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[music] >>Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day I'll be joined by guests from across TD, many of whom you'll only see here. We we'll take you through with moving the markets and answer your questions but investing. Coming up on today's show we will discuss today strong and expected GDP and what it means for the Bank of Canada with Chris Whelan of TD Securities. With earnings a season in the rear view mirror MoneyTalk's Anthony Okolie will give us a scorecard and in today's WebBroker education segment, Nugwa Haruna will show us how you can find economic reports using the platform. you can get in touch with us by emailing MoneyTalkLive@td.com or Philip at viewer response box on WebBroker. Let's get you an update on the markets. We start here with the home of the TSX Composite Index. Some disappointing factory data out of China today. Further weighing on the crude prices. Left West Texas intermediate below is 69 bucks a barrel, that is weighing on some of the energy names in Toronto. So you have 173 point deficit of the TSX Composite Index, a little shy of a full percent. It's been a bit rough go, a bump ego recently in the energy trade. I want to check in on Suncor today. I did notice that the underlying commodity was under pressure with some of the stocks under pressure. Not too dramatic but 37, will call that down to half percent today. There seems to be, I guess word out there, scuttlebutt, rumours, whatever it is, people are chatting that perhaps Glenn core will get ready to take another run at TECK Ressources. That would suggest a sweetened … Greg Barnes was anticipating another round from Glenn core but it hasn't arrived yet. Check with a modest bid today at 50 to 52. Up 1.4%. South of the border there is still going through all the proceedings in Washington when it comes to that tentative debt ceiling agreement. A lot will happen today. Investors are being careful. Down about 35 points. Almost a full percent. The tech heavy NASDAQ is been a little bit of a tear lately, a lot of excitement around artificial intelligence, taking a pause today and actually pulling back run hundred 12 points, a little shy of a percent. And Nvidia of course made it into the trillion dollar market Group. It didn't hold until the close. A bit of giveback today. Based on AI demand for that name mainly but down about three to half percent. And that you market update. The latest Canadian GDP report surprised to the upside and are featured yesterday says that's going to keep the pressure on the Bank of Canada have their next rate decision. That's only a week away! Joining us now discusses Chris Whelan, Senior Canada and head of portfolio in ESG Strategy TD Securities. >> Thanks for having me. >> Another report other the Canadian economy for the Bank of Canada to weigh another stronger-than-expected report. What will they do with this? >> I think there is two things that happened today in the report. It was stronger-than-expected, A, and B, the flash estimate for the coming month is also positive and strong. So what does that mean? That means that the pressures of dial-up for the main Canada the Bank of Canada start hiking is pretty much getting into the red zone here. So hikes are highly probable at this stage. And that GDP report is very notable. We were basically in a cycle where we were going from, bad anecdotes on the economy, bad data on the economy to good data and I kept joking that every week it would flip-flop. Are they hiking again? Are they done? And now it seems that the "are they hiking again"? Camp is becoming more dominant in its training more positively. This GD print is a big deal today. >> When you dial it back a year all the aggressive rate hikes we had you would think it would take its hold on the labour market and slowly economy and therefore you bring inflation down. What is going on? The details of this report… What is going on that we have not seen this weakening that perhaps was anticipated? >> I think a, it takes time. Last year was the year of hikes in this year is the year of seeing through the economy. It takes time. It's not it wouldn't be surprised for the Bank of Canada pause and cut soon after. We've seen this before. We didn't have interest rates further out the curb much today on that report. Because a lot of it is a near term dynamic and I think that investors and the market as a whole remains confident that this will slow the economy down. It's the uncertainty of the near-term past. To get that slowdown in motion. Then I guess they do but still is going to end up slowing us down regardless. So not so much of a big… The GDP report matters more than near-term than a dozen long-term. >> That's interesting. Let's dial back several days to the inflation report. Hand-in-hand right now. Is this a case of the last mile being the hardest mile? You have inflation of an elevated level and start raising rates of the headline comes down and the word "sticky" starts to show up. >> I think in general we always forget about the resilience of people. People want to grow and improve their life. They want to maintain their standard of living. And I think that everyone is doing everything they can to keep going. And I think that's exactly what were saying right now. Eventually we can't keep it going forever so eventually the slowing will come. But I think