Brad Simpson

[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. coming up on Sénéchal, TD Wealth chief while strategist Brad Simpson will join us to discuss how investors should be viewing the current conflict between Israel and Iran. TD Economics James Orlando will lay out what to expect from today's Canadian federal budget and MoneyTalk's Anthony Okolie will take us to the latest Canadian inflation report. Plus, in today's WebBroker education segment, Hiren Amin will show us how you can research potential investments in the field of AI using the platform. Before we get to all that and our guest of the day, let's get you an update on the markets. We are down on the session on the TSX Composite Index, pulling back one third of a percent. Among most actively traded names include Barrick Gold. This is not about the underlying asset of gold, the underlying commodity, this is a bare eccentric story, they are down 5.5%. Not seeing much of a bit into the uranium place today, including Denison Mines pulling back about 3% on the session. South of the border, it feels like the market is looking for a direction. We have entered earnings season and there were some decent earnings from United Health. Earlier in the session it looks like we might get a little traction to the upside. Right now you're basically just flat, three quarters of one point up on the S&P 500. We will check in on the tech heavy NASDAQ. Pretty much flat as well. Earlier and video was showing some strength. At $870 and change, Nvidia is up 1.2%. And that's your market update. Tensions of the Middle East have escalated following Arendt's attack on Israel. So how should investors be weighing the potential risks to the global economy and financial markets? Joining us now discusses Brad Simpson, chief while strategist at TD well. Always great to have you with us. >> Thanks for having me. >> This is a volatile situation. We don't know how things will play out. You have been looking at some scenarios that could unfold. Walk us through them. >> I think I would first start saying that if you tried to find the good news from this, from a financial market perspective anyways, of course, there is none when it comes to the human cost, but the financial markets is that this was well telegraphed. If you look at the activity and equity markets when they opened up on Monday and fixed income markets, you can see that the response was pretty muted and I think a lot of that has to do with the market expecting this would happen. If you looked at it in terms of a military engagement, it would be hard to include from in a radiant perspective that it was a successful one and from an Israeli perspective and their allies it would be a very successful defence. That I think led to a lot of positive activity in the market that we saw on the way in. Where we go from there is that we kind of think that from here, clearly, the temperature is turned up in the environment there now and we think this is something that's going to continue to play out in the months and years ahead. With that, one way of looking at this is that we have a scenario analysis that we work out and starting it with the, looking at this as a limited scale security crisis, we have dialled that down and kept that tour that was at 45% which is where we were in February. The change that we have made is saying that this is a larger security crisis in the area that could expand across the whole region. We increase that by 5% up to a 40% likelihood and then on the other side we also looked at this in terms of what's the potential for there to be a de-escalation. We reduce that from a 20% likelihood down to 15%. All in all, our way of looking at the world there is that this has increased the temperature here and from there we will keep following to see how it rules out. >> Was he took a look at these different scenarios and change your outlook based on the events of recent days, you also did a bit of work on what it could mean for bonds, stocks and commodities, different asset classes. Walk me through that. But start with bonds. >> Sure. For fixed income, the first question is, it leads to interest rates. If you talk about interest rates, you're going to be talking about inflation. Because it is in an area of the world where so much of the oil is, the question is what is going to be the impact on the price of oil. If the price of oil starts to go up, which we have seen over the last few weeks, it moved from the mid-80s zone up into $90 going into this attack on the weekend, fell off about a percent or so in the last couple of days here in Canada. But if we solve really a change in the oil price, let's say for accrued over $100, then you would start to see more of an impact on inflation which could have an impact on interest rates from here. We don't think that's what we are going to see in the midterm with this. The other side of the coin, of course, then is in times like this, there is a flight to safety. Flight to safety means that there would be a real potential for market folks to start moving more into US bonds which has the potential to push interest rates down and so that's actually a net positive. We remain with our fixed income waiting. We are modestly overweight fixed income and continue to be very comfortable with that positioning. >> What about on the equity side? We will get back to the commodities because there was interplay between commodities and bonds but let's talk stocks. >> Sure. Yeah, that is the big one for investors right now, especially if you want to frame that through the lens of looking at where most of the global market move has been and that is the story of the S&P 500. You look at it since October 2023, you see the index add billions of dollars in market capitalization, this is a market that has moved an awful lot and it's one that there has been almost no volatility for the last let's call it five, six months either. So this is a market looking for something to correct on. Because this was so well telegraphed, it ended up not being the type of catalyst that the market was looking for but if you look at over the past few weeks, we have started to see a little bit of correction and that correction, we think that we are probably going to see more of that in the weeks ahead. There