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[theme 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 discussed the potential opportunity in the high-yield fixed income space. TD Asset Management's Anthony Imbesi joins us.
MoneyTalk's Anthony Okolie is going to have a look at a TD Economics forecast for the US economy. And in today's WebBroker education segment, Hiren Amin is going to shows how you can use candlestick charts to analyse a potential investment.
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 all that and our guest of the day, let's get you an update on the markets.
We will start her at home with the TSX Composite Index we have been touching new highs and recent sessions. Today, a bit of downside, 15 points or seven takes. What's happening below the surface? We are continuing to see some of the uranium plays get a bid. A little more modest in terms of the gains from Cameco today but over the past week it is up about 15%, putting on another 1.6% today. Part of that news was last week about 3 mile I agree starting to provide power to, and nuclear facility, resuming the functions that give power to Microsoft. The tech giants are very hungry for electricity with their AI demands. We got Kinross on the move today as well to the upside, that it started to come off the highs of the session. 1315, that's up a very modest face of a percent. South of the border, markets have been reaching new highs and recent sessions, a bit of a pause in that rally today. The S&P 500, the broader read of the market, down a very modest seven points or 1/10 of a percent. The tech heavy NASDAQ was in positive territory modestly earlier and indeed at 51 points, it is up almost 1/3 of a percent.
General Motors though, going to tell you a bit more about how Wall Street is feeling about the automakers but it's not great.
They are starting to lose a little bit of confidence in these names in terms of their ability to sell to the American public considering the economy is softening. It news of that has the space in general down, General Motors down about 5 1/2%. And that's your market update.
In a falling interest rate environment, investors may be considering the potential opportunities in fixed income.
Joining us now to discuss how things look in the high-yield space is Anthony Imbesi, VP and Dir. for high-yield portfolio management at TD Asset Management.
Welcome to the program.
>> Thanks for having me.
>> Your first time here, we do this with first time guests, we get them to tell a little bit about their work and what they do here at the bank for the audience.
>> I'm a portfolio manager. I've been with TD Asset Management for 8 1/2 years.
I am responsible for the fixed income mandates, particularly the high-yield portfolios that we manage in the active fixed income team.
>> High-yield can be an interesting space but perhaps one that is not well understood by investors.
Give us an overview of the high-yield market. What is it comprised of?
>> The high-yield market is essentially any debt, whether it's bond or loans, that's rated below investment grade. So anything with a triple B- rating or lower is considered high-yield or leveraged credit and it's quite a big market.
The US dollar market is about 1.3 trillion in size. If you include euro denominated high-yield and emerging markets and leveraged loans, you can get to 3 1/2 trillion. If you throw in private credit or direct lending, it gets to about 5 trillion or greater. So that's a pretty big market, it's significant and it's one that should not be ignored.
When people refer to the high-yield market, a common term that we hear… >> I know it by a different name.
>> Junk bonds, right?
It's thrown out by the media a lot but it's misleading because a lot of these companies, every asset class has good quality companies and lower quality companies. High-yield is no exception. And within that space, I think it's important to know is you can find good companies that might be rated high-yield that can make perfect sense for fixed income portfolios.
When we look at the high-yield market, one of the things we do is we screen out all these potentially lower quality names in our analysis but effectively it's a market that should be considered for any investors in their high-yield portfolio and we will be talking about junk bonds.
It's important market for issuers. If you cannot issue in the investment grade market, this is the market where companies can access capital and grow their businesses. Some companies have actually grown to become investment grade over time while others have remained high-yield and there's nothing wrong with that. For example, when we look at, I'll name some companies for you, Ford motors, craft kinds, T Mobile, Netflix, Uber, Tesla and in Canada, National Bank, Laurentian Bank, Bombardier, Rogers, Quebecor, all these companies have or have had at one point high-yield.
>> I'm surprised to hear that. These are some big name companies.
>> If you paint the entire area with the same brush, you are missing opportunity.
Investors might own equities directly or indirectly, institutions of the equities of these companies and yet if things went badly and you got into a bankruptcy or restructuring scenario, you would much rather be a bondholders and equity holder because bondholders get paid off first before any residual value gets allocated to the equity holders.
And don't forget, this high-yield market, it's a market that's invested by institutions such as pension funds, wealth funds, insurance companies. They do it to enhance their income, improve their returns.
>> Let's talk about, a nice breakdown of the space, a better understanding of the space. Probably people in the audience are saying that they didn't know many of those companies were previously high-yield.
See you have some charts.
>> There different opportunities in high-yield. I will highlight some quickly.
Obviously, return is the big one.
High-yield has had compelling returns historically. It has outperformed pretty much every major fixed income asset class that we have seen. The bars on the left, that graph shows you with how it compares with the more deemed safe investment grade corporate bonds or even treasuries or government bonds which you can see here.
Let's just look at investment grade compared to high-yield. Over time, over 20 years, annually, you can get up to 200 basis points or more where the market has delivered 200 basis points or more of excess returns than those asset classes.
You compound that, that can really make a difference in the outcomes of investors portfolios. And a lot of people say, what about the risks? Yes, you can get certain assurance, but price volatility. So I guess this graph here, we indicate, we adjust for that. What we are doing as we are showing the returns for the asset classes, a few asset classes, and we are showing volatility and we are taking the ratio between that and you can see loans and high-yield, this is leveraged credit, comes out ahead of the other asset classes. You are getting more return for that given amount of volatility which again makes it a more compelling argument to consider high-yield or leveraged credit as part of your fixed income solution.
>> Do we have one more picture for the audience? I had rubber if we had two or three.
>> That was it.
>> They were nice pictures.
>> The best benefit I guess is returns but there are other benefits like diversification.
If you just limit yourself to Canadian investment grade corporate, you're really limiting yourself to a much smaller market but if you start including high-yield into that, you are giving yourself access to a market that's 4 1/2 times the size. Over its three times the size before 1/2 times more companies to choose from and over 25 different industries. For example, Canadian IG, 35% of the market is just financials, financials and utilities. They make up 50% of the market. If you throw in energy, that's almost 2/3 of the Canadian corporate investment grade market. You can't really diversify your portfolio with those three sectors. Bringing in high-yield gives you that opportunity.
Another thing is duration. Duration is much lower in high-yield and it is in your investment grade bonds. The reason is, typically, high-yield bonds have a 5 to 10 year maturity and they are also callable so they never really get to the maturity which means you have a shorter duration period And therefore less sensitivity to interest rate risk.
>> Let's talk about risk. Yield it usually reflects risk and risk premium. Yields are higher. What we need to be aware of?
>> Like every asset class, there are always risks involved. High-yield, particularly, credit risk is the big one.
