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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, we'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, Ben Gossack of TD Asset Management is going to tell us why insurance stocks are often overlookedwhen we talk about the financials and why investors may be missing out. And in today's WebBroker education segment, Nugwa Haruna is going to show us how you can research stocks based on their market capitalization on the TD 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 get you an update on the markets. It's a mixed picture out there.
We got a fresh print on US inflation this morning, market is trying to digest it all. A little hotter than expected. Anthony is going to join us later in the show and break it all down for us.
If we look right now the TSX, we are down 101 point for about half a percent. One of the most actively traded names on the TSX today in is Shopify, getting a bid in the morning session.
It's up 1 1/2% to 74 bucks and change. Canine to mining actually came out with their production guidance for a gold mine they have in Papua New Guinea and that seems to be hitting the shares, down a little bit more than 5%.
South of the border, investors trying to make sense of Fed officials coming out of the past couple of days and saying maybe they might be done with the rate hikes because of the bond yield pushing higher in the market in the past several weeks.
Other prints on inflation today perhaps not exactly what was want to be seen by central bankers.
He put it all together, what do you get?
A flat market.
The S&P 500 down just to take us right now. Let's check in on the tech heavy NASDAQ and see how it's faring against the broader market.
There is a little bit of upside, but it is modest.
It's up a little bit more than 1/10 of a percent. I want to check in on automaker Ford. Automakers doubt that the border expanding strike action against them.
Right now, that stock is down almost 2%. And that is your market update.
When it comes to portfolio management, you often hear discussions about the financial sector and more specifically the banks. Well, our guest today says investors may be forgetting another part of that sector: the insurance companies. And that could be a mistake.
Ben Gossack, managing director and portfolio manager at TD Asset Managementjoins us now.
walk us through this.
>> Thanks for having me back, Greg.
Let's at the scene. I used to be the bank analyst when I covered stocks.
And you just get inundated with bank questions.
People always ask about banks.
Rarely do we talk about insurance companies.
And when we have gone back and looked at performance of banks versus insurers, the results were quite surprising.
There has been persistent outperformance in the insurance sector over banks and yet this is often overlooked.
>> We can show the audience a chart of that in terms of taking the financial sector, parsing out banks against the insurance companies. What does this tell us? This is obviously a line that goes up into the right, but what does the line represent?
>> This stands out the most because it's basically a 45° angle from the bottom left-hand corner to the top right-hand corner, but what you are looking at is a fraction. I've taken to ETFs that are managed by Standard & Poor's and so the numerator for our fraction is decay i.e.
, an insurance ETF that has about 15 shares. What's nice about both ETFs is that the weights of the individual stocks that make up the ETF are fairly distributed. So I wouldn't say it's equal way, but it's generally equal weight so it's not as if one insurer dominates anyone other. And then our denominator is the KDE, this is the bank ETF. Again, you would have your money centres, regionals, diversified financials. There are some alternative asset managemers, and there are about 250 companies in the ETF, also fairly distribute it.
But it just shows you, and we are going back to 2006, the numerator is just dominating the denominator and that just shows that insurance companies have been outperforming the banks over this time frame.
Just to put that into perspective for people who like to look at these things on a returns basis, over that same time period, we did a total return analysis for those same stocks and so for insurance, it's been compounding since 2006 at about 7% every year.
If you held those bags over that same time period, your compounding is minimal, it is effectively flawed.
Just again, just to prove and really hammer our point that people should be spending more time looking at the insurance sector, asking questions, taking a bit of a break, taking a break from the banks, let's spend some time in the insurance world.
>> We have another chart to show the audience, if you could walk us through this one.
That one chart was showing the disparity. Is this the two ETFs paired off against each other?
>> This is what people call a comparative return.
So we are taking into account the price movement and we are also taking into account that these companies pay dividends.
So that's the total return performance.
What is key for me is that the insurance has been compounding around 7% per annum but holding those same banks, effectively, you are flat since 2006. That's quite challenging, given how much markets move.
>> Banking can seem complicated but from an investment point of view, I always just thought of it in terms of they are lending out money, they are also taking deposits, despite all that is essentially the bank's business. As part of this hear that people don't really understand even though insurance is, if you are driving you have car insurance, if you have a house, you have home insurance, but that they don't really understand how the sector works from an insurance point of view?
>> Banks are Black boxes but they are somewhat tangible.
Think of Christmas movies like it's a wonderful life.
it's part of pop culture.
At your point, that income statement, so I have earnings assets, I have lent out money, I make a spread on that and then I have fees, so people are used to overdraft fees or may be connection fees. The bank's income statements are very approachable. Insurance companies, they don't have storefronts. You don't drive and see a storefront.
All you know about insurance companies are there mascots.
So we know flow from progressive.
We know the Dot from Aflac, we know mayhem from Allstate. But after that, we know we are paying premiums for the paying outing claims? That's a mystery. I think that's why people have found it veryconfusing. I know insurance does, I need it, to your point, I can't drive a car awful lot without proof of insurance and no bank is going to allow me to buy a house, get a mortgage, without home insurance. But in terms of what that does in your portfolio and how the stocks perform I think has been a mystery to many.
>> Those are some big American names. What do we need to think about the space globally as well? I'm sure there are insurance companies everywhere.
>> I think we can break down the sector into four categories.
Most people would be familiar with life insurance companies.
Because most people probably have a life insurance policy.
So you can think of life insurance companies will be collecting premiums, providing annuities to clients.
Their liabilities would tend to be longer and so they would build an investment portfolio that probably matches that and they tend to get into sort of longer-term private equity commercial real estate type investments.
Those are sort of long-duration assets.
Most people would be familiar with car insurance and home insurance.
Most people would hear that they call it PNC, property and casualty, so I'm insuring my house and my car but then I'm also making sure that I'm insuring myself against liability. So did I hit someone? Did someone get injured on my property?
You want to be protected for those types of issues.
you will also have reinsurers, so funny enough, insurers need insurance and sothere is a category of companies that provide insurance to insurance companies. It also helps them to manage their risk.
Maybe they wrote a whole bunch of policies in a certain geographic area or to a certain latte type of coverage, they can go and reinsure and adjust their exposures.
And the last category are insurance brokers.
People may be familiar, going to a mortgage broker or an insurance broker on an individual level.
Companies have all sorts of risk.
They need professional services. You can think of these insurance companies as consultants and they would help, a company like TD Bank or any other company, what are the risks, how do we build a strategy and a plan, and then go out and source those insurance products for this company?
>> If you go back to the top of the conversation, you can throw up either of those two charts we looked at, the performance of insurance against the banks over the longer timeframe, that's the past, but looking forward, what what are the risks?
>> There are risks in terms of owning bank equities.
There are a host of risks in owning insurance companies. People should be cognizant that like banks, insurance companies are levered.
As well, there are regulatory issues to consider. What is nice about insurance companies, the they tend to reprice their policies, but you have to understand certain regimes and regulatory environments. We are seeing a lot more catastrophes, some of these secondary things like lightning and thunder creating damage.