just taking that CPI, together with the GDP, that's why the red zone for risk of hikes, we are strongly reading on the red, i.e., the close to 10 out of 10 on the hiking pressure. > So we are in the red zone only a week away from her rate announcement. With a move as quickly as next Wednesday? >> I think they have the GDP report, the CPI report is behind us and they will have lots of time to process that. It is totally on the table. >> You talked about the fact that we might get 50 out there, I was thinking if we get another hike, of 25, maybe then they are done they go back on pause what you said it could be as much is 50 before this rate hiking psych is over. >> Maybe 250. Just kidding (they laugh ( >> We will have to edit that out (laughing) >> I think it's that much not that much of a notable increment and so when they make a decision to hike again, 50 basis points feels more notable to us. That will take us to 5%. So that 50, it's in the context of the whole hiking cycle. It's not tremendous but yes we would think of the hiking again to at least 225 beeps. >> You talk about after that they could see a fairly quick reversal on that. It's not uncommon. Going through cycles like this. To say we have a scenario with the Bank of Canada. We have a scenario where you have two more rate hikes, cumulative of 50 basis points and then they are in a position where they need to start cutting. What a need to see to start back cutting cycle? >> What are the need to see is really GDP slowing or contracting. We need to see inflation under control. So we need to see inflation getting to below 3% and we need to see the GDP trending lower. That's what we need to see. We basically need the two of them working together. OR, if inflation was about 3% we saw a substantial contraction in GDP, then that would give them confidence that inflation is going to come down as well. And the economy is Artie moving down and that would give them confidence as well. What I've set on this show before is we are going into restrictive territory. This is not, this is not perceived by the market. It's not perceived by the central banks to be the new norm in rates. This is perceived to be restrictive territory to cool this inflation cycle that we are in and bring us back to… They will be cutting and that will get us back to a neutral state. That's the idea scenario. We hiked, slow the economy down, inflation is under control in GD growth is stable. They cut back to say 2 1/2%. They cut back to 2% worth and we end up in a steady neutral state. That's the ideal. A lot of times we overshoot on that. Who knows if we can continue moving a lot higher. It's potentially going even to 6%. It's a possibility. We don't think that the high probability right now. It's still a possibility. >> Inflation just will not relent. > I think we have to entertain the possibility that that is entering conversations that we have. That talk of 6%. More so in the US and this in Canada. But it's still a conversation. So interest rates can swing a lot. They have swung a lot off of the lower bound. So it's tricky right now. It's a really hard market to have a high degree of confidence in where we are in the next six months. > Very interesting times indeed. We will get your questions about the economy and Chris Whelan in just a moment's time. A reminder of course that you can get in touch as any time by emailing moneytalklive@td.com or fill out the your response box under the video player on WebBroker. Now let's get you updated and some of the top stories in the world of business and take a look at how the markets are trading. Shares of Centerra Gold are in the spotlight today on the TSX. The miner says it has approval for an amended environmental impact assessment for its operations in Turkey. In a note to clients, TD Cowen says that will allow Centerra to ramp up quickly and produce significant cash flow from the mine. American Airlines says lower fuel costs and strong travel demand will provide a boost for the bottom line. The air carrier is raising its forecast for adjusted profit in the second quarter and revising its projected fuel costs lower. The news comes after Memorial Day weekend that saw travel demand across the US airline industry surpassed three pandemic levels. Shares of Advance Auto Parts are under significant pressure today. At this hour, down almost 35%. The car parts retailer missing earnings estimates by a wide margin in its latest quarter. The company is also cutting its full-year guidance in reducing the dividend advance auto part says it's late says it's facing inflationary pressures and supply chain issues among several other issues. A quick check in the markets, we have oil under pressure yet again today. We have some pressure on some of the energy names. Hundred 81 points to the downside almost a full percent and south of the border, investors watching Washington today, of course, that tentative debt ceiling agreement moving through the political process, we have a lot of big events on the radar in the next couple of hours to keep an eye on. Right now the markets down about 33 points. So we will call that a little shy of a full percent. We are back now with Chris Whelan taking your questions about the economy and interest rates. There you go. How should we be viewing the debt ceiling risk ahead of tonight's vote? >> Our house view is they do push the resolution