You are taking on credit risk by investing in high-yield and when we talk about credit risk, there different components of it. The big one is default risk. Default risk is when a company misses a coupon payment or discount pay its principal back maturity. Other types of default risk that we are seeing more these days are distressed debt exchanges and that occurs when a company offers to exchange its existing bonds, the company's bonds are trading at the stress level, for new bonds and it entices bondholders to kind of accept that deal with the alternative being, if you don't, we can go through restructuring, Chapter 11 bankruptcy and take your chances there. Sometimes the outcomes are worse out of a Chapter 11 bankruptcy, sometimes they are better. But what gives the bondholders the option of his two value the proposal and say, fine, we will take a discount today, keep the company alive, we extend the bond maturity, the company looks to operate another day and continues for the benefit of not going through to Chapter 11 restructuring.
>> Fascinating stuff and a great start to the program. We are going to get your questions about high-yield bonds for Anthony Imbesi in just 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.
Let's get back to those Detroit automakers. Shares of Ford and General Motors in the spotlight today under some pressure. What's going on? Wall Street is more cautious on the industry as US consumers slow their spending amid economic uncertainty in Chinese automakers ramp up the competition.
Those concerns are also weighing on auto related stocks closer here to home. Magna is an auto parts maker. It is down to the tune of about 3 1/2%.
The parent company of Facebook taking another run at getting consumers excited about the Metaverse.
Meta Platforms holding its annual connect conference today, expected to preview new offerings in augmented reality, including some rumoured AR glasses. AR, I'm so used to saying AI all the time. You can bet that artificial intelligence will be on the agenda as well.
Meta, it changed its name because they were so excited about the Metaverse, tries to get us excited about those offerings.
You're up about 1.2% on Bennett. Shares of US homebuilder KB Home under pressure today. The company's third-quarter earnings falling short of expectations and the homebuilders gross margins fell compared to the same period last year. KB Home has had a decent return over the past year, and $83.20, down about 5%.
Quick check in on the markets, we will start her on Bay Street the TSX Composite Index. We have been touching new highs recently. Today, a bit of a pullback. It's modest. You're down 16 points or less than 1/10 of a percent.
South of the border, also a pulse on the rally. It's been a strong September, bumpy start to the month, investors usually think September is a tough one, we are not finished yet but today we are down six points or 1/10 of a percent.
We are back with Anthony Imbesi from TD Asset Management, we are taking your questions about high-yield bonds. First one for you here. What are the red flags to watch for in high-yield bonds when doing your homework?
>> As a broader question about red flags, credit cycle and credit spreads. The credit cycle ebbs and flows and where we are in the credit cycle will have an impact or determination on the performance of high-yield bonds.
When credit conditions are tightening, that's typically when you start to see companies become challenged or stressed.
They run out of liquidity, the ability to service their debt is more challenging, rates are rising and you tend to see an increase in default rates.
In an easing cycle or when monetary conditions are more relaxed, default rates decline, companies have better access to capital. One of the concerns that we always look for is that in those type of conditions, if capital is too cheap or too readily available, you can see a risk of misallocation of that capital, poor investment decisions were poor allocation of capital decisions by companies, whether it's private equity overpaying for LBOs or companies overpaying for M&A, that can always lead to future spikes and default rates when things do turn and those companies can no longer fund that debt.
>> When we think about those kind of cycles, we are now starting to ease, and people look at the space, which is the need to know about spread? If you knew this space, you probably hear about spreads. If you're looking at one yield, you are comparing it to the government yields. How to those spreads react in those environments?
>> Credit spreads are the premium that compensate you for the credit risk of high-yield. So really in corporate credit risk, you have default risk. Investors will get paid or expect to get paid a premium over risk-free government bonds or treasuries and that credit risk really gives you an idea or indication of what credit conditions are like or what they will be like going forward. When you see credit spreads widen, the market is essentially saying credit risk is increasing. We may go into a recession. We may see a spike in default rates.
Typically, that usually is what kind happens. When spreads are at their tightest, the market is basically pricing in good times or economic conditions and fundamentals are good. Companies will be able to pay their debts, service their debts, operations are fine, they generate cash flow and so on.
>> Fascinating space. We are just starting to dig into it. Another audience question.
Someone wants to know, what is the best way to assess high-yield bonds?
>> Go question. There is no one best way.
I can tell you how we do it. We start off with the question, is this a good business?
To determine that, you have to do the analysis, fundamental, bottom-up analysis.
Analyse the financials, cash flows. We look at free cash flow generation of a company. This is what's left over after the company pays for its operating expenses, taxes, interest expense, capex and then whatever's left over is what's available, what the company can generate.
When we look at management teams, that's always very important for us. Are they good allocators of capital? What's their track record like? Do they take care of all stakeholders or Jewish short-term equity share price performance is all they focus on. Backer risk, industry-specific risk, ESG factors, everything like that, including Bond specific risks. Other covenants? Did the covenants have protection or the increase risk to the bondholder?
Things like that and once we assess that risk, we have to price it. There is one thing to say we have a great company, but are we getting paid for the risk? Are we being compensated to take on that risk? If we are, if it's attractive enough, we included in the portfolio and if not we don't.
When the valuations change, they become less attractive, we sell that bond.
>> It sounds like the kind of homework you are doing there is a kind of homework and equity investor would want to do, is it a sound company, what is the cash flow after paying off obligations. When you get into covenants, that might be where you break from equity.
>> It is quasi-equity like in terms of the analysis.
You sell the performance numbers.
Historically, higher coupons to compensate for that risk and therefore you have to treat it because you like and equity.
>> Interesting stuff. Another audience question. Someone wants to get your outlook on low-quality credit bonds. As an example, single B and triple C, especially if the US economy only weekends modestly.
You see a modest pickup in default rates versus previous cycles?
>> Good question. Single bees and triple Cs are considered riskier than higher quality double bees.
During an economic downturn, that's the cohort that tends to deteriorate more.
Given where we are now, if nothing else changes, we should probably see, default rates are about 1.7%, that's the current default rate. Long-term average is about 4%. So we are below that. I would say we will probably see a migration upwards of the default rate over the next year and this is really just reflective of the fact that we've just come out of a very tight monetary financial conditions. Credit conditions have been externally type for a while. Interest rates for some companies that have variable debt have increased about 500 basis points and that's really been a challenge for some of these companies to service.
50 basis point cut last week may not be enough.
>> It starts the process.
>> It starts the process but it really depends on how many there are and how quickly they come. We expect part of those lower quality companies to default and that will help get the default rate to rise a bit. Not sure if we approach 4% sooner or later, but that's kind of where we see it going if economic conditions remain the same.
>> Is it surprising that even though credit conditions got that tight, it was a hiking cycle that was pretty aggressive, >> The economy has been quite resilient despite how tight credit conditions have become so I think had you not been invested, if you try to time the market by saying default rates are going to spite, credit conditions are tight, you would've missed out on some quite attractive opportunities.
>> As always, make sure you do your own research before making any investment decisions.
were going to get back your questions for Anthony Imbesi on high-yield bonds in just a moment's 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.