Depending on your jurisdiction, you have two of the regulator, the government, and asked for increases on those premiums and we seen some companies exit certain states, whether it beFlorida or California, because they don't think they can earn a proper return on their capital.
Other issues, interest rates affect companies. It they have portfolios.
The other thing is insurance tend to have a cyclical nature. So there's a period of time where insurance companies are able to reprice their policies and stocks tend to dwell in those environments, and that's called a hard market. And then conversely, you would have a soft market and that's where they are having challenges.
Today, we had a CPI report for consumers, so our inflation, but insurers also have inflationary costs.
Cars have gotten better over time, but when they do get into accidents today, the damage tends to be more severe, lots of electrical components, very expensive.
And it used to be people let's a bumper-to-bumper type stuff, people have more severe crashes.
So again, what of the damages involved in how to the policies preseason? Many insurance companies are seeing a lot of inflation, even, again, we saw the lumber prices go up in COVID so imagine now, we have to ensure your house if there's an issue, we gotta rebuild it, was there enough insurance to cover that?
>> Fascinating stuff and as Benjamin said, and overlooked part of the market. We will get to your questions about investing for Ben Gossack, TD Asset Management, and just a moment's time.
And a reminder that you can get in touch with us at 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.
Delta Airlines is reporting a nearly 60% jump in quarterly profit. Robust demand for summer travel boosted online. The carrier says appetite for international trips was particularly strong. While Delta expects that demand to hold up, it is warnings investors that higher fuel costs are going to win profits in this quarter. The stock is pretty much flat.
We've got autoworkers in the United States expanding their strike action against Ford. This new job action from the United Auto Workers target the planting Kentucky that produces SUVs and pickups.
The plant is Ford's largest when it comes to the workforce and the revenue it generates. In Canada, Unifor has reached deals with Ford and General Motors although the GEM deal still needs to be ratified.
Right now you have for down about 2%.
Falling demand for COVID vaccines and tests weighing on the bottom line at Walgreens. The US pharmacy chain is forecasting full-year earnings below the streets expectations, and that is following an earnings miss for its most recent quarter.
Walgreens says it does expect to find $1 billion in savings next year through cost cutting.
Quick check on the market. We will start here on Bay Street with the TSX Composite Index. We bought a 91 point deficit, a little less than half a percent. South of the border, the S&P 500, got another fresh read on consumer price pressures. Right now, the market is up a very modest two points or just five ticks.
We are back with Ben Gossack of TD Asset Management, take your questions about things relating to investing.
I called you Benjamin earlier.
>> Usually Benjamin is when I am in trouble.
>> You are not in trouble.
What about Canadian banks, so good value? What about US banks?
>> We talked about insurance and now we are right back talking about banking.
I think it Canadian banks, when they last reported around August, I think the key themes were about their ability to manage expenses so revenues were fine but you want a bank because they have operating leverage and expenses have been running high.
if you are looking at the bank going forward, you want to watch how they are managing expenses.
The other issue that was facing banks as we've seen an increase in credit provision. They put out loans and then he said now put aside capital and in a slowing economy, you then have to make assumptions and put ahead more capital.
We have had low credit provisions as a ratio because of COVID, so it seasonably low.
For investors, it's hard to distinguish between our we mean reverting or is this the beginning of a trendwhere banks have to set aside more provisions? So that is still to be discussed.
Having said that, they are down your today. They have held up better than let's say our US counterparts.
There are only a handful of banks that are positive today it south of the border, but they have been challenged for a whole host of issues.
It's definitely a key component of our TSX in Canada, but I would tell your viewer to take a look at some of the insurance companies in Canada because many of them are at 52-week highs or new all-time highs.
> The market is forward looking.
We've been discussing a recession that may never come… Economic cycles, recession will come, we've been talking about it for more than a year now. Are some of those figures already priced into stocks or if we land in a recession could we expect more stress?
>> I think this is a key debate and question.
To your point, if we been talking about it for over a year, it seems like why he could in asset prices have priced some of this risk in? And that's again don't want to give any investment advice but that is something that I entertain. Having said that, any time you listen to people talking, they seem to make a key assumption. They will say if we are going to have a recession and no one has declared the recession, should you be owning risk assets ahead of the recession? So I think for viewers, for investors to decide for themselves when you look at various factors have not been priced in.
>> I think you might get some calls to your office this afternoon for a one on one. More audience questions.
Seems this person watched your previous interviews.
You talked before about the high-end luxury trade. Do you still see opportunity there?
LM DH or LVMH, they came in the other day and had a bit of a disappointing quarter. This is the luxury brand.
>> I think there is luxury in the world of COVID 19 and post-COVID 19 and there is luxury as a secular trend and luxury has been an interesting sector in that it's about human emotions.
Where a fancy tie, you carry a certain purse, you are certain fragrance because it makes you feel good, and that has been an end touring sector and one that has typically compounded high single digits. It's one of those sectors where and when you raise prices, volumes don't go down. We covered it more.
It also has signalling effects. Oh, you have that special purse, we can get it, so you must be a special person. That won't change. What has also been happening for this industry is it's going through a period of normalization. Outsized growth, and ability to increase price followed by a lot of volume and we saw that globally.
It was in the US, he was in Europe, we are seeing it accelerate right now in China with the reopening. But what LVMH reported was a more normalized number.
The headline was disappointing. So let's say analyst had growth at 12% and organic growth came in at nine.
When you think about that, organic growth at 9%, it's quite amazing for any company and I'd say that's back to sort of normalize levels. So we are seeing various stocks come off their highs. What I say is interesting is that the Uber, who were luxury is still kind of holding their level.
It's very stratified and people have different definitions of what is luxury. I would say the area we tend to focus on is the very high end of luxury, so these are companies that can pass through those price increases and their stocks have held up much better than other stocks that might be sort of attainable.
>> I've always loved the saying, if you have to ask how much it is, then you can't afford it. Just to be clear, I am in the economic strata were I have to ask how much it is.
Let's get another question in for our guests.
What does your guest think about US consumer Staples?
Maybe you're not gonna buy a Ferrari, but you do gotta eat.
>> Staples tend to be that sector where it's the needs where is discretionary and luxury, that's the wants.
And that tends to be, we always have to brush our teeth and eat cereal and drink coffee and go to certain stores. What we are seeing today has been sort of an existential crisis for Staples and for other sectors.
What has taken sort of top of mind for many investors and the markets are the effect of these new obesity drugs.
These were drugs that were used to manage weight in diabetes care that have now gotten approval to be used to treat obesity.
Very early, very nascent, but what's fascinating about stock markets, we believe that stock prices are the present value of future cash flows, and most of those cash flows are tied to, or projections to infinity, we call it the terminal value, if you are on one of these drugs and you don't have a desire to eat let's say salty food or sugary drinks, then what is the value first certain consumers staple companies? We are seeing it on the medical device side, restaurants and snack foods.