is a lot of headwind here just to try to take some steam out of this market, if you will, and so for that we think that this is a little bit of a cautionary tale which needs to right now we are waiting in equity markets are neutral, and we think that's a really good way of looking at it right now. >> You touched on oil and the interplay could have on inflation which could feed back to the bond market, what about other commodities coming out of all this? >> The commodity story I think is the side that's really interesting for a couple of reasons. One starting out is when you think about what our job is to do, me and my team, it's really thinking about how do you allocate capital, asset allocation and then risk management. So for us going into this, we look back into the beginning of the year or even into last November when you're doing our year ahead, one of the points that we made on our year ahead document was that we foresaw that there is obviously a lot of turbulence in this area of the world and one of the things you really want to look at is the potential for an increased military warfare which could lead to more pressure on oil prices so one of the ways we deal with this is weighing more towards oil on the chance there was an increase in tensions. The other part is we thought, we continue to think we are modestly overweight commodities as a whole and for us this is a strategic allocation in and we think that investors need to have a continuous position in the commodity side of the market and the reason for that is it's a really good hedge and hopefully look at how the market has been moving over the last six months, every time there is an increase in tension where the two wars are going on right now, Ukraine and Israel, what we are seeing is that commodities have been playing the role of a very good diverse of fire and we continue to think that makes an awful lot of sense here. >> You and I have had a lot of discussions about having longer-term thinking about the markets, as you talk about allocating capital as well. These developments, although they can be fast-moving, implications for weeks, months, perhaps even years, when investors a pull back and think about these two political tensions, how should they be looking at their portfolio? >> I think one of the things that helps is that one of the things you've been writing a lot about over the last couple of years is that in this era of de-globalization, we are now unfortunately living in an era where there is going to be more of this sort of strife globally and meaning that one can basically build their investment portfolio taking that into consideration. So the starting point it comes down to is making sure that you are allocating in a well diversified investment portfolio. That is also directional. In simple English, that means you should not be allocating her portfolio solely based on what you own that is going to go up, you should also be looking at what can go down and hedge to protect capital but also has the potential to protect when volatility kicks up. I think if you do that, and then the last part is is at the end of the day, making sure that why you are investing, having a financial plan and having your investments up against your objectives on that relative to your time horizon. Many of us have long-term time horizons. One of the things you can look at is that long-term assets, like equities, that really pays off even though you could go through areas of different of like we see now, an era of increased warfare, if you look at times past, as long as you had a long time horizon, your portfolio could not only whether these well but you still could see a lot of growth as well. >> Brad, always great to hear insights. Thanks a lot for joining us today. >> Thanks so much for having me. >> Our thanks to Brad Simpson, chief wealth strategist with TD Wealth. 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. Wall Street bank earnings season continues, with Bank of America and Morgan Stanley the latest ahead and results. Strengthen its wealth management, trading and investment banking divisions power to be on the top and bottom line for Morgan Stanley. While Bank of America beat expectations, revenue is down slightly year-over-year on the lower net interest income. Also want to check in on shares of United Health. They are in the spotlight today. The healthcare giant reporting stronger-than-expected revenue for its most recent quarter. This beat on the top line comes as United Health deals with a cyber attack on one of its subsidiaries. The company also took a $7 billion charge of the corridor from selling its operations in Brazil. Shares of Live Nation are under pressure following reports of the US Department of Justice is preparing to file an antitrust lawsuit against the company. Live Nation is down to the tune of about 7%. These unconfirmed reports suggest that the Justice Department will allege that the parent company of Ticketmaster undermine competition for ticketing live events. Quick check on the market. We will start here at home on Bay Street with the TSX Composite Index. We have gold and oil prices studying someone today but we have a lower number on the top line. Down about 81 points or 1/3 of a percent. South of the border, the S&P 500, let's check in on what's happening there. It seems to be a market struggling for her direction in the last couple of days. Nothing too dramatic right now. Down 1/10 of a percent, but 6.5 points. Let's talk inflation. The Consumer Price Index in this country edging slightly higher in March underscoring the Bank of Canada challenge to get inflation down to the 2% target. Anthony Okolie has been digging into all the numbers and take a look at the TD Economics report all this and what it could mean for interest rate. >> I think the key culprit boosting CPI in March were high prices at the pump. CEPI edged higher to 2.9% year-over-year. When you exclude gas, CPI slowed to 2.8% year-over-year versus the 2.9% that we saw in February. As the chart shows, headline and core have been on a downward trend since peaking back in June 2022. CEPI continues to be a shelter story. Over the past year, we have seen Canadian inflation has largely been or the Bank of Canada has been focused on shelter