Let's talk candlestick charts. One tool you may consider using to analyse the potential investment. Hiren Amin, Senior client education instructor with TD Direct Investing has more.
>> Today's education segment is all about technicals in which we will be spotlighting candlestick charts. My hope is to enlighten you about them.
So let's talk about technical analysis a little bit and charts. Charts are like a map. History tends to repeat itself. This has proven itself time after time in the financial markets and price action fits into repeating patterns. Candlestick charts are one of the best ways to illustrate this natural recurrence that we see in the financial markets.
They have served as a cornerstone to technical analysis.
A little bit of history on candlestick charts and how they started. It originated back in Japan in the early 1700s. This was way before any Western charting techniques had been adopted yet. It got its birth from the fact that Japan was trading race as a commodity and the rice traders were seeing a correlation between price and the supply and demand of that race as well and as the different emotions that would come when they trade those and how that would impact the price. So this is how the birth of candlestick charts came about. It was a way to represent that emotion and that trading in the form of these charts and through different colours which we are going to see in just a moment's time.
So that's the birth of candlestick charts, the cornerstone for most technicians and let's go into a broker right now and show you how you can interpret them and set them up for yourself. Within web broker, I'm going to be using a ticker that's broadly covering our TSX market here in Canada.
To bring up the candlestick charts, the way you want to do that is you want to go into your chart style drop-down menu.
Within here, you want to check off what says candlesticks. Once you got your candlestick charts, what you are seeing is the use of bars and pails Gorewicz show up on your chart. How do we interpret them?
Let's go through the anatomy of a candlestick. I'm gonna zoom in over here to show you how it looks.
There is a six-month one day frame. Each of these candles represents one days price action. There's two parts to the candlestick.
There is this long rectangular body and sometimes it could be a very now or small rectangular body and then this vertical line on either side of the body is what we call the shadow, the upward shadow, the top are, and the lower shadow for the bottom. Sometimes it's also called wicks, lower and upper wake. The way you want to see this or what a candlestick tells us is for different price actions, tells us about the open, the close and the high and low during that period.
In this case, it's gonna be one day is what we are looking at. Starting with the high and low, that's pretty straightforward. The bottom represents low and the tip of the upper shadow represents the high.
The open and close is going to vary, it's based on this horizontal line that the rectangular box over here. This is where the colours really come into play. What broker does two things when it represents the candlestick colours. It's doing a comparison of the close to the open for this particular day but also the clothes against the previous day's close as well.
The way you want to see it is first and foremost if you notice this candle right over here, it's outlined in green but you will notice it's hollow, it's not filled in.
That's what we're zooming in on. What does this mean for us? It tells us and if you move right over it, gives you the price legend right over here so we can see it closed at 3565 and in this case we can see that it was at 3549. This close was higher than the previous day's close so therefore it gets outlined.
However, if you look at the same period, that open was at 3560 and the close was at 3565 which means the close was higher than the opening for this particular period, which means that this candle is hollow.
So it's green and it's a hollow candle which means the clothes on both comparisons are going to be both higher for that day. Just one other example if you look at this big red candle by contrast, it's a filled in candle meeting it's a solid filled in red colour over here and if we hover over here, the close shows us at 3490. If we go to the previous candle, it was 3525 so we know the close was lower compared to the previous.
On the same candle, if we look at the opening price, which is 3534, it was also higher so in this case, this horizontal line represents the open and this represents the close over here. Therefore, this whole candles a red candle and this is really showing us the tug-of-war taking place between the bulls and bears in the market.
These candles also form patterns and this is where traders use them for analysis and trading considerations.
One of the patterns I'm gonna show you, there are quite a few can look at but one of the ones you can look at is what we have over here. This one is known as a hammer pattern, it's a single formation that usually occurs at the bottom of the trench and it signals a bullish reversal to the upside. You see this a hammer pattern. If you want to learn more about these patterns and how to interpret them, you can go to our technical section.
Within the technical section, we have an education area. By clicking the graduation In this corner, you then want to head over to where it says short-term patterns. This is where you are going to see some of those colourful names to look at. We looked at hammer and hanging man. If you look at hanging Manor gives you a bit more of a description.
We do have some great video lessons on candlesticks. Just typing into the search bar candlesticks and you are going to be able to find some of those videos that we have available to you as well. You will see in the search a number of those video lessons and anything related. Be sure to check out some of those videos there as you navigate your learning journey into this and that's your primer on candlestick charts. Be sure to make it a consideration as part of your charting repertoire.
>> Our thanks to Hiren Amin, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre and what broker or use this QR code to navigate to TD Direct Investing's YouTube page. Once you are there, you will find more informative videos.
We are back with Anthony Imbesi taking your questions about high-yield bonds.
This one just came in. What's your outlook on global high-yield as global central banks continue to raise rates? What countries do you like? Here on the platform we cannot give any recommendations but let's talk about global high-yield and how it fits into the picture.
>> It's a broad market. There are many countries that companies issue out of.
Let's talk about Europe. There are opportunities if you want to find global high-yield. Basically it would come down to a company specific basis. With that company for instance is its business specific to the country it is domiciled in or is it more international? When we look at it, how to the bonds, what yield a return on the bonds do you get in Canada or the US?
That's how we make the comparison. If it's attractively included in the portfolios.
Generally, global central banks easing, that should, depending on if they easing time or are able to avoid economic slowdowns, that will determine the performance of those companies but again how international are those companies? The more international they are, the less dependent they are on specific central bank tightening or easing.
>> Anthony corrected us.
That was easing, typo in the question.
Next question. What do you make of the quality of the high-yield market generally moving closer to investment grade?
Companies that once were there and then got investment grade, what happens?
>> What we have seen in high-yield in the last few years as an increase in the percentage of BBs.
Companies have been migrating there credit ratings to higher quality. I think for five years ago it was about 45% of the market was double be. Today it's over 50%.
It has migrated up in quality. Single bees have reduced as a percentage of the market and triple Cs have stayed about the same.
From a potential return outlook, if you are thinking of absolute returns, yes, double bees do not pay as much as they used to relative to triple bees, investment grade. However, on a relative basis, what you are seeing is some of these double be companies, they have investment grade like balance sheets so effectively, even though that premium to triple bees isn't what it used to be and it's on the tighter and historically, if you want to buy double B today knowing that in 6 to 12 months it will get upgraded to a triple B, you are still getting paid more for that risk right now so effectively you are buying triple bees at double B prices and when we look at portfolios, we don't discriminate from a rating perspective. We try to incorporate all rating categories. We basically look at the return characteristics, the risk and if it makes sense, we included.
>> Another question now from the audience.
We talked global. Someone wants to get specific. Are there any opportunities out there in emerging markets?
>> In short, yes. There always are.
They are just not as easy to find, from our perspective. There's always challenges when looking at EM or emerging markets in addition to what you do with the credit fundamentals when you look at a company domiciled in North America.