No one knows the answer, but the fact that is being debated, you are seeing that now in the stock prices.
>> Fascinating stuff.
I have thought about that angle in consumer Staples.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to your question for Ben Gossack from TD Asset Management 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 to today's education segment.
Today we are going to take a look at market capitalization, what it means and how companies can be grouped into different categories.
Nugwa Haruna joins us, Senior client education instructor at TD Direct Investinghere to tell us all about it. Nugwa, everyone is on a different part of the journey for investing.
If someone is not familiar with market capitalization, let's run through that first.
>> Right. It's always a pleasure being here, Greg. When we talk about market, it's a word that's thrown around in the financial sector or financial industry and investors may not have a clear understanding of what it means. When we say market, it's essentially what a company is worth and this word is calculated utilizing the current market price of that company in trading on the public exchange, multiplied by the number of shares that are actually out there and the reason investors look at these numbers is because investors are able then to compare different companies relative to their sizes but it also gives investors an idea of what people who are holding the securities, what they actually think the future prospects of these companies are.
So these different companies, they may be categorized by using market capitalization, so we are going to take a look at where investors can find these different companies as well as to find what the different market capsizes look like.
Let's hop into WebBroker and take a look.
In WebBroker, click on research. Under markets, we are going to go indices.
Once here, I will scroll down and talk about one of the most popular indices out there which is the S&P 500.
So this actually tracks what we call large-cap companies. Large-cap companies are companies that are consistently valued at $10 billion or more.
These are well-established companies, dominant players in their field, and then we have mid-cap companies and that is tracked by the S&P 400. Mid-cap companies are companies whose market capitalization range between 2 to 10 billion. They are well-established but there is also room for rapid growth so investors who decide to invest in these may be looking at companies that are a little more volatile than large-cap companies that have the potential to grow.
finally there are small-cap companies and these will be companies that are valued under $2 billion. Typically, these are companies that are brand-new to a space, they are expanding rapidly, ask companies for but is a needs are very risky to hold.
There's a lot more volatility there.
Investors who decide to for that to be aware of it.
If investors want to see the companies listed in any of these indices, you can simply click on here.
It we will go with the mid-cap index. I'm going to click on there.
Once I do that I'm gonna scroll down and click words as members and they will be brought to the list of the 400 companies.
If you want to explore this, you are able to do that.
This table can be filtered by market Now that you understand what that is.
Investors want the best of the both worlds, who want mid-cap companies as well as companies that pay dividends, they can alter this table by dividend yield as well.
>> I wish I knew you over a decade ago because in my career, I was all about news, Paul said I was going to do business, I was thrown intoI meeting where I didn't know any of these terms.
Let's talk about mid-cap.
>> If I'm looking for let's say a specific company in a specific sector, as you know, investors may have companies they see prospects and so if an investor wants to take advantage of potential growth in a specific sector, the table I showed you doesn't have the ability to filter but there is a tool, the screeners tool, that you can utilize to get specific companies that you're looking for.
So back in WebBroker, this time we are going to click on the research tab and we are going to go under tools.
We will go to the screeners tool. Avoid click on screeners here.
Now once on the screeners page, I will let you know that there is some preset screeners that we have available that investors can use.
Once I click on preset screeners, if you scroll down, you actually have access to mid-cap leaders already.
This filter is created for you.
I will click on it and we will do and edit there. You were able to see the criteria that was used here and I'm just going to click on the button that says bulk edit so I can make different changes.
So once I click on here, I will see that market, 2 to 10 billion, I'm going to remove price-performance and stock price because those don't really matter to me in this instance so I'm just going to click on the trashcan here.
But I do want to add a couple more criteria here. To do that, where it says more criteria, we click on there. I want to narrow it down by sector. So I'm going to go sector and industry.
I'm going to add one more criteria and in this case I'm going to add dividend growth rates, five-year average.
So now with those two additional criteria, I'm going to add some additional information.
I want companies that have experienced at least some sort of growth.
I'm going to put a minimum of 0% growth in the dividends in the last five years and in terms of the sector, went to clear what I have and am going to go with the financial sector. So once I do this, I will scroll down and see that I have 19 matches. There 19 companies that meet the criteria.
Right now I can start filtering through these companies, once I might have never heard about on the news but now that I am exposed to them I do more research.
As you always remind me, Greg, you want to make sure you save your screen is. This is a way that investors are able to explore. You can do the same filter I just did for small-cap companies if you want, putting a raid from 2 billion to anything under and you can filter for those as well. That great stuff as always, Nugwa, and always save the hard work.
>> Yes. Always.
>> Nugwa Haruna, Senior client education sector 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.
October is also investor education month at direct investing. Here's a look at what they call plan for the month.
[music] Okay, we are back with Ben Gossack from TD Asset Management, taking your questions on all things related to investing.
About someone who wants good thoughts on the healthcare sector.
>> Yeah. The more I spend on the healthcare sector, and we've been investing a lot of time on the healthcare sector, so there are some interesting, secular trends are very important to us. Costs of research have really improved and so there's a lot of opportunity for breakthrough drugs, but the more I spend looking at healthcare stocks, it is a collection of idiosyncratic companies. I do find when people look at let's say discretionary or Staples, industrials or financials, you can break it up into the categories and if a certain area of retail, if it's software, semiconductors, the tide list, all boats go with it.
In healthcare, it's very specific.
You have to understand each company. You were talking before about Staples and having some sort of existential crisis. Equally so in the healthcare sector tied to these obesity drugs. The attention and discussion I see every day is, well, especially in the American population, so 40% are considered obese.
Imagine the average American were to lose 10 pounds, what does that mean from a medical device company?
There are so many companies that provide some kind of diabetic care, be it monitoring, insulin, companies that would replace your hips and knees and joints, so surgeries, there is a whole host of issues.
There was a recent study that was cancelled by one of the companies that are at the forefront of these obesity drugs related to kidney failure, so all of a sudden, there was an existential crisis in dialysis machines.
Will we need as many in the future?
Whole host of stuff. Again, nothing's actually happened today but the market is debating what is that impact on the terminal value of each of these companies and how it affects their market capitalization.
>> I think coming out of the pandemic to I had a conversation a while ago with one of your colleagues.
When you're talking about healthcare, you have to split it up in terms of different businesses and different focuses between hospitals or robotic surgery providing services to people coming out of the pandemic, but then that hitting insurers because they are suddenly paying at which they were not during the pandemic, so different sort of ebbs and flows within the sector.
>> Lots of give-and-take's and I would say for this particular sector, when it comes to individual investors, you have to do I find even more work than other sectors because you could make a couple of assumptions about certain companies and get a direction for why things are going. Definitely healthcare, just because you are looking at the direction of large-cap Pharma stocks, that might just be a pharmacist stock that you are doing well, the whole host of stocks that are not doing well and you have to parse through and understand all of those individual details.