through. Even with some risks. The market is down, the S&P 500 is down just about a percent right now. That's reflecting a potentially, some uncertainty about this but in general the market is set up and we are set up for this resolution to be pushed through. Then I think now we look forward to "what does this mean on a go forward basis?" There is to be a lot of debt for the U.S. Treasury to issue. They didn't term out a lot of their issuance during the low rate cycle so they will have a lot of maturities and that's going to be a pressure on rates for the US economy. We think that they will still end up entering a recession. That should help bring the rates lower and help them with that. But I think the debt ceiling has been behind us, we will be talking about a month from now and we will be right back to "is inflation pulling it? Is the economy pulling it? Are we cutting it, is there still inflationary pressure?" The same uncertainty we are in right now and we can stop thinking about the debt ceiling. Pretty close to that. >> Pretty close to forgetting that the debt ceiling and moving onto the next thing. We talked about the amount of debt issue in the United States. Who's the market for that issue? Who solves that? >> The other day, there is never an easy answer to put all the pieces together. But in the end of the day, if the investors aren't there, it has to clear the higher level of interest rates. That would generally mean a steepening of the yield curve. So you can see rates, two-year rates, sorry five year rates, it five year rates, rates higher than tenure rates… That would be with the amount of issuance would do. What is helpful is if there is, it's not necessarily helpful for the economy but it's helpful for the debt issuance is when or if the recession comes in the next year or so, that's going to create a lot of demand for bonds. Because of positioning for lower interest rates. That will be really helpful. So I think there might be more of an issue two or three years out but I think the demand for bonds should be pretty strong as we go from late cycle to the entering of a recession. >> Okay. A few things in the coming hours in the debt ceiling. Hopefully soon we can put that behind us. Another question from our viewer, are more hikes back on the table for the Fed? We had a nice full discussion with the Bank of Canada off the top. What you think the Fed has on its mind? >> We think there's at least another 25 basis points for the Fed to go on the hiking side. And I think the economy, the fact that we see dictating here kind of more help they go… Without a doubt very hard to forecast the next few months. As we set a couple of times today. We are always happy to do the homework and be confident but it is really hard right now with these inflation pressures are going to do and when we will slow down. For now, 25 beeps of hikes and the risk is still to more hikes than near-term cuts for now. > There was disagreement in certain points of the year between the market and the likes of Jerome Powell. Or… The market was pricing in certain scenarios of the central bankers said "no, we need to get rates up to restrictive enough of a place were we cool inflation and stay there for quite some time." Are the markets in Central Bank Gov. Seymour iodine now? I feel like they keep falling out of sync with each other. >> There is an expression in the stock market that it's a wall of worry and I think the bond market is climbing a bit of a wall of worry were we keep worrying that these high rates are going to tumble over the economy and that constantly gets pushed forward and forwarded forward. Like we said, people are resilient and want to improve their life. They want to maintain their standard of living and there's a push forward. There is a push to sustain but eventually that power and ability to sustain, eventually taps out a generally speaking, what we have highly restrictive policies, highly restrictive times in the economy going back many of many cycles, it works. It tends to work and we have a lot of debt in the system now which makes us highly interest rate sensitive and so I think the market remains highly confident that that's going to work. It's just the market keeps setting up for pain to come. But the market kind of keeps, maybe pricing that into soon. So we price and the pain coming and realized to backtrack and one of these times it's going to be correct and it's going to click. So we are kind of in that zigzag pattern of "are we about to slow? Are we not? " But we think we are getting closer as we approach 2024. >> Another question especially after last year when it was such a tough go of the markets: does this 60/40 strategies to work in this environment? Portfolios at a 60/40 strategy. >> I think this 60/40 is dead. It's gone. It was a conversation we had that was popular the last few years. Especially when interest rates were zero. That was probably wise because interest rates are much higher. Now we are talking about potentially more hikes on the tail of the Bank of Canada and the US, already high levels of interest rates in general, Bond returns are going to generally speaking, your bond yield today is very indicative of your tenure return. Your return in bonds 10 years from now. That would make bonds very attractive and, given that the yield is so high now, they will give you those defensive