In addition to that credit work, you have to look at political risk, regulatory risk, how developed are the regulatory markets where the bonds are issued out of, do investors have protections? If things go badly, you don't have a Chapter 11 filing like you do in the US which is pretty much the most advanced market for restructuring. These are things to keep in mind I think when looking at emerging markets but from time to time we come across opportunities that are attractive when we consider all those risks and it makes sense for the portfolios.
>> You talk about emerging markets and you start talking about jurisdictions that can be wildly different in each other but they might follow that same bucket.
>> Correct.
A disadvantage you have is that a North American based investor is that you are not living in that country. The whole different perspective culturally in the way things work. There are aspects that if you are not living there versus someone who is, that's another challenge to consider. Like you said, it's country specific. Huge difference between countries… >> In that same bucket. Interesting stuff.
We are going to get back to your questions for Anthony Imbesi on high-yield bonds and just moments time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can 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.
Well, the US economy has been showing signs of slowing but investors are optimistic that the Federal Reserve can engineer that soft landing. We have inflationary pressures gradually receding but of course there are no shortage of risks out there in the world. Our Anthony Okolie joins us now, TD Economics taking a look at the US economy and giving us an outlook.
>> TD Economics is that over the past quarter, developments in the US have read like a bit of a story book. The economy has cooled but hasn't collapsed, economic growth is just above 2%, inflation is moving closely towards its 2% target and giving the Fed confidence to cut rates without reheating the economy. Meanwhile on the US jobs market, it has cooled enough for the Fed to pivot away from inflation and focus on the softening of the labour market. The job market has moved back into balance where demand for workers is not exceeding the availability of workers so a bit more balanced there than we have seen in the past.
On economic growth, TD Economics says they marginally revise their 2024 growth forecast slightly higher to 2.6%. However, they do expect growth to slow to around 2% by the end of the year.
On consumer spending, they believe that consumer spending continues to be resilient. However, there are some headwinds that pose a risk to consumer spending going forward even as lower rates provide a floor under demand.
One risk of course the erosion of pandemic era savings as well as rising credit card and auto delinquency rates as well as a cooling labour market. So TD Economics is forecasting for 2024 for consumer spending come in at a pretty respectable 2.5% but they do see consumer spending falling to just under 2% in 2025.
Finally on fiscal policy, TD Economics is the outlook for fiscal policy remains an uncertainty particularly with the US election just around the corner. Their base case is that government spending will slow more likely under a divided Congress.
The base case does not include changes to tax policy.
However they note that if VP Harris does win the presidency, that could result in a downward revision to economic growth between 20 to 30 basis points in 2026 depending on the extent of those changes and compromises in Congress.
>> The US Federal Reserve took a look at all that economic data, put it together, delivered a 50 basis point cut right out of the gate.
What is the report think about rates going forward?
>> TD Economics believes that the September and October jobs report could be the deciding factor on whether or not we see a 25 basis point or 50 Basis Point Rate Cut in November. Now, TD Economics believes that another half-point rate cut is coming in November. They see quarter-point cuts in meetings thereafter.
They also see a neutral overnight rate of roughly 3% by next year.
>> Interesting stuff. Of course, with the world is waiting for. Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are going to jump into the heat map function here, a nice view of the market movers. Topline TSX composite index on my screen down about 1/10 of a percent.
Beneath the surface, we will look at the 60. We are seeing continued strength in some Uranium Pl., Cameco is up another 3% today, 15% in the past week or so, some interest in the space and generally over the past year or so, a favourable attitudes out there towards nuclear energy meeting some of those demands including artificial intelligence which consumes a lot of electricity. Across the rest of the energy space, it's a mixed picture.
Pipelines and bridge and trap up positively. Oil and gas names giving back a bit today to the tune of about 1/2 to 2%.
Financials are a little mix, looking at Manulife and Sun Life showing a little bit of strength and earlier in the program we were talking about Wall Street getting more cautious on the US automakers. In this country, that's Magna, auto parts perhaps feelings of the pressure of that period covered thereby the TD logo.
Let's go down to the stateside, take a look at the S&P 100 again. The topline S&P 500, the broader read of the market, down about 1/10 of a percent. Lift up the hood, take a closer look. Some of the tech names, including the chip names getting up late today, Nvidia up 2%, Intel three, AMD up to. Meda, we told you earlier they are having their big event to show off some augmented reality. We will see what we get out of that later in the day but those automakers Ford and GM, Wall Street is a bit more cautious. You're getting a softening US consumer, ramped up competition from China, a bit more cautious on the demand for vehicles going forward in that economy.
We are back now with Anthony Imbesi from TD Asset Management. Another question about a Canadian company. Can you comment on Corus Entertainment with bond yields at double digits, how should investors interpret the high-yield rate?
>> Corus, it's an interesting situation.
The company has had headwinds from all sides, all directions. In addition to the secular headwinds, it has had cyclical, huge decline in advertising sales, they lost some content rights and it has competitor entering this market and make it less challenging for it.
All of that combined has caused a big deterioration in revenue and as a result the company's liquidity is challenge. The latest financial results included language indicating that there is uncertainty about the company's ability to continue. That's always a sign that steps should be taken very seriously. With respect to bonds, they were trading at $0.35 on the dollar.
They have moved up to $0.50 and I think that happened when the news of Quebecor having potential interest in acquiring the company which did not pan out so the bonds now are about $0.50 on the dollar, they remained there and as you mentioned with yields in the mid to low 20s. That is the market telling you that this is a distressed situation. The company will be challenged to refinance these bonds and there will probably be some form of impairment or restructuring involved going forward.
>> I imagine if there was a turnaround story to be had here it's going to be a long game.
>> That's a fair to say.
>> The yield is reflecting what the company itself is told us about it situation and the challenges it's facing.
>> It would need an injection of capital or to be acquired.
>> Interesting story and one that applies to the Canadian media landscape. We have run out of time for questions. Before I let you go, we started the conversation about high-yield, what it is, what are the potential opportunities. What do investors need to keep in mind if they want to walk away from the program and do some homework on high-yield.
>> Hopefully we have help people understand the asset class better and its benefits, its risks. Consider that. When you have your fixed income portfolios, perhaps there is a solution that involves or includes high-yield. All the benefits are there but again, always be mindful of the risk.
Have a strategy in place. Understand your investment objectives. The longer term perspective, your investment horizon, the better chance you have on capitalizing on those opportunities and really that's the best way I can… >> Do your homework, be aware of the risks, have a long-term plan for yourself.
All things we like to hear. Great to have you here. I hope you come back and do it again.
>> My pleasure. Thank you.
>> Thanks to Anthony Vessey, VP and Dir.
for high-yield portfolio management with TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your questions today, we are going to aim to get into future shows. Stay tuned for tomorrow show. Jennifer Martin, global equity portfolio specialist with T. Rowe Price will be our guest discussing how to look for technology stocks. That's all the time we have for today's show. Thanks for watching. We will see you tomorrow.
