening south of the border. What standing at here? It might be Nvidia. The day before it's earnings, a big rally in his name off the AI excitement yesterday, today is giving some of it back, down about 3%. Very interested in the earnings tomorrow from Nvidia in terms of the promise of AI and how it's actually playing out in revenue.
Test was a little firmer to the upside in this session, taking up a lot of real estate but it's only up a very modestsort of a percent.
You can get more information about TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Michael Craig, head of asset allocation at TD Asset Management, take your questions.
Let's get a little deeper into something you touched on off the top of the show.
Can you please comment on why the US markets have pummelled the TSX?
>> Pummelled would be an apt word to describe it. It really is a function of central composition. The TSXis a bit of a technology story, it's been a mega-cap high free cash flow technology story, it's not all tech, it's been in the core group of technologies stocks, Apple, Google, Amazon. Nvidia.
Meta. They have really had a tremendous, accounted for the bulk of the rally this year.and then everything else.
If you will look at like an SNP equity -weighted index,it had an okay year.
In Canada, if you look at the US financials,energy has been pretty average or soft this year, down to touch. So really it's at sector composition and it's kind of dashed to really the belief that AI is going to be a game changer on par with the Internet in the 1990s is kind of how the market is trading.
Whether that happens or not, who knows?
markets tend to overhyped these things in the short term and then forget about it.
That's really the story this year, that kind of core group of mega-cap US stocks that have just gone parabolic.
If you show the chart of Nvidia, the trillion dollar company, trading 100 and change earlier this year, now it's 450.
We are not talking about adding a billion or $2 billion of market, we're talking about adding 500 billion of market capitalization. It's tremendous and that's really where capital has flown to this year.
>> In the past, pundits would've said, be cautious about an S&P 500 that's being moved by just a small basket of names that are all sort of in the same space.
Is that a sort of the state of things with the S&P 500? It's going to get pushed around by these mega-cap tech names?
>> Yeah, the concentration in the S&P is kind of at a decade high in terms of market capitalization of a handful of companies.
The thing with that is, you could've had that call in 1996 and run for four years.
So yes, it's on a great symptom, but it doesn't really make any difference for the next quarter to. He continues on, becomes unsustainable. You could kind of top 10 market Companies in the S&P by decade, they are not static.
There was a time when Exxon was the biggest company or GE.
Certainly, a lot has changed since then.
So be mindful of how much more can some of these large-cap companies grow.
But it's not a market timing system, it's more of an observation. So I would be a little leery of basing my investment thesis because it is a handful of large-cap companies in the US that keep getting bigger.
>> This is an interesting question.
Wondering what's going on a month like this. It is this recent volatility the start of a market correction?
>> I think so, yeah. I think that we are defensively position, so we are… I think August is not the time for a big selloff.
It's more of a grind. September will be, going into September, there is a lot of, the market has priced in a lot of good, there's not a lot of margin for disappointment and we are seeing a position where, again, the difference between equity yield, cash field and bond yield are all about the same wishes to make a lot of sense. If you get a lot more, you need to be compensated as equities are riskier than fixed income, fixed income is riskier than cash, but they are altogether.
I find that to be a bit alarming.
Look, it's not into the world.
Markets go up and markets go down.
My senses, and my hit rate on this isn't great, so take it with a grain of salt, it's hard to call markets in the short term. But I am a little bit concerned going into September how things shake up and you are now starting to see employment decelerate.
Poor revisions today, we hear, so it's weaker than we thought.
The US last month, July payrolls were soft, softerthen expectations. It we get a bad payroll number and it's going to be, we are going to see a pretty messy market.
>> Technically, you get the 10% blowback, you get the correction and some people say, this is healthy.
This is a healthy correction for the market. Is this what we are talking about?
Something that's helping in the longer term?
>> You go through school and you think that higher prices bring out sellers and lower prices bring out value seekers and that's how the market is supposed to work.
There so much momentum right now that sometimes higher prices beget higher prices because there is that momentum aspect and same with lower prices.
at the beginning of the year, we pinned the S&P up 4000 in the middle of the year we got to 4500.
Markets can go awfully fair value is. But certainly, next month… I would like to see that spread between earnings yield and bond yield be a bit more excited about equities.
>> Let's use this next question is a final thought for the show before we say goodbye.
A lot of talk about recession for a long time now.
If it's not a threat for 2023, and if not, then why?
>> you saved the hardest for last, unfortunately.
first of all, we tend to think of things in a linear… This linear path to recession. Generally what happens is things are really good and that all of a sudden they are not, you fall in recession.
I always say that in the US, there has been a degree of deleveraging since the financial crisis. So households are actually in a pretty fortuitous situation.
They are in a position where they probably can withstand higher rates better than other jurisdictions.
In Canada, it's the opposite. Our household debt levels are too high and so I would expect to see Canada feel the effects of higher rates more acutely than you see in the US. But in terms of recession, I would still think it's probably 50-50. The likelihood is very high, whether it be catastrophic balance sheet recession or a more garden-variety income, and I think it's more on the income side of things. But look, there's a lot of known unknowns right now and we are stressing it was very high, restrictive levels of rates.
So without a whole lot of historical precedent to kind of guesstimate we where you are going to go. So I would be, as an investor, you think about the things that are worth the value. Bond yields are as attractive relative to inflation as they been in a long time.
Cash is not a bad place to park some money. In stock, outside of the part of the markets that really levitated are actually a lot of good parts in the stock market that have decent yields and high dividends that haven't seen a move this year and certainly you can look to those parts to perhaps look for a more stable income stream. When you get to the growthpart, you are in a momentum type of trade right now.
Those are great companies, don't get me wrong. But is the right valuation for Apple 1 trillion, 2 trillion 5 trillion?
I don't know. It's a concern.
I'm sometimes a little leery about how big these companies have become and how much is priced in and I think you have to be careful right now because we might be too optimistic across that large Sector of the US. Dad always a fascinating discussion, always love having you here and look forward to the next time.
>> My pleasure.
>> Everything to Michael Craig from TD Asset Management.
Be sure to always do your own research before you make any investment decisions.
Stay tuned for tomorrow show. Greg Barnes, head of mining equity research at TD Cowen will be our guest taking your questions about mining stocks.
a reminder that you can get a head start on this question.
Just email moneytalklive@td. Just email moneytalklive@td. Just email moneytalklive@td. Just email moneytalklive@td.
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