costs. This month, rents were up more than 8% year-over-year, mortgage interest cost skyrocketing more than 25% year-over-year. Those could have contributed the most to year-over-year gains in headline CPI. When you exclude shelter, CPI is up only 1.5% year-over-year in March. TD Economics says it's largely a shelter story. While shelter is still a challenge for the Bank of Canada, there was some positive news on the goods front. We have seen software goods inflation. It is down from its 10% peak last year. Prices for clothing and footwear, one of the most seasonal components in the CPI because different types of apparel and footwear are available to buy at different times of the year. It rose 2.8% in March after falling in February due to fewer promotions than in previous months. Transportation and recreation also accelerated in March. The main categories that weighed on inflation during the month were household operations, furniture and equipment. Within household operations, we saw communication services were down a whopping 17% year-over-year. I think the bigger piece of news here is that the Bank of Canada's preferred core inflation measure, which filters out the volatile components, so-called trim and mean core rates, they actually softened in March and are now running at an average of 1.3% annualized over the past few months and 2.4% annualized over the past six months and that really helps take year-over-year core inflation down in March, it is now averaging 3% year-over-year, a tick lower than what it was in February. The top of the Bank of Canada's range. Overall, marches inflation number marks the third straight month of good news on the core inflation front. >> That is what the Bank of Canada is keeping an eye on. The last time I remember TD Economics was saying July most likely for a rate cut. Does anything in this report change their mind about what we might get that cut? >> Nothing has changed their mind. TD Economics is still leaning toward the July rate cut. However, they said if the numbers continue to soften by more than they are expecting, the risks are tilting towards an earlier move. They also mentioned that markets have up their bets for a June cut on today's numbers which is now about two thirds priced in. >> Interesting stuff. Thanks for breaking it down. >> My pleasure. >> MoneyTalk's Anthony Okolie. Now, look at our educational segment of the day. If you are looking to do research on potential investments in the field of artificial intelligence, what broker has tools which can help. Hiren Amin, Senior client education instructor with TD Direct Investing has more. >> Hello, investors! In today's education segment, we are going to be talking about artificial intelligence stocks, specifically, what might be bubbling at the top of your mind is how to research them. Artificial intelligence isn't a particular sector or industry, it's across various sectors and industries. So how to find the stocks can be a bit of a challenge. We are going to make that easy for you today. What's up into a broker and I will show you how to find some of those AI stocks. To start off, we are going to go to the research tab at the top and under the tools column, we are going to head over to the screener section, third from the bottom, and click on this. One of the great things about our screeners tool's is we have created different themes for different types of plays in the investing world and one of them is artificial intelligence, AI. It sounded the top and you can click on this card to access those plays. Keep in mind that when we talk about AI, which spans companies that provide hardware for AI like semiconductors and the companies that build the largely which models which is the bedrock, the foundation of AI, and then you have companies taking those and in coming up with human reasoning output. This is a list of different AI plays that you have over here. Keep in mind, the list that you see is only based on two criteria right now that have been created under this theme but if you wanted to add more criteria, a number of the different access points and filters you can apply, mainly from the company basics to some of the fundamentals if you want to look at other information. Once you narrow that down and have added those filters in, this going to help you narrow down your search over here. Let's see you do look at this list and you found when you're interested in and you want to read more about it, go down and you can see for example let's say you want to learn more about Micron Technology on the hardware side of AI. Click on the drop-down menu and go to the overview page. This is going to take you to the landing page of that particular stock. I'll give you more pricing information and then you can look at the news if you want to see more about this or even go to the analyst section to see some of the reports over here. That is one way you can get started with your research. Don't forget, as always, we pride ourselves in education so if you want to learn more about artificial intelligence, check out the learning centre on what broker, check out our webinars. We have hosted professional industry veterans as part of this AI play and you can tune into some of those to learn more about this and how to further research artificial intelligence. >> That was Hiren Amin, Senior client education instructor at TD Direct Investing. For more educational videos, check out the learning centre on web broker. Use this QR code to navigate to the education Centre's webpage. 