[theme 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 discussed the potential opportunity in the high-yield fixed income space. TD Asset Management's Anthony Imbesi joins us.
MoneyTalk's Anthony Okolie is going to have a look at a TD Economics forecast for the US economy. And in today's WebBroker education segment, Hiren Amin is going to shows how you can use candlestick charts to analyse a potential investment.
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 all that and our guest of the day, let's get you an update on the markets.
We will start her at home with the TSX Composite Index we have been touching new highs and recent sessions. Today, a bit of downside, 15 points or seven takes. What's happening below the surface? We are continuing to see some of the uranium plays get a bid. A little more modest in terms of the gains from Cameco today but over the past week it is up about 15%, putting on another 1.6% today. Part of that news was last week about 3 mile I agree starting to provide power to, and nuclear facility, resuming the functions that give power to Microsoft. The tech giants are very hungry for electricity with their AI demands. We got Kinross on the move today as well to the upside, that it started to come off the highs of the session. 1315, that's up a very modest face of a percent. South of the border, markets have been reaching new highs and recent sessions, a bit of a pause in that rally today. The S&P 500, the broader read of the market, down a very modest seven points or 1/10 of a percent. The tech heavy NASDAQ was in positive territory modestly earlier and indeed at 51 points, it is up almost 1/3 of a percent.
General Motors though, going to tell you a bit more about how Wall Street is feeling about the automakers but it's not great.
They are starting to lose a little bit of confidence in these names in terms of their ability to sell to the American public considering the economy is softening. It news of that has the space in general down, General Motors down about 5 1/2%. And that's your market update.
In a falling interest rate environment, investors may be considering the potential opportunities in fixed income.
Joining us now to discuss how things look in the high-yield space is Anthony Imbesi, VP and Dir. for high-yield portfolio management at TD Asset Management.
Welcome to the program.
>> Thanks for having me.
>> Your first time here, we do this with first time guests, we get them to tell a little bit about their work and what they do here at the bank for the audience.
>> I'm a portfolio manager. I've been with TD Asset Management for 8 1/2 years.
I am responsible for the fixed income mandates, particularly the high-yield portfolios that we manage in the active fixed income team.
>> High-yield can be an interesting space but perhaps one that is not well understood by investors.
Give us an overview of the high-yield market. What is it comprised of?
>> The high-yield market is essentially any debt, whether it's bond or loans, that's rated below investment grade. So anything with a triple B- rating or lower is considered high-yield or leveraged credit and it's quite a big market.
The US dollar market is about 1.3 trillion in size. If you include euro denominated high-yield and emerging markets and leveraged loans, you can get to 3 1/2 trillion. If you throw in private credit or direct lending, it gets to about 5 trillion or greater. So that's a pretty big market, it's significant and it's one that should not be ignored.
When people refer to the high-yield market, a common term that we hear… >> I know it by a different name.
>> Junk bonds, right?
It's thrown out by the media a lot but it's misleading because a lot of these companies, every asset class has good quality companies and lower quality companies. High-yield is no exception. And within that space, I think it's important to know is you can find good companies that might be rated high-yield that can make perfect sense for fixed income portfolios.
When we look at the high-yield market, one of the things we do is we screen out all these potentially lower quality names in our analysis but effectively it's a market that should be considered for any investors in their high-yield portfolio and we will be talking about junk bonds.
It's important market for issuers. If you cannot issue in the investment grade market, this is the market where companies can access capital and grow their businesses. Some companies have actually grown to become investment grade over time while others have remained high-yield and there's nothing wrong with that. For example, when we look at, I'll name some companies for you, Ford motors, craft kinds, T Mobile, Netflix, Uber, Tesla and in Canada, National Bank, Laurentian Bank, Bombardier, Rogers, Quebecor, all these companies have or have had at one point high-yield.
>> I'm surprised to hear that. These are some big name companies.
>> If you paint the entire area with the same brush, you are missing opportunity.
Investors might own equities directly or indirectly, institutions of the equities of these companies and yet if things went badly and you got into a bankruptcy or restructuring scenario, you would much rather be a bondholders and equity holder because bondholders get paid off first before any residual value gets allocated to the equity holders.
And don't forget, this high-yield market, it's a market that's invested by institutions such as pension funds, wealth funds, insurance companies. They do it to enhance their income, improve their returns.
>> Let's talk about, a nice breakdown of the space, a better understanding of the space. Probably people in the audience are saying that they didn't know many of those companies were previously high-yield.
See you have some charts.
>> There different opportunities in high-yield. I will highlight some quickly.
Obviously, return is the big one.
High-yield has had compelling returns historically. It has outperformed pretty much every major fixed income asset class that we have seen. The bars on the left, that graph shows you with how it compares with the more deemed safe investment grade corporate bonds or even treasuries or government bonds which you can see here.
Let's just look at investment grade compared to high-yield. Over time, over 20 years, annually, you can get up to 200 basis points or more where the market has delivered 200 basis points or more of excess returns than those asset classes.
You compound that, that can really make a difference in the outcomes of investors portfolios. And a lot of people say, what about the risks? Yes, you can get certain assurance, but price volatility. So I guess this graph here, we indicate, we adjust for that. What we are doing as we are showing the returns for the asset classes, a few asset classes, and we are showing volatility and we are taking the ratio between that and you can see loans and high-yield, this is leveraged credit, comes out ahead of the other asset classes. You are getting more return for that given amount of volatility which again makes it a more compelling argument to consider high-yield or leveraged credit as part of your fixed income solution.
>> Do we have one more picture for the audience? I had rubber if we had two or three.
>> That was it.
>> They were nice pictures.
>> The best benefit I guess is returns but there are other benefits like diversification.
If you just limit yourself to Canadian investment grade corporate, you're really limiting yourself to a much smaller market but if you start including high-yield into that, you are giving yourself access to a market that's 4 1/2 times the size. Over its three times the size before 1/2 times more companies to choose from and over 25 different industries. For example, Canadian IG, 35% of the market is just financials, financials and utilities. They make up 50% of the market. If you throw in energy, that's almost 2/3 of the Canadian corporate investment grade market. You can't really diversify your portfolio with those three sectors. Bringing in high-yield gives you that opportunity.
Another thing is duration. Duration is much lower in high-yield and it is in your investment grade bonds. The reason is, typically, high-yield bonds have a 5 to 10 year maturity and they are also callable so they never really get to the maturity which means you have a shorter duration period And therefore less sensitivity to interest rate risk.
>> Let's talk about risk. Yield it usually reflects risk and risk premium. Yields are higher. What we need to be aware of?
>> Like every asset class, there are always risks involved. High-yield, particularly, credit risk is the big one.