characteristics. Because if we do had a recession, there is going to be yield compression because there is a lot of room to zero. Tremendous amount. So your protection factor is there which is what 60/40 is all about for a diversified portfolio. And your return factors there. So you have a strong return factor and high interest rates are, make it less easy for equities to really be a tremendous moneymaking machine. It increases their interest costs. It's a bit of a drag so you have a relative Dragon equities. You have a windfall for bonds in your the protection there. So I think 60/40 is the world should be moving back more further back to 60/40. I don't think the world in general is positioned for 60/40 as much as the world probably will be or should be in the coming year or so. >> Is it a matter of patients? I think people are so used a big news moving things so dramatically. If you're waiting for the bond story to happen you need to have a bit of patience. >> I think so. I think it's a bit of the patients but the one thing though is when markets are tricky and they require patience, sometimes it's about getting ready for something and, because it's very hard to ACT! very fast. If the economy slows, probably within one to two weeks, at least 35% of the bond market move is going to have occurred. Once return. So that's really emotional to position or hard to position to something that's moved so much. And then it just keeps going. So when interest rates turn, lower or higher, they generally turn for a while and turn fast. So I think for the people that want to balance or a balanced risk portfolio and feel 60/40 meets their needs when they discuss with their financial advisor or discuss within their own context, I think if that makes sense, I think it's a good time to be in that. >> As always. Make sure, as Chris was saying, to do your own research for making any investment decisions. We will get back your questions with Chris Whelan on the economy and just a moment time. A reminder of course you can get in touch with us any time by emailing moneytalklive@td.com. Let's get to our educational segment of the day. We've been talking about Canada's latest GDP report today and if you're interested in economics reports, WebBroker can help. Nugwa Haruna, Senior Client Education Instructor with TD Direct Investing joins us now is more. Nugwa, always great to see you let's talk about how investors can stay up to date in WebBroker with all this economic data. >> I was having a conversation of Chris with all the GDP data potential for the government of Canada to review its rate hikes. Investors who want to stay up-to-date can actually utilize information in WebBroker to do so. So I'm going to hop into WebBroker and I'll show us where we can find this information. Once in WebBroker, as an investor you will click on "research". Under "markets " you want to go "reports " once you find that tab you scroll down and that's where you'll find the TD Economics page. Of already open that for us. It will open as a separate pop up or you can just right-click and open it in its habit cells. So once you come on here, the updated the Canadian page and this is where you actually are able to see up-to-date information on the Canadian quarterly to defeat, if you do as of today. So a lot of timely information that you will be able to find on this screen. For investors who are interested in seeing what the potential forecasts are we talk about rate hikes, you can also find information on this economics page as well. On here if I go to forecasts, I'm actually able to see what some of the latest financial forecasts are. When I click on their, will be brought to a different page. Here I can start to look at the Canadian and US markets. I can see what economists are projecting as the overnight target rate for the Bank of Canada. They are anticipating that we stayed 4.5. The based on your conversation with Chris today-the potential to maintain a think the here is well under the. >> Notify these reports. I'm thinking of the average person be I follow a little more carefully because of my job. Average person might think all, the Canadian economic report today. What if they want to get ahead of them and know what's coming at a time? >> Right. So investors can still use WebBroker to do that. Especially also if you want to stay within the WebBroker site itself. So we will hop back into WebBroker. Other options that they have available to them. So in WebBroker, under research, this time you can click on events. You can decide about events for the economy, the markets as well. Right now we are on the Canadian side of things. You can see for today's date, 31 May, you can see some highlights. Some announcements, like range changes. We don't have any economic events in the system for the Canadian markets today but you can go over and let's say we go over to the United States. You'll be able to say there are five economic events. You can see. You can go as far as you want. Let's say Friday I can see there are two economic events in the United States. You can click on it and see what those events are. Now, some investors may decide "I may forget to go in and check on this information. You also are able to set alerts for important things that you want to keep track of. So if you go on alerts, we typically show you how to set alerts on stocks and sells. But you can set alerts