That's probably why when you look at hedge funds, many of them traffic and invest in the healthcare sector because there are so many idiosyncrasies and so much confusing so many times.
>> The important thing for over there with the healthcare stocks. We have a question now about the Magnificent Seven.
Heard a lot about them earlier this year, markets were rallying.
Everyone said it was just the seven names. Has that idea been overplayed?
>> I understand math. I used to be an aerospace engineer.
I have had challenges with the narrative, so narratives are very powerful and everyone just sort of stalked about seven stocks leading the market. I understand their weights on major industries and when they move, in some cases they moved 30%, 50% or 100%, that has an effect on the total return.
Equally so, I think I've been on previous episodes with you where we talked about the breadth of the market, we talked about companies that were advancing versus declining, we looked at companies that were making 52-week highs, all new all-time highs, we talked about sectors where he lifted on an equal weight basis it was very bullish.
we had a broader market expansion and in some cases that's been going on for more than a year. Yet, the narrative and the talk is about the seven socks. I would also counter, our industry is very obsessed with the sauna and so when you talk about seven socks that have been up, say 50 to 100%, I would say yeah, because they bought them around January 1, but if you were to look at where they are versus their peaks, you couldn't own those stocks in 2022 and in many cases, the stocks have not recovered from the lows of 2022 or 21.
so if you held the stocks, it's been a good year but you're still not back to even.
>>your thoughts on the Fed, are they done raising rates, the million dollar question.
>> For that, I outsource it. The part of the market I outsource that he was the two year government bond.
There could be many ways that you could look at this.
You could be looking at one month treasury is or depending on how you slice it, we have found with our research that attracting the two year government bond has been sort of helpful to sort of see where the Fed is going. It typically leads the Fed and then we see the Fed policy rates were to follow it and so right now it's about 5%, just under, and Fed policy rates are at around 5 1/2 so it's holding the line.
Inflation can calm, new jobless claims, all that stuff.
The two-year yield can change. Just telling me today, it thinks the feds done. We seen some Fed officials talk about how they are near done but then you get an inflation report today a little bit harder than expectations, I think it just tells you, it's a process.
So yes, we have restrictive rates and we will take some time to wean out all the inflationary pressures that we will see so I don't think anyone report is a smoking gun, it's just going to take us a while. And as market participants, we like things that happen right away.
We are just going to have to be patient.
>> Patient indeed. We'll be back with your question for Bem Gossack from TD Asset Management in just moments time.
As always, make sure you do your own research before making any investment decisions.
and a reminder, 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.
Speaking of inflation, we did get that latest prints on consumer spending south of the border, a little hotter than expected.
Anthony Okolie has been digging into those numbers and what it could mean for rates.
>> These numbers are coming off the hotter than expected wholesale inflation report the day before.
The US consumer prices did rise sooner than expected, keeping inflation in the spotlight for policymakers when we look at the month over month numbers US CPI was up .4% in September compared to the .6% that we saw in August, a bit of a step down.
Economist closely watch how much prices rise monthly to see how trends are developing and certainly parts of this report offer some reason for concern.
Americans did pay more for rent and gasoline last month and also food prices edge higher as well. Consumers paid more for food away from home.
The good news is that underlying inflation is slowing.
When we exclude food and energy, it was up .3% month over month which matched August gains. If we look at twelve-month change in core inflation, he continued to edge lower as the next chart shows. It felt two percentage points to just over 4%.
When we dig deeper, price growth across services sped up in September.
That was actually the strongest monthly game since February of this year and in keeping with recent trends, shelter costs, which account for about 1/3 of the CPI waiting, that was a main driver in September.
prices remain in a deflationary a territory for the fourth consecutive month and that was driven by lower prices for used cars which accounted for the bulk of that decline, that pullback. But overall, the September CPI numbers delivered few surprises according to TD Economics. While multi-price gains for… Firmed, TD Economics believes that the underlying trend on core inflation in the US remains favourable. Now, they cited a twelve-month change which now sits at a two-year low with the most recent annual three year trends is that a softer 3.1%. The Fed is going to take all of this into account ahead of the next FOMC meeting in November.
>> Let's talk about that. That becomes a big question.
The reason we are watching this report so closely, what is going to happen with rates?
> We are seeing a trend in core inflation come down but CPI is not where it should be. The Fed is looking to bring it down to its 2% target. We are some ways away from that.
The job market remains strong in the US despite monetary policy.
Recent tightening of monetary conditions will likely give policymakers enough breathing room to hold rates steady at its next rate announcement which is on November 1.
Unless the job market shows signs of slowing over the coming months, TD Economics believes another rate hike later this year seems likely.
>> Thanks for that, Anthony.
>> My pleasure.
>> MoneyTalk Marcus editor Anthony Okolie.
Now for look at the markets.
Let's do a quick check in on the TSX and see where we stand now.
We're getting to the end of the lunch hour.
we have an 82 point deficit, nothing too dramatic.
South of the border, as investors suggest that latest inflation report, you got the S&P 500 up a very modest nine points for about 1/5 of a percent.
We are back now is Ben Gossack of TD Asset Management, lots of questions coming in.
Let's see if we can do this.
This goes back to our initial chat.
Which of the groups, life, PNC, reinsurance and brokers within the insurance industry have the most positive outlook today?
>> I would say all of them are pushing new 52-week highs, new all-time highs.
I think the key driver has been, we talked about a pricing cycle, that's a hard market versus soft market, hard market being good here, we are seeing a hard market.
PNC are able to put out price increases so that is able to counter the inflation they are seeing. Life insurers have been benefiting from a higher interest rate market so again, they have these investment portfolios, they can reprice that.
Reinsurers, this is a longer tail but we are seeing an increase in natural catastrophes and so insurance companies need to sort of re-up there insurance so you are seeing a cycle work through the reinsurers and lastly for the brokers, they get paid on commission so if these policy areas are increasing and price premiums are going up, their revenue share back as up as well.
So it's somewhat tired. But as long as we have this hard cycle, that will work, in this economy or another economy.
>> Let's squeeze one more in.
Any advantage in investing in Canadian insurance companies versus US? Earlier we had another viewer ask about Manulife and Sun Life so I think this is all rolled into one here. I think when you look at banks, I think jurisdictions matter and we do see sort of long-term performance trends for various regions of the world. What's been interesting about insurance companies is we find opportunities in Canada, the US, Australia, Japan, Europe, so from running a global portfolio, it's not as if one jurisdiction works for insurance companies where we have that issue with banks but not on an interim side. There are a whole host of opportunities around the globe.
>> It's always a pleasure having you here.
I look forward to the next conversation.
Ben Gossack of TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
on tomorrow show, we are going to have our best of the week for you. On Monday, will be joined by Juliana Faircloth, VP, global industrial analyst with TD Asset Management.