You are taking on credit risk by investing in high-yield and when we talk about credit risk, there different components of it. The big one is default risk. Default risk is when a company misses a coupon payment or discount pay its principal back maturity. Other types of default risk that we are seeing more these days are distressed debt exchanges and that occurs when a company offers to exchange its existing bonds, the company's bonds are trading at the stress level, for new bonds and it entices bondholders to kind of accept that deal with the alternative being, if you don't, we can go through restructuring, Chapter 11 bankruptcy and take your chances there. Sometimes the outcomes are worse out of a Chapter 11 bankruptcy, sometimes they are better. But what gives the bondholders the option of his two value the proposal and say, fine, we will take a discount today, keep the company alive, we extend the bond maturity, the company looks to operate another day and continues for the benefit of not going through to Chapter 11 restructuring.
>> Fascinating stuff and a great start to the program. We are going to get your questions about high-yield bonds for Anthony Imbesi in just 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.
Let's get back to those Detroit automakers. Shares of Ford and General Motors in the spotlight today under some pressure. What's going on? Wall Street is more cautious on the industry as US consumers slow their spending amid economic uncertainty in Chinese automakers ramp up the competition.
Those concerns are also weighing on auto related stocks closer here to home. Magna is an auto parts maker. It is down to the tune of about 3 1/2%.
The parent company of Facebook taking another run at getting consumers excited about the Metaverse.
Meta Platforms holding its annual connect conference today, expected to preview new offerings in augmented reality, including some rumoured AR glasses. AR, I'm so used to saying AI all the time. You can bet that artificial intelligence will be on the agenda as well.
Meta, it changed its name because they were so excited about the Metaverse, tries to get us excited about those offerings.
You're up about 1.2% on Bennett. Shares of US homebuilder KB Home under pressure today. The company's third-quarter earnings falling short of expectations and the homebuilders gross margins fell compared to the same period last year. KB Home has had a decent return over the past year, and $83.20, down about 5%.
Quick check in on the markets, we will start her on Bay Street the TSX Composite Index. We have been touching new highs recently. Today, a bit of a pullback. It's modest. You're down 16 points or less than 1/10 of a percent.
South of the border, also a pulse on the rally. It's been a strong September, bumpy start to the month, investors usually think September is a tough one, we are not finished yet but today we are down six points or 1/10 of a percent.
We are back with Anthony Imbesi from TD Asset Management, we are taking your questions about high-yield bonds. First one for you here. What are the red flags to watch for in high-yield bonds when doing your homework?
>> As a broader question about red flags, credit cycle and credit spreads. The credit cycle ebbs and flows and where we are in the credit cycle will have an impact or determination on the performance of high-yield bonds.
When credit conditions are tightening, that's typically when you start to see companies become challenged or stressed.
They run out of liquidity, the ability to service their debt is more challenging, rates are rising and you tend to see an increase in default rates.
In an easing cycle or when monetary conditions are more relaxed, default rates decline, companies have better access to capital. One of the concerns that we always look for is that in those type of conditions, if capital is too cheap or too readily available, you can see a risk of misallocation of that capital, poor investment decisions were poor allocation of capital decisions by companies, whether it's private equity overpaying for LBOs or companies overpaying for M&A, that can always lead to future spikes and default rates when things do turn and those companies can no longer fund that debt.
>> When we think about those kind of cycles, we are now starting to ease, and people look at the space, which is the need to know about spread? If you knew this space, you probably hear about spreads. If you're looking at one yield, you are comparing it to the government yields. How to those spreads react in those environments?
>> Credit spreads are the premium that compensate you for the credit risk of high-yield. So really in corporate credit risk, you have default risk. Investors will get paid or expect to get paid a premium over risk-free government bonds or treasuries and that credit risk really gives you an idea or indication of what credit conditions are like or what they will be like going forward. When you see credit spreads widen, the market is essentially saying credit risk is increasing. We may go into a recession. We may see a spike in default rates.
Typically, that usually is what kind happens. When spreads are at their tightest, the market is basically pricing in good times or economic conditions and fundamentals are good. Companies will be able to pay their debts, service their debts, operations are fine, they generate cash flow and so on.
>> Fascinating space. We are just starting to dig into it. Another audience question.
Someone wants to know, what is the best way to assess high-yield bonds?
>> Go question. There is no one best way.
I can tell you how we do it. We start off with the question, is this a good business?
To determine that, you have to do the analysis, fundamental, bottom-up analysis.
Analyse the financials, cash flows. We look at free cash flow generation of a company. This is what's left over after the company pays for its operating expenses, taxes, interest expense, capex and then whatever's left over is what's available, what the company can generate.
When we look at management teams, that's always very important for us. Are they good allocators of capital? What's their track record like? Do they take care of all stakeholders or Jewish short-term equity share price performance is all they focus on. Backer risk, industry-specific risk, ESG factors, everything like that, including Bond specific risks. Other covenants? Did the covenants have protection or the increase risk to the bondholder?
Things like that and once we assess that risk, we have to price it. There is one thing to say we have a great company, but are we getting paid for the risk? Are we being compensated to take on that risk? If we are, if it's attractive enough, we included in the portfolio and if not we don't.
When the valuations change, they become less attractive, we sell that bond.
>> It sounds like the kind of homework you are doing there is a kind of homework and equity investor would want to do, is it a sound company, what is the cash flow after paying off obligations. When you get into covenants, that might be where you break from equity.
>> It is quasi-equity like in terms of the analysis.
You sell the performance numbers.
Historically, higher coupons to compensate for that risk and therefore you have to treat it because you like and equity.
>> Interesting stuff. Another audience question. Someone wants to get your outlook on low-quality credit bonds. As an example, single B and triple C, especially if the US economy only weekends modestly.
You see a modest pickup in default rates versus previous cycles?
>> Good question. Single bees and triple Cs are considered riskier than higher quality double bees.
During an economic downturn, that's the cohort that tends to deteriorate more.
Given where we are now, if nothing else changes, we should probably see, default rates are about 1.7%, that's the current default rate. Long-term average is about 4%. So we are below that. I would say we will probably see a migration upwards of the default rate over the next year and this is really just reflective of the fact that we've just come out of a very tight monetary financial conditions. Credit conditions have been externally type for a while. Interest rates for some companies that have variable debt have increased about 500 basis points and that's really been a challenge for some of these companies to service.
50 basis point cut last week may not be enough.
>> It starts the process.
>> It starts the process but it really depends on how many there are and how quickly they come. We expect part of those lower quality companies to default and that will help get the default rate to rise a bit. Not sure if we approach 4% sooner or later, but that's kind of where we see it going if economic conditions remain the same.
>> Is it surprising that even though credit conditions got that tight, it was a hiking cycle that was pretty aggressive, >> The economy has been quite resilient despite how tight credit conditions have become so I think had you not been invested, if you try to time the market by saying default rates are going to spite, credit conditions are tight, you would've missed out on some quite attractive opportunities.
>> As always, make sure you do your own research before making any investment decisions.
were going to get back your questions for Anthony Imbesi on high-yield bonds in just a moment's 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.