on the market as well. We told you earlier but how the markets are down. At one point the TSX was down about 1%. If you want to stay on track to receive notifications about any major changes in the markets, as well as general news itself, you can actually set an alert and decide if you want to receive that as an email. So just a great way as well to stay updated when it comes to import market news and economic news. > Great stuff is always Nugwa. Thanks for that. >> Thanks for having me. >> Our thanks to Nugwa Haruna, Senior Client Education Instructor TD Direct Investing. Make sure to check the Learning Center on WebBroker for more educational videos, live interactive master classes and upcoming webinars. Before we get back to questions about the economy with Chris Whelan a reminder of height get in touch with us. Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com oyou can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! We are back with Chris Whelan taking your questions with the economy and interest rates. This one just coming in in the past couple of moments. (Greg reads the question) >> We are moderately Canadian dollar positive so below 130, pressure to move below 130. On the US side, we think that the US side is going to hit a recession and we think Canada is going to basically narrowly avoid a recession. Why? They have all the debt, they have the higher debt sensitivity. The reason is immigration. Immigration is so substantial that Canada will avoid that. If you take that dynamic into account and you take a bit of late cycle performance where riskier assets can continue to do well for a bit longer, generally the Canadian dollar can do a bit better than US dollar and take the two of us together, both of those put our bias to Canada to outperform the US dollar. Again this is a modest. There is a lot of range pressure on the US dollar. Relative to Canada. > Interesting stuff on the currency trade. Let's talk about interest rates again. If you are wants to know if interest rates are going up again, what does that mean for dividends? >> I think we talk about interest rates going up again, we talk about what interest rates are going up? That's the very front end. That's what the central-bank controls. That's the overnight rate. That impacts variable rates, and that impacts very very short-term borrowing. So when you think about dividends, you think about "how does that affect corporations?" So maybe interest rates going up might mean that interest rates will stay elevated for a while. That impacts corporate earnings a bit. So maybe that means that dividend growth can't grow for a while. We will have a restrictive policy and there is less dividend growth. That's what that could mean in one piece. The next pieces when you think about interest rates, you also think about valuations on dividend stocks. So the higher interest rates are when you keep dividend stocks lower, however, when the reason I said at the beginning, you have to think about talking but interest rates, right now all this talk about more hikes by the Federal Reserve and the Bank of Canada isn't necessarily moving 10 year yields. And there is even an argument that it shouldn't really move 10 year yields, if so very minimally. There is just as much of an argument that I think has just as much merit of them increasing the interest rate with the Bank of Canada. The Federal Reserve increasing their overnight rate, pressure to put 10 year yields lower. Because basically the market pricing is getting too restrictive now they will put us into a recession and we look forward, interest rates are lower. In that case, if interest rates will be lower, were going into a recession. Then that puts corporate earnings at risk. The tenant also pushes dividend stocks, valuations up as well from lower interest rates. So there's always that battle that stocks have where you have the impact on earnings, the impact on valuations and you can have kind of the push/pull of interest rates and valuation processes in the earnings process and also the direction of the economy. So I think that's the way I would frame it and look at it personally. >> Interesting stuff. There is one about a topic always close to Canadians minds. Can we get your view on the housing market? >> I think of the housing market we've learned that immigration has risk. I think we spoke about this last year. Basically the take was this spring market was actually can be pretty decent without interest rates, it would be a bit lower in the spring market. The immigration story would eventually come through and also sales were solo last year that we thought some sales would have to happen, you can't just have no sales habit for a long time. Sales of it to go through. Inventory remains low. Immigration remain strong and the housing market is showing resilience. We are seeing a really frothy, some frothy areas get back on the froth. I think this renewed, we will get a lot of media coverage of the Bank of Canada does hike. About the renewed hike pressures. I could see going out of the spring market into a Summer market. >> Slowing down with people on vacation… >> Right as we are slowing down we are kind of… Notching up the fear dynamic. ôno rates are going down again!" It seems we can cool into the fall here and we will see what kind of interest rates the fall brings. If the fall brings lower interest rates like