We will talk industrial stocks with Juliana. You can get this questions in ahead of time if you like. Just send us an e-mail at moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[music]
Every day, we'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, Ben Gossack of TD Asset Management is going to tell us why insurance stocks are often overlookedwhen we talk about the financials and why investors may be missing out. And in today's WebBroker education segment, Nugwa Haruna is going to show us how you can research stocks based on their market capitalization on the TD 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 get you an update on the markets. It's a mixed picture out there.
We got a fresh print on US inflation this morning, market is trying to digest it all. A little hotter than expected. Anthony is going to join us later in the show and break it all down for us.
If we look right now the TSX, we are down 101 point for about half a percent. One of the most actively traded names on the TSX today in is Shopify, getting a bid in the morning session.
It's up 1 1/2% to 74 bucks and change. Canine to mining actually came out with their production guidance for a gold mine they have in Papua New Guinea and that seems to be hitting the shares, down a little bit more than 5%.
South of the border, investors trying to make sense of Fed officials coming out of the past couple of days and saying maybe they might be done with the rate hikes because of the bond yield pushing higher in the market in the past several weeks.
Other prints on inflation today perhaps not exactly what was want to be seen by central bankers.
He put it all together, what do you get?
A flat market.
The S&P 500 down just to take us right now. Let's check in on the tech heavy NASDAQ and see how it's faring against the broader market.
There is a little bit of upside, but it is modest.
It's up a little bit more than 1/10 of a percent. I want to check in on automaker Ford. Automakers doubt that the border expanding strike action against them.
Right now, that stock is down almost 2%. And that is your market update.
When it comes to portfolio management, you often hear discussions about the financial sector and more specifically the banks. Well, our guest today says investors may be forgetting another part of that sector: the insurance companies. And that could be a mistake.
Ben Gossack, managing director and portfolio manager at TD Asset Managementjoins us now.
walk us through this.
>> Thanks for having me back, Greg.
Let's at the scene. I used to be the bank analyst when I covered stocks.
And you just get inundated with bank questions.
People always ask about banks.
Rarely do we talk about insurance companies.
And when we have gone back and looked at performance of banks versus insurers, the results were quite surprising.
There has been persistent outperformance in the insurance sector over banks and yet this is often overlooked.
>> We can show the audience a chart of that in terms of taking the financial sector, parsing out banks against the insurance companies. What does this tell us? This is obviously a line that goes up into the right, but what does the line represent?
>> This stands out the most because it's basically a 45° angle from the bottom left-hand corner to the top right-hand corner, but what you are looking at is a fraction. I've taken to ETFs that are managed by Standard & Poor's and so the numerator for our fraction is decay i.e.
, an insurance ETF that has about 15 shares. What's nice about both ETFs is that the weights of the individual stocks that make up the ETF are fairly distributed. So I wouldn't say it's equal way, but it's generally equal weight so it's not as if one insurer dominates anyone other. And then our denominator is the KDE, this is the bank ETF. Again, you would have your money centres, regionals, diversified financials. There are some alternative asset managemers, and there are about 250 companies in the ETF, also fairly distribute it.
But it just shows you, and we are going back to 2006, the numerator is just dominating the denominator and that just shows that insurance companies have been outperforming the banks over this time frame.
Just to put that into perspective for people who like to look at these things on a returns basis, over that same time period, we did a total return analysis for those same stocks and so for insurance, it's been compounding since 2006 at about 7% every year.
If you held those bags over that same time period, your compounding is minimal, it is effectively flawed.
Just again, just to prove and really hammer our point that people should be spending more time looking at the insurance sector, asking questions, taking a bit of a break, taking a break from the banks, let's spend some time in the insurance world.
>> We have another chart to show the audience, if you could walk us through this one.
That one chart was showing the disparity. Is this the two ETFs paired off against each other?
>> This is what people call a comparative return.
So we are taking into account the price movement and we are also taking into account that these companies pay dividends.
So that's the total return performance.
What is key for me is that the insurance has been compounding around 7% per annum but holding those same banks, effectively, you are flat since 2006. That's quite challenging, given how much markets move.
>> Banking can seem complicated but from an investment point of view, I always just thought of it in terms of they are lending out money, they are also taking deposits, despite all that is essentially the bank's business. As part of this hear that people don't really understand even though insurance is, if you are driving you have car insurance, if you have a house, you have home insurance, but that they don't really understand how the sector works from an insurance point of view?
>> Banks are Black boxes but they are somewhat tangible.
Think of Christmas movies like it's a wonderful life.
it's part of pop culture.
At your point, that income statement, so I have earnings assets, I have lent out money, I make a spread on that and then I have fees, so people are used to overdraft fees or may be connection fees. The bank's income statements are very approachable. Insurance companies, they don't have storefronts. You don't drive and see a storefront.
All you know about insurance companies are there mascots.
So we know flow from progressive.
We know the Dot from Aflac, we know mayhem from Allstate. But after that, we know we are paying premiums for the paying outing claims? That's a mystery. I think that's why people have found it veryconfusing. I know insurance does, I need it, to your point, I can't drive a car awful lot without proof of insurance and no bank is going to allow me to buy a house, get a mortgage, without home insurance. But in terms of what that does in your portfolio and how the stocks perform I think has been a mystery to many.
>> Those are some big American names. What do we need to think about the space globally as well? I'm sure there are insurance companies everywhere.
>> I think we can break down the sector into four categories.
Most people would be familiar with life insurance companies.
Because most people probably have a life insurance policy.
So you can think of life insurance companies will be collecting premiums, providing annuities to clients.
Their liabilities would tend to be longer and so they would build an investment portfolio that probably matches that and they tend to get into sort of longer-term private equity commercial real estate type investments.
Those are sort of long-duration assets.
Most people would be familiar with car insurance and home insurance.
Most people would hear that they call it PNC, property and casualty, so I'm insuring my house and my car but then I'm also making sure that I'm insuring myself against liability. So did I hit someone? Did someone get injured on my property?
You want to be protected for those types of issues.
you will also have reinsurers, so funny enough, insurers need insurance and sothere is a category of companies that provide insurance to insurance companies. It also helps them to manage their risk.
Maybe they wrote a whole bunch of policies in a certain geographic area or to a certain latte type of coverage, they can go and reinsure and adjust their exposures.
And the last category are insurance brokers.
People may be familiar, going to a mortgage broker or an insurance broker on an individual level.
Companies have all sorts of risk.
They need professional services. You can think of these insurance companies as consultants and they would help, a company like TD Bank or any other company, what are the risks, how do we build a strategy and a plan, and then go out and source those insurance products for this company?
>> If you go back to the top of the conversation, you can throw up either of those two charts we looked at, the performance of insurance against the banks over the longer timeframe, that's the past, but looking forward, what what are the risks?
>> There are risks in terms of owning bank equities.
There are a host of risks in owning insurance companies. People should be cognizant that like banks, insurance companies are levered.
As well, there are regulatory issues to consider. What is nice about insurance companies, the they tend to reprice their policies, but you have to understand certain regimes and regulatory environments. We are seeing a lot more catastrophes, some of these secondary things like lightning and thunder creating damage.