Let's talk candlestick charts. One tool you may consider using to analyse the potential investment. Hiren Amin, Senior client education instructor with TD Direct Investing has more.
>> Today's education segment is all about technicals in which we will be spotlighting candlestick charts. My hope is to enlighten you about them.
So let's talk about technical analysis a little bit and charts. Charts are like a map. History tends to repeat itself. This has proven itself time after time in the financial markets and price action fits into repeating patterns. Candlestick charts are one of the best ways to illustrate this natural recurrence that we see in the financial markets.
They have served as a cornerstone to technical analysis.
A little bit of history on candlestick charts and how they started. It originated back in Japan in the early 1700s. This was way before any Western charting techniques had been adopted yet. It got its birth from the fact that Japan was trading race as a commodity and the rice traders were seeing a correlation between price and the supply and demand of that race as well and as the different emotions that would come when they trade those and how that would impact the price. So this is how the birth of candlestick charts came about. It was a way to represent that emotion and that trading in the form of these charts and through different colours which we are going to see in just a moment's time.
So that's the birth of candlestick charts, the cornerstone for most technicians and let's go into a broker right now and show you how you can interpret them and set them up for yourself. Within web broker, I'm going to be using a ticker that's broadly covering our TSX market here in Canada.
To bring up the candlestick charts, the way you want to do that is you want to go into your chart style drop-down menu.
Within here, you want to check off what says candlesticks. Once you got your candlestick charts, what you are seeing is the use of bars and pails Gorewicz show up on your chart. How do we interpret them?
Let's go through the anatomy of a candlestick. I'm gonna zoom in over here to show you how it looks.
There is a six-month one day frame. Each of these candles represents one days price action. There's two parts to the candlestick.
There is this long rectangular body and sometimes it could be a very now or small rectangular body and then this vertical line on either side of the body is what we call the shadow, the upward shadow, the top are, and the lower shadow for the bottom. Sometimes it's also called wicks, lower and upper wake. The way you want to see this or what a candlestick tells us is for different price actions, tells us about the open, the close and the high and low during that period.
In this case, it's gonna be one day is what we are looking at. Starting with the high and low, that's pretty straightforward. The bottom represents low and the tip of the upper shadow represents the high.
The open and close is going to vary, it's based on this horizontal line that the rectangular box over here. This is where the colours really come into play. What broker does two things when it represents the candlestick colours. It's doing a comparison of the close to the open for this particular day but also the clothes against the previous day's close as well.
The way you want to see it is first and foremost if you notice this candle right over here, it's outlined in green but you will notice it's hollow, it's not filled in.
That's what we're zooming in on. What does this mean for us? It tells us and if you move right over it, gives you the price legend right over here so we can see it closed at 3565 and in this case we can see that it was at 3549. This close was higher than the previous day's close so therefore it gets outlined.
However, if you look at the same period, that open was at 3560 and the close was at 3565 which means the close was higher than the opening for this particular period, which means that this candle is hollow.
So it's green and it's a hollow candle which means the clothes on both comparisons are going to be both higher for that day. Just one other example if you look at this big red candle by contrast, it's a filled in candle meeting it's a solid filled in red colour over here and if we hover over here, the close shows us at 3490. If we go to the previous candle, it was 3525 so we know the close was lower compared to the previous.
On the same candle, if we look at the opening price, which is 3534, it was also higher so in this case, this horizontal line represents the open and this represents the close over here. Therefore, this whole candles a red candle and this is really showing us the tug-of-war taking place between the bulls and bears in the market.
These candles also form patterns and this is where traders use them for analysis and trading considerations.
One of the patterns I'm gonna show you, there are quite a few can look at but one of the ones you can look at is what we have over here. This one is known as a hammer pattern, it's a single formation that usually occurs at the bottom of the trench and it signals a bullish reversal to the upside. You see this a hammer pattern. If you want to learn more about these patterns and how to interpret them, you can go to our technical section.
Within the technical section, we have an education area. By clicking the graduation In this corner, you then want to head over to where it says short-term patterns. This is where you are going to see some of those colourful names to look at. We looked at hammer and hanging man. If you look at hanging Manor gives you a bit more of a description.
We do have some great video lessons on candlesticks. Just typing into the search bar candlesticks and you are going to be able to find some of those videos that we have available to you as well. You will see in the search a number of those video lessons and anything related. Be sure to check out some of those videos there as you navigate your learning journey into this and that's your primer on candlestick charts. Be sure to make it a consideration as part of your charting repertoire.
>> Our thanks to Hiren Amin, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre and what broker or use this QR code to navigate to TD Direct Investing's YouTube page. Once you are there, you will find more informative videos.
We are back with Anthony Imbesi taking your questions about high-yield bonds.
This one just came in. What's your outlook on global high-yield as global central banks continue to raise rates? What countries do you like? Here on the platform we cannot give any recommendations but let's talk about global high-yield and how it fits into the picture.
>> It's a broad market. There are many countries that companies issue out of.
Let's talk about Europe. There are opportunities if you want to find global high-yield. Basically it would come down to a company specific basis. With that company for instance is its business specific to the country it is domiciled in or is it more international? When we look at it, how to the bonds, what yield a return on the bonds do you get in Canada or the US?
That's how we make the comparison. If it's attractively included in the portfolios.
Generally, global central banks easing, that should, depending on if they easing time or are able to avoid economic slowdowns, that will determine the performance of those companies but again how international are those companies? The more international they are, the less dependent they are on specific central bank tightening or easing.
>> Anthony corrected us.
That was easing, typo in the question.
Next question. What do you make of the quality of the high-yield market generally moving closer to investment grade?
Companies that once were there and then got investment grade, what happens?
>> What we have seen in high-yield in the last few years as an increase in the percentage of BBs.
Companies have been migrating there credit ratings to higher quality. I think for five years ago it was about 45% of the market was double be. Today it's over 50%.
It has migrated up in quality. Single bees have reduced as a percentage of the market and triple Cs have stayed about the same.
From a potential return outlook, if you are thinking of absolute returns, yes, double bees do not pay as much as they used to relative to triple bees, investment grade. However, on a relative basis, what you are seeing is some of these double be companies, they have investment grade like balance sheets so effectively, even though that premium to triple bees isn't what it used to be and it's on the tighter and historically, if you want to buy double B today knowing that in 6 to 12 months it will get upgraded to a triple B, you are still getting paid more for that risk right now so effectively you are buying triple bees at double B prices and when we look at portfolios, we don't discriminate from a rating perspective. We try to incorporate all rating categories. We basically look at the return characteristics, the risk and if it makes sense, we included.
>> Another question now from the audience.
We talked global. Someone wants to get specific. Are there any opportunities out there in emerging markets?
>> In short, yes. There always are.
They are just not as easy to find, from our perspective. There's always challenges when looking at EM or emerging markets in addition to what you do with the credit fundamentals when you look at a company domiciled in North America.