we think, then maybe you get a renewed bit into the fall and then another strong spring market with lower rates. Same story next year but it seems what we would probably do for a more of a softer environment the Summer with the talk of higher rates and generally less activity. >> People who do watch the market may be in terms of trying to get into the market, probably have been frustrated in the major urban centre's. Even though you do see pullbacks and you saw the pandemic pullback, off to the races then go back again, it doesn't seem like markets get affordable by any great measure even despite going through some bumps in the cycle. >> Is really tough. And you can fix your mortgage up to five years right now. But at a high level of interest rate. It's a really tough environment that you kind of have to help for lower rates. That they actually come one day. But the affordability dynamic is a tough one. How we balance immigration, helping the economy but also making housing. It's not an easy conversation and it's tough. >> Interesting stuff. We will get back your questions for Chris Whelan on the economy and interest rates and just moments time, as always make sure you do your own research for making any investment decisions and a reminder that you can get attention us any time. You can get in touch with us at any time. Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com oyou can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! More than 97% of the S&P 500 companies and reported their first quarterly results. Corporations are recording their best performance relative to analyst expectations since the fourth quarter of 2021. But does that tell the whole story? Here is a recap of the latest earnings season is our Anthony Okolie. Anthony what we see over the quarter? >> Thank you very much Greg. So far we see about three quarters of those reported, about three quarters of reported positive earnings as well as positive revenue surprise in the first quarter. That's well above historical averages. Now, despite that the blended earnings for the index were still slightly negative and if that holds up, it will mark the second straight quarter the index recorded drop. When you break things down by sector, technology of course reported solid earnings results in the second quarter and results from the big US tech companies were generally ahead of estimates. We did get positive earnings surprises from the likes of Microsoft, Apple, Intel and of course Nvidia which is been all over the news recently. They were sizable contributors as well. In Communications, sector, Alphabet of course reeled its revenue grew and its rate of decline in earnings slowed down as well. META Platforms and others also put out earnings that were well ahead of expectations. Now, other sectors of performers rather included industrials and consumer discretionary. When we look at industrial specifically, passenger airline industry outperformed again. That's thanks to a nice rebound and air travel demand. Within consumer discretionary of course it was led by positive earnings EPS surprises from Amazon.com as well as some of the big automakers like Ford and GM. Amazon of course the largest component in the consumer discretionary sector and the biggest contributor to earnings growth. Now, meanwhile six sectors are reporting or have reported year-over-year earnings declines. That was led by utilities and materials but overall, the latest earnings season was better than feared. Based on the size of the surprises in the first quarter. Right? >> Investors are likely to take that information, feel decent about it but of course always forward-looking investors want to know what's going to happen in the current second-quarter reliving through and for the rest of the year. What is the guidance look like for some of these companies? >> The guidance hasn't looking great. They're not as optimistic for second-quarter growth. With more than half the companies issuing negative guidance. Given the concerns of the market, about the debt ceiling and possible economic slowdown and recession, analysts have been lowering their EPS estimates more than normal for the S&P 500 companies. Something we saw in the first quarter and something we are seeing in the other quarters as well. As throughout the year. Greg? >> Great stuff Anthony thanks for that. >> My pleasure. >> MoneyTalk Live's Anthony Okolie. Let's do another market update. China's pressure and oil yet again for another day. Interesting to see how the meeting this week plays out. We have energy names to the downside. The TSX Composite Index data hundred and 74 points. A little shy of a full percent. Genova's not too dramatic but not an easy go for some of these names. 