Depending on your jurisdiction, you have two of the regulator, the government, and asked for increases on those premiums and we seen some companies exit certain states, whether it beFlorida or California, because they don't think they can earn a proper return on their capital.
Other issues, interest rates affect companies. It they have portfolios.
The other thing is insurance tend to have a cyclical nature. So there's a period of time where insurance companies are able to reprice their policies and stocks tend to dwell in those environments, and that's called a hard market. And then conversely, you would have a soft market and that's where they are having challenges.
Today, we had a CPI report for consumers, so our inflation, but insurers also have inflationary costs.
Cars have gotten better over time, but when they do get into accidents today, the damage tends to be more severe, lots of electrical components, very expensive.
And it used to be people let's a bumper-to-bumper type stuff, people have more severe crashes.
So again, what of the damages involved in how to the policies preseason? Many insurance companies are seeing a lot of inflation, even, again, we saw the lumber prices go up in COVID so imagine now, we have to ensure your house if there's an issue, we gotta rebuild it, was there enough insurance to cover that?
>> Fascinating stuff and as Benjamin said, and overlooked part of the market. We will get to your questions about investing for Ben Gossack, TD Asset Management, and just a moment's time.
And a reminder that you can get in touch with us at 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.
Delta Airlines is reporting a nearly 60% jump in quarterly profit. Robust demand for summer travel boosted online. The carrier says appetite for international trips was particularly strong. While Delta expects that demand to hold up, it is warnings investors that higher fuel costs are going to win profits in this quarter. The stock is pretty much flat.
We've got autoworkers in the United States expanding their strike action against Ford. This new job action from the United Auto Workers target the planting Kentucky that produces SUVs and pickups.
The plant is Ford's largest when it comes to the workforce and the revenue it generates. In Canada, Unifor has reached deals with Ford and General Motors although the GEM deal still needs to be ratified.
Right now you have for down about 2%.
Falling demand for COVID vaccines and tests weighing on the bottom line at Walgreens. The US pharmacy chain is forecasting full-year earnings below the streets expectations, and that is following an earnings miss for its most recent quarter.
Walgreens says it does expect to find $1 billion in savings next year through cost cutting.
Quick check on the market. We will start here on Bay Street with the TSX Composite Index. We bought a 91 point deficit, a little less than half a percent. South of the border, the S&P 500, got another fresh read on consumer price pressures. Right now, the market is up a very modest two points or just five ticks.
We are back with Ben Gossack of TD Asset Management, take your questions about things relating to investing.
I called you Benjamin earlier.
>> Usually Benjamin is when I am in trouble.
>> You are not in trouble.
What about Canadian banks, so good value? What about US banks?
>> We talked about insurance and now we are right back talking about banking.
I think it Canadian banks, when they last reported around August, I think the key themes were about their ability to manage expenses so revenues were fine but you want a bank because they have operating leverage and expenses have been running high.
if you are looking at the bank going forward, you want to watch how they are managing expenses.
The other issue that was facing banks as we've seen an increase in credit provision. They put out loans and then he said now put aside capital and in a slowing economy, you then have to make assumptions and put ahead more capital.
We have had low credit provisions as a ratio because of COVID, so it seasonably low.
For investors, it's hard to distinguish between our we mean reverting or is this the beginning of a trendwhere banks have to set aside more provisions? So that is still to be discussed.
Having said that, they are down your today. They have held up better than let's say our US counterparts.
There are only a handful of banks that are positive today it south of the border, but they have been challenged for a whole host of issues.
It's definitely a key component of our TSX in Canada, but I would tell your viewer to take a look at some of the insurance companies in Canada because many of them are at 52-week highs or new all-time highs.
> The market is forward looking.
We've been discussing a recession that may never come… Economic cycles, recession will come, we've been talking about it for more than a year now. Are some of those figures already priced into stocks or if we land in a recession could we expect more stress?
>> I think this is a key debate and question.
To your point, if we been talking about it for over a year, it seems like why he could in asset prices have priced some of this risk in? And that's again don't want to give any investment advice but that is something that I entertain. Having said that, any time you listen to people talking, they seem to make a key assumption. They will say if we are going to have a recession and no one has declared the recession, should you be owning risk assets ahead of the recession? So I think for viewers, for investors to decide for themselves when you look at various factors have not been priced in.
>> I think you might get some calls to your office this afternoon for a one on one. More audience questions.
Seems this person watched your previous interviews.
You talked before about the high-end luxury trade. Do you still see opportunity there?
LM DH or LVMH, they came in the other day and had a bit of a disappointing quarter. This is the luxury brand.
>> I think there is luxury in the world of COVID 19 and post-COVID 19 and there is luxury as a secular trend and luxury has been an interesting sector in that it's about human emotions.
Where a fancy tie, you carry a certain purse, you are certain fragrance because it makes you feel good, and that has been an end touring sector and one that has typically compounded high single digits. It's one of those sectors where and when you raise prices, volumes don't go down. We covered it more.
It also has signalling effects. Oh, you have that special purse, we can get it, so you must be a special person. That won't change. What has also been happening for this industry is it's going through a period of normalization. Outsized growth, and ability to increase price followed by a lot of volume and we saw that globally.
It was in the US, he was in Europe, we are seeing it accelerate right now in China with the reopening. But what LVMH reported was a more normalized number.
The headline was disappointing. So let's say analyst had growth at 12% and organic growth came in at nine.
When you think about that, organic growth at 9%, it's quite amazing for any company and I'd say that's back to sort of normalize levels. So we are seeing various stocks come off their highs. What I say is interesting is that the Uber, who were luxury is still kind of holding their level.
It's very stratified and people have different definitions of what is luxury. I would say the area we tend to focus on is the very high end of luxury, so these are companies that can pass through those price increases and their stocks have held up much better than other stocks that might be sort of attainable.
>> I've always loved the saying, if you have to ask how much it is, then you can't afford it. Just to be clear, I am in the economic strata were I have to ask how much it is.
Let's get another question in for our guests.
What does your guest think about US consumer Staples?
Maybe you're not gonna buy a Ferrari, but you do gotta eat.
>> Staples tend to be that sector where it's the needs where is discretionary and luxury, that's the wants.
And that tends to be, we always have to brush our teeth and eat cereal and drink coffee and go to certain stores. What we are seeing today has been sort of an existential crisis for Staples and for other sectors.
What has taken sort of top of mind for many investors and the markets are the effect of these new obesity drugs.
These were drugs that were used to manage weight in diabetes care that have now gotten approval to be used to treat obesity.
Very early, very nascent, but what's fascinating about stock markets, we believe that stock prices are the present value of future cash flows, and most of those cash flows are tied to, or projections to infinity, we call it the terminal value, if you are on one of these drugs and you don't have a desire to eat let's say salty food or sugary drinks, then what is the value first certain consumers staple companies? We are seeing it on the medical device side, restaurants and snack foods.