In addition to that credit work, you have to look at political risk, regulatory risk, how developed are the regulatory markets where the bonds are issued out of, do investors have protections? If things go badly, you don't have a Chapter 11 filing like you do in the US which is pretty much the most advanced market for restructuring. These are things to keep in mind I think when looking at emerging markets but from time to time we come across opportunities that are attractive when we consider all those risks and it makes sense for the portfolios.
>> You talk about emerging markets and you start talking about jurisdictions that can be wildly different in each other but they might follow that same bucket.
>> Correct.
A disadvantage you have is that a North American based investor is that you are not living in that country. The whole different perspective culturally in the way things work. There are aspects that if you are not living there versus someone who is, that's another challenge to consider. Like you said, it's country specific. Huge difference between countries… >> In that same bucket. Interesting stuff.
We are going to get back to your questions for Anthony Imbesi on high-yield bonds and just moments time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can 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.
Well, the US economy has been showing signs of slowing but investors are optimistic that the Federal Reserve can engineer that soft landing. We have inflationary pressures gradually receding but of course there are no shortage of risks out there in the world. Our Anthony Okolie joins us now, TD Economics taking a look at the US economy and giving us an outlook.
>> TD Economics is that over the past quarter, developments in the US have read like a bit of a story book. The economy has cooled but hasn't collapsed, economic growth is just above 2%, inflation is moving closely towards its 2% target and giving the Fed confidence to cut rates without reheating the economy. Meanwhile on the US jobs market, it has cooled enough for the Fed to pivot away from inflation and focus on the softening of the labour market. The job market has moved back into balance where demand for workers is not exceeding the availability of workers so a bit more balanced there than we have seen in the past.
On economic growth, TD Economics says they marginally revise their 2024 growth forecast slightly higher to 2.6%. However, they do expect growth to slow to around 2% by the end of the year.
On consumer spending, they believe that consumer spending continues to be resilient. However, there are some headwinds that pose a risk to consumer spending going forward even as lower rates provide a floor under demand.
One risk of course the erosion of pandemic era savings as well as rising credit card and auto delinquency rates as well as a cooling labour market. So TD Economics is forecasting for 2024 for consumer spending come in at a pretty respectable 2.5% but they do see consumer spending falling to just under 2% in 2025.
Finally on fiscal policy, TD Economics is the outlook for fiscal policy remains an uncertainty particularly with the US election just around the corner. Their base case is that government spending will slow more likely under a divided Congress.
The base case does not include changes to tax policy.
However they note that if VP Harris does win the presidency, that could result in a downward revision to economic growth between 20 to 30 basis points in 2026 depending on the extent of those changes and compromises in Congress.
>> The US Federal Reserve took a look at all that economic data, put it together, delivered a 50 basis point cut right out of the gate.
What is the report think about rates going forward?
>> TD Economics believes that the September and October jobs report could be the deciding factor on whether or not we see a 25 basis point or 50 Basis Point Rate Cut in November. Now, TD Economics believes that another half-point rate cut is coming in November. They see quarter-point cuts in meetings thereafter.
They also see a neutral overnight rate of roughly 3% by next year.
>> Interesting stuff. Of course, with the world is waiting for. Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are going to jump into the heat map function here, a nice view of the market movers. Topline TSX composite index on my screen down about 1/10 of a percent.
Beneath the surface, we will look at the 60. We are seeing continued strength in some Uranium Pl., Cameco is up another 3% today, 15% in the past week or so, some interest in the space and generally over the past year or so, a favourable attitudes out there towards nuclear energy meeting some of those demands including artificial intelligence which consumes a lot of electricity. Across the rest of the energy space, it's a mixed picture.
Pipelines and bridge and trap up positively. Oil and gas names giving back a bit today to the tune of about 1/2 to 2%.
Financials are a little mix, looking at Manulife and Sun Life showing a little bit of strength and earlier in the program we were talking about Wall Street getting more cautious on the US automakers. In this country, that's Magna, auto parts perhaps feelings of the pressure of that period covered thereby the TD logo.
Let's go down to the stateside, take a look at the S&P 100 again. The topline S&P 500, the broader read of the market, down about 1/10 of a percent. Lift up the hood, take a closer look. Some of the tech names, including the chip names getting up late today, Nvidia up 2%, Intel three, AMD up to. Meda, we told you earlier they are having their big event to show off some augmented reality. We will see what we get out of that later in the day but those automakers Ford and GM, Wall Street is a bit more cautious. You're getting a softening US consumer, ramped up competition from China, a bit more cautious on the demand for vehicles going forward in that economy.
We are back now with Anthony Imbesi from TD Asset Management. Another question about a Canadian company. Can you comment on Corus Entertainment with bond yields at double digits, how should investors interpret the high-yield rate?
>> Corus, it's an interesting situation.
The company has had headwinds from all sides, all directions. In addition to the secular headwinds, it has had cyclical, huge decline in advertising sales, they lost some content rights and it has competitor entering this market and make it less challenging for it.
All of that combined has caused a big deterioration in revenue and as a result the company's liquidity is challenge. The latest financial results included language indicating that there is uncertainty about the company's ability to continue. That's always a sign that steps should be taken very seriously. With respect to bonds, they were trading at $0.35 on the dollar.
They have moved up to $0.50 and I think that happened when the news of Quebecor having potential interest in acquiring the company which did not pan out so the bonds now are about $0.50 on the dollar, they remained there and as you mentioned with yields in the mid to low 20s. That is the market telling you that this is a distressed situation. The company will be challenged to refinance these bonds and there will probably be some form of impairment or restructuring involved going forward.
>> I imagine if there was a turnaround story to be had here it's going to be a long game.
>> That's a fair to say.
>> The yield is reflecting what the company itself is told us about it situation and the challenges it's facing.
>> It would need an injection of capital or to be acquired.
>> Interesting story and one that applies to the Canadian media landscape. We have run out of time for questions. Before I let you go, we started the conversation about high-yield, what it is, what are the potential opportunities. What do investors need to keep in mind if they want to walk away from the program and do some homework on high-yield.
>> Hopefully we have help people understand the asset class better and its benefits, its risks. Consider that. When you have your fixed income portfolios, perhaps there is a solution that involves or includes high-yield. All the benefits are there but again, always be mindful of the risk.
Have a strategy in place. Understand your investment objectives. The longer term perspective, your investment horizon, the better chance you have on capitalizing on those opportunities and really that's the best way I can… >> Do your homework, be aware of the risks, have a long-term plan for yourself.
All things we like to hear. Great to have you here. I hope you come back and do it again.
>> My pleasure. Thank you.
>> Thanks to Anthony Vessey, VP and Dir.
for high-yield portfolio management with TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your questions today, we are going to aim to get into future shows. Stay tuned for tomorrow show. Jennifer Martin, global equity portfolio specialist with T. Rowe Price will be our guest discussing how to look for technology stocks. That's all the time we have for today's show. Thanks for watching. We will see you tomorrow.
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