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. This is the heat map function, a view of the market movers. We will look at the TSX 60 and screen by Price and volume. It Barrick Gold down to the tune of almost 5%. Production coming in lower-than-expected costs a little bit higher so that's weighing all the day. You could see some other mining stocks, eagle mines and First Quantum getting a bit of a bid today and in the energy bucket we have the price of crude firming a little bit. It's been a rocky couple of days. Suncor's up about 1% and Cenovus about half a percent. South of the border, let's check in on the S&P 100 and see what's moving there. This feel like a market looking for a direction. We are in the thick of bank earnings season. We have two more today: Morgan Stanley, Bank of America. You can see different reactions in the market. Morgan Stanley up almost 4%. A lot of their divisions getting a bead on the top and bottom lands but concerned concerns about Bank of America. It is down day for Tesla. You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard. After 4 PM today we will be parsing to the latest Canadian federal budget. Earlier MoneyTalk Kim Parlee spoke with James Orlando, Senior economist with TD Economics, but what he will be watching for. >> The economy has been holding up fine, the bottom hasn't fallen out. This means more economic growth and more cash coming in. The question is and what they have been saying is we are going to be restrained and careful about how we spend money. What happens for government when they have that money, they keep it in their pocket? Is it burning a hole in their pocket or they actually going to spend it? Pretty much ever since we wrote that report, every day the government has come out with a new announcement saying, here's new policy, here's something else we are going to do, so they might be talking a lot about restraint in the upcoming budget but everything we are hearing right now is preparing us for more spending to be coming. >> We talk about it in your piece which came out I think in March that spending on programs is far hotter than anticipated and that preceded the AI announcement, 2.4, defence, 8 billion, sooner than later, and then housing, 22.5 billion, they are ratcheting it up. >> It's a lot of spending. I think what we are talking about with respect to spending come in over the last year, we got last fall the full economic statement which said we are going to try to make sure the budget deficit stays at $40 billion for the current fiscal year. We have trackers for this and every month we get more data to say how are the government's budget coming in? Every single month we get more information and that more information tells us that the government is spending more money than even the government expected just a few months ago and so that sets us up, how much money are they going to have available if they are spending so much already without these new policies, the policies we mentioned are not included in this. Come budget next week, we are wondering what's going to happen. How are they going to be able to meet their current targets with their intentions to spend so much going forward? What we are expecting is that all of these policies which have been coming in daily are going to be added up, we are going to see housing -related policies, both of the policies we have seen are related to how do we get more purpose built, rental apartments, new housing, how do we get infrastructure around housing to be developed, we have the farm care program, we have the defence budget program, all of this adds up to more spending. Now my expectation is that this will not be spending for the current year but rather it's going to be pushed out. It's being announced now and is going to be spread out to lessen the physical burden on the governments of things to look that bad with respect to them meeting their fiscal targets which is to make sure that the debt to GDP ratio doesn't explode and to make sure that over the long term. It's possible. Chrystia Freeland came out and said they will be making their targets. You can take her at her word for that saying this is what they are expecting. The government knows more than we know with respect to their own finances. When we get the budget we will find out what the finances are. It's possible for them to get under these targets, absolutely. It will just be interesting to see how they do their fiscal manoeuvring to be able to make it work. >> Are there already concerns about talk about how the economy is doing up a better which means the government is moving and more, are there any concerns they could be doing more to bring in more in terms of tax measures? >> We have not heard anything with respect to tax measures and that's not usually so that you think about ahead of time. I guess a lot of people are concerned that there's going to be higher taxes. We have seen in the past where the government has gone into industry to get more tax revenue. There is nothing specific in this that we have identified that were like, this definitely gonna happen but I know that everyone out there is probably would be watching and wondering, is something happen? We will be carefully watching that just like everyone else. >> I think this also depends, it is it an election budget? The government might not be there to fulfil upon it if that happens. >> I think one thing that you mention, that's a good way of raising it to, a pre-election budget, they do want to spend too much ahead of this budget, they don't want to do anything let's can anger potential voters so they would have this budget and of the budget next year as well right before the election. So how do they want to set this up such that they can be viewed most favourably in the eyes of Canadian such that they are doing their best effort to try to improve the economy, improve Canada as a whole? I think they are throwing darts at different targets to see what will work with respect to farm care, defence and housing. I think that's all moving in the right direction, but this is very much a budget that we are expecting to frame the government in a positive light so they can do the best job getting reelected. >> That was James Orlando, Senior economist with TD speaking with MoneyTalk's Kim Parlee. Stay tuned. Later today, we will be posting breaking coverage of the budget. I will be joined by TD economics deputy chief economist Derek Burleton, also TD Wealth's director of tax and estate planning, Nicole Ewing, to get their analysis once we have the document in hand at some point after 4 PM Eastern time. On tomorrow's show, I will be joined by Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management. We will discuss what the budget can mean for the Bank of Canada, the bond market as well, take your questions about fixed income. You can get a head start with the questions. Just email MoneyTalkLive@TD.com. That's all the time we have for the show today. Thanks for watching and we will see you tomorrow. [music]