No one knows the answer, but the fact that is being debated, you are seeing that now in the stock prices.
>> Fascinating stuff.
I have thought about that angle in consumer Staples.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to your question for Ben Gossack from TD Asset Management 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 to today's education segment.
Today we are going to take a look at market capitalization, what it means and how companies can be grouped into different categories.
Nugwa Haruna joins us, Senior client education instructor at TD Direct Investinghere to tell us all about it. Nugwa, everyone is on a different part of the journey for investing.
If someone is not familiar with market capitalization, let's run through that first.
>> Right. It's always a pleasure being here, Greg. When we talk about market, it's a word that's thrown around in the financial sector or financial industry and investors may not have a clear understanding of what it means. When we say market, it's essentially what a company is worth and this word is calculated utilizing the current market price of that company in trading on the public exchange, multiplied by the number of shares that are actually out there and the reason investors look at these numbers is because investors are able then to compare different companies relative to their sizes but it also gives investors an idea of what people who are holding the securities, what they actually think the future prospects of these companies are.
So these different companies, they may be categorized by using market capitalization, so we are going to take a look at where investors can find these different companies as well as to find what the different market capsizes look like.
Let's hop into WebBroker and take a look.
In WebBroker, click on research. Under markets, we are going to go indices.
Once here, I will scroll down and talk about one of the most popular indices out there which is the S&P 500.
So this actually tracks what we call large-cap companies. Large-cap companies are companies that are consistently valued at $10 billion or more.
These are well-established companies, dominant players in their field, and then we have mid-cap companies and that is tracked by the S&P 400. Mid-cap companies are companies whose market capitalization range between 2 to 10 billion. They are well-established but there is also room for rapid growth so investors who decide to invest in these may be looking at companies that are a little more volatile than large-cap companies that have the potential to grow.
finally there are small-cap companies and these will be companies that are valued under $2 billion. Typically, these are companies that are brand-new to a space, they are expanding rapidly, ask companies for but is a needs are very risky to hold.
There's a lot more volatility there.
Investors who decide to for that to be aware of it.
If investors want to see the companies listed in any of these indices, you can simply click on here.
It we will go with the mid-cap index. I'm going to click on there.
Once I do that I'm gonna scroll down and click words as members and they will be brought to the list of the 400 companies.
If you want to explore this, you are able to do that.
This table can be filtered by market Now that you understand what that is.
Investors want the best of the both worlds, who want mid-cap companies as well as companies that pay dividends, they can alter this table by dividend yield as well.
>> I wish I knew you over a decade ago because in my career, I was all about news, Paul said I was going to do business, I was thrown intoI meeting where I didn't know any of these terms.
Let's talk about mid-cap.
>> If I'm looking for let's say a specific company in a specific sector, as you know, investors may have companies they see prospects and so if an investor wants to take advantage of potential growth in a specific sector, the table I showed you doesn't have the ability to filter but there is a tool, the screeners tool, that you can utilize to get specific companies that you're looking for.
So back in WebBroker, this time we are going to click on the research tab and we are going to go under tools.
We will go to the screeners tool. Avoid click on screeners here.
Now once on the screeners page, I will let you know that there is some preset screeners that we have available that investors can use.
Once I click on preset screeners, if you scroll down, you actually have access to mid-cap leaders already.
This filter is created for you.
I will click on it and we will do and edit there. You were able to see the criteria that was used here and I'm just going to click on the button that says bulk edit so I can make different changes.
So once I click on here, I will see that market, 2 to 10 billion, I'm going to remove price-performance and stock price because those don't really matter to me in this instance so I'm just going to click on the trashcan here.
But I do want to add a couple more criteria here. To do that, where it says more criteria, we click on there. I want to narrow it down by sector. So I'm going to go sector and industry.
I'm going to add one more criteria and in this case I'm going to add dividend growth rates, five-year average.
So now with those two additional criteria, I'm going to add some additional information.
I want companies that have experienced at least some sort of growth.
I'm going to put a minimum of 0% growth in the dividends in the last five years and in terms of the sector, went to clear what I have and am going to go with the financial sector. So once I do this, I will scroll down and see that I have 19 matches. There 19 companies that meet the criteria.
Right now I can start filtering through these companies, once I might have never heard about on the news but now that I am exposed to them I do more research.
As you always remind me, Greg, you want to make sure you save your screen is. This is a way that investors are able to explore. You can do the same filter I just did for small-cap companies if you want, putting a raid from 2 billion to anything under and you can filter for those as well. That great stuff as always, Nugwa, and always save the hard work.
>> Yes. Always.
>> Nugwa Haruna, Senior client education sector 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.
October is also investor education month at direct investing. Here's a look at what they call plan for the month.
[music] Okay, we are back with Ben Gossack from TD Asset Management, taking your questions on all things related to investing.
About someone who wants good thoughts on the healthcare sector.
>> Yeah. The more I spend on the healthcare sector, and we've been investing a lot of time on the healthcare sector, so there are some interesting, secular trends are very important to us. Costs of research have really improved and so there's a lot of opportunity for breakthrough drugs, but the more I spend looking at healthcare stocks, it is a collection of idiosyncratic companies. I do find when people look at let's say discretionary or Staples, industrials or financials, you can break it up into the categories and if a certain area of retail, if it's software, semiconductors, the tide list, all boats go with it.
In healthcare, it's very specific.
You have to understand each company. You were talking before about Staples and having some sort of existential crisis. Equally so in the healthcare sector tied to these obesity drugs. The attention and discussion I see every day is, well, especially in the American population, so 40% are considered obese.
Imagine the average American were to lose 10 pounds, what does that mean from a medical device company?
There are so many companies that provide some kind of diabetic care, be it monitoring, insulin, companies that would replace your hips and knees and joints, so surgeries, there is a whole host of issues.
There was a recent study that was cancelled by one of the companies that are at the forefront of these obesity drugs related to kidney failure, so all of a sudden, there was an existential crisis in dialysis machines.
Will we need as many in the future?
Whole host of stuff. Again, nothing's actually happened today but the market is debating what is that impact on the terminal value of each of these companies and how it affects their market capitalization.
>> I think coming out of the pandemic to I had a conversation a while ago with one of your colleagues.
When you're talking about healthcare, you have to split it up in terms of different businesses and different focuses between hospitals or robotic surgery providing services to people coming out of the pandemic, but then that hitting insurers because they are suddenly paying at which they were not during the pandemic, so different sort of ebbs and flows within the sector.
>> Lots of give-and-take's and I would say for this particular sector, when it comes to individual investors, you have to do I find even more work than other sectors because you could make a couple of assumptions about certain companies and get a direction for why things are going. Definitely healthcare, just because you are looking at the direction of large-cap Pharma stocks, that might just be a pharmacist stock that you are doing well, the whole host of stocks that are not doing well and you have to parse through and understand all of those individual details.
That's probably why when you look at hedge funds, many of them traffic and invest in the healthcare sector because there are so many idiosyncrasies and so much confusing so many times.
>> The important thing for over there with the healthcare stocks. We have a question now about the Magnificent Seven.
Heard a lot about them earlier this year, markets were rallying.
Everyone said it was just the seven names. Has that idea been overplayed?
>> I understand math. I used to be an aerospace engineer.
I have had challenges with the narrative, so narratives are very powerful and everyone just sort of stalked about seven stocks leading the market. I understand their weights on major industries and when they move, in some cases they moved 30%, 50% or 100%, that has an effect on the total return.
Equally so, I think I've been on previous episodes with you where we talked about the breadth of the market, we talked about companies that were advancing versus declining, we looked at companies that were making 52-week highs, all new all-time highs, we talked about sectors where he lifted on an equal weight basis it was very bullish.
we had a broader market expansion and in some cases that's been going on for more than a year. Yet, the narrative and the talk is about the seven socks. I would also counter, our industry is very obsessed with the sauna and so when you talk about seven socks that have been up, say 50 to 100%, I would say yeah, because they bought them around January 1, but if you were to look at where they are versus their peaks, you couldn't own those stocks in 2022 and in many cases, the stocks have not recovered from the lows of 2022 or 21.
so if you held the stocks, it's been a good year but you're still not back to even.
>>your thoughts on the Fed, are they done raising rates, the million dollar question.
>> For that, I outsource it. The part of the market I outsource that he was the two year government bond.
There could be many ways that you could look at this.
You could be looking at one month treasury is or depending on how you slice it, we have found with our research that attracting the two year government bond has been sort of helpful to sort of see where the Fed is going. It typically leads the Fed and then we see the Fed policy rates were to follow it and so right now it's about 5%, just under, and Fed policy rates are at around 5 1/2 so it's holding the line.
Inflation can calm, new jobless claims, all that stuff.
The two-year yield can change. Just telling me today, it thinks the feds done. We seen some Fed officials talk about how they are near done but then you get an inflation report today a little bit harder than expectations, I think it just tells you, it's a process.
So yes, we have restrictive rates and we will take some time to wean out all the inflationary pressures that we will see so I don't think anyone report is a smoking gun, it's just going to take us a while. And as market participants, we like things that happen right away.
We are just going to have to be patient.
>> Patient indeed. We'll be back with your question for Bem Gossack from TD Asset Management in just moments time.
As always, make sure you do your own research before making any investment decisions.
and a reminder, 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.
Speaking of inflation, we did get that latest prints on consumer spending south of the border, a little hotter than expected.
Anthony Okolie has been digging into those numbers and what it could mean for rates.
>> These numbers are coming off the hotter than expected wholesale inflation report the day before.
The US consumer prices did rise sooner than expected, keeping inflation in the spotlight for policymakers when we look at the month over month numbers US CPI was up .4% in September compared to the .6% that we saw in August, a bit of a step down.
Economist closely watch how much prices rise monthly to see how trends are developing and certainly parts of this report offer some reason for concern.
Americans did pay more for rent and gasoline last month and also food prices edge higher as well. Consumers paid more for food away from home.
The good news is that underlying inflation is slowing.
When we exclude food and energy, it was up .3% month over month which matched August gains. If we look at twelve-month change in core inflation, he continued to edge lower as the next chart shows. It felt two percentage points to just over 4%.
When we dig deeper, price growth across services sped up in September.
That was actually the strongest monthly game since February of this year and in keeping with recent trends, shelter costs, which account for about 1/3 of the CPI waiting, that was a main driver in September.
prices remain in a deflationary a territory for the fourth consecutive month and that was driven by lower prices for used cars which accounted for the bulk of that decline, that pullback. But overall, the September CPI numbers delivered few surprises according to TD Economics. While multi-price gains for… Firmed, TD Economics believes that the underlying trend on core inflation in the US remains favourable. Now, they cited a twelve-month change which now sits at a two-year low with the most recent annual three year trends is that a softer 3.1%. The Fed is going to take all of this into account ahead of the next FOMC meeting in November.
>> Let's talk about that. That becomes a big question.
The reason we are watching this report so closely, what is going to happen with rates?
> We are seeing a trend in core inflation come down but CPI is not where it should be. The Fed is looking to bring it down to its 2% target. We are some ways away from that.
The job market remains strong in the US despite monetary policy.
Recent tightening of monetary conditions will likely give policymakers enough breathing room to hold rates steady at its next rate announcement which is on November 1.
Unless the job market shows signs of slowing over the coming months, TD Economics believes another rate hike later this year seems likely.
>> Thanks for that, Anthony.
>> My pleasure.
>> MoneyTalk Marcus editor Anthony Okolie.
Now for look at the markets.
Let's do a quick check in on the TSX and see where we stand now.
We're getting to the end of the lunch hour.
we have an 82 point deficit, nothing too dramatic.
South of the border, as investors suggest that latest inflation report, you got the S&P 500 up a very modest nine points for about 1/5 of a percent.
We are back now is Ben Gossack of TD Asset Management, lots of questions coming in.
Let's see if we can do this.
This goes back to our initial chat.
Which of the groups, life, PNC, reinsurance and brokers within the insurance industry have the most positive outlook today?
>> I would say all of them are pushing new 52-week highs, new all-time highs.
I think the key driver has been, we talked about a pricing cycle, that's a hard market versus soft market, hard market being good here, we are seeing a hard market.
PNC are able to put out price increases so that is able to counter the inflation they are seeing. Life insurers have been benefiting from a higher interest rate market so again, they have these investment portfolios, they can reprice that.
Reinsurers, this is a longer tail but we are seeing an increase in natural catastrophes and so insurance companies need to sort of re-up there insurance so you are seeing a cycle work through the reinsurers and lastly for the brokers, they get paid on commission so if these policy areas are increasing and price premiums are going up, their revenue share back as up as well.
So it's somewhat tired. But as long as we have this hard cycle, that will work, in this economy or another economy.
>> Let's squeeze one more in.
Any advantage in investing in Canadian insurance companies versus US? Earlier we had another viewer ask about Manulife and Sun Life so I think this is all rolled into one here. I think when you look at banks, I think jurisdictions matter and we do see sort of long-term performance trends for various regions of the world. What's been interesting about insurance companies is we find opportunities in Canada, the US, Australia, Japan, Europe, so from running a global portfolio, it's not as if one jurisdiction works for insurance companies where we have that issue with banks but not on an interim side. There are a whole host of opportunities around the globe.
>> It's always a pleasure having you here.
I look forward to the next conversation.
Ben Gossack of TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
on tomorrow show, we are going to have our best of the week for you. On Monday, will be joined by Juliana Faircloth, VP, global industrial analyst with TD Asset Management.
We will talk industrial stocks with Juliana. You can get this questions in ahead of time if you like. Just send us an e-mail at moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
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