2171, you have Genova stand another two rather Cenovis. . . . Centerra… (…) Investors have their eye on it as Chris and I were talking earlier the show. Chris was saying that soon we can put this behind us and go back to the things we are usually worried about. There's always something to worry about. The S&P 500 down 3/4%. The tech heavy NASDAQ was on a right nice run lately based on a lot of excitement around AI and what it will mean for personal tech names. You're seeing a bit of a pause and that momentum today, don't hundred and two points, about three quarters of a percent. Advance Auto Parts, we told you about them at the top of the show as well. Big disappointment for the latest quarter and that stock is definitely waiting getting hit today on the back of that release 35% of the downside for advance auto. We are back now in Chris Whelan of TD Securities talking the economy and talking rates (Greg reads the question). I think 10% is the S&P 500 that broader read of the American market. >> I think that's a great question. We actually put out a piece talking about this exactly today. Our framework is yes. All the pendants are saying that a recession is coming and what I like to say is there is this notion that when everyone says something, the other thing will happen. I think that there is some wisdom in that but I think at the extremes. So I think a lot of times,so our take right now is if you have a portfolio that takes time to rebalance, if you're a very large investor, they can move is easily. Or maybe you're very conservative and you like to move slowly over time seen on the risk of making an overly large decision at one moment in time. So if you make a decision very slowly over time, you gonna reduce your risk of maybe poor timing. So there are two ways to look at that. For us, very large investors or someone that is very conservative wants to make very gradual changes in their portfolio, with start tilting more defensive now. We see the probability of a recession coming very high. So that would mean that there is prudence to do so. However on the flipside, when you are hiking interest rates, historically and currently, it's because the economy is strong. This is good for stocks. Also the price of stocks is discounted by longer-term interest rates. Longer-term interest rates are not moving higher now. So you don't have that pull on valuations. So stocks are entering late cycles and doing well late cycles. That's why were seeing the strong performance. Now, it makes sense and we need the recession to come first. So a more tactical investor or someone who can move more quickly and wants to be more active in their timing decision, you might want to wait for the momentum to shift for the stock market to start becoming weaker, wants to come in stronger and that data to start showing up. And then lean into the recession. That can prove wise in terms of not getting up too early. Not getting caught up for this and being in for the rally. Also just getting ready for that. Basically our take is "if you're conservative and want to start leaning and getting going, if you want to be more tactical, look for the turn but have it as top of mind". >> We are almost out of time for questions but we want to squeeze one more. (Greg reads the question) it was quite a spring when you think of some of the developments in the states and even overseas. > That's a really tough question. On the commercial side, we have the office dynamic. We don't know how this office story is going to play out. We have, it seems that working from home is here to stay but we also see that hybrid is here to say. We also don't know what a recession is going to do to that environment. So it's very hard to see what the world looks like on a go forward basis. And we've actually said this earlier in the show. People are surprisingly resilient. Maybe the office space can have a rebranding, reemerging and, surprisingly resilient. I think, I wouldn't count about. On the backside, I think there is, it still to be determined with the economic fallout is, if there is tighter lending from all of these Bank feelers, if you look at the amount of assets that these banks that have been negatively impacted, whether put into protection or absorbed by another Bank, it's substantial and it's very similar to the credit crisis. However I think it speaks well to the banking system now that we are continuing to operate and the stock market can be holding up. The economy is still holding up. Time may tell but I think A it may show that banks are more resilient and we did learn that from 2008, there stronger and better for it. There is still the cost of raising interest rates as fast as we did to do some damage. Banks often lead in terms of their actions in showing signs for the economy, maybe that's a leading indicator and time will tell on the office space. It remains a riskier aspect of the economy. But don't count it out. We will also have to watch what happens to lending. If lending tightens from all the banking stress. So time will tell. > Time will tell. Chris always great to have you here. We'll have you back in time to give us an update all these issues. Our thanks to Chris Whelan, Senior Canada and head of portfolio and ESG Strategy. As always make sure you do your own research before making any investment decisions. Stay tuned for tomorrow's show Andres Rincon head of ETF sales and strategy with TD Securities will be our guest take your questions about exchange traded funds. A reminder that you can get a head start in emailing us your questions at moneytalklive@td.com. That's all the time we offer today for the show thanks for watching and we will see you tomorrow. [music]
[music] >>Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day I'll be joined by guests from across TD, many of whom you'll only see here. We we'll take you through with moving the markets and answer your questions but investing. Coming up on today's show we will discuss today strong and expected GDP and what it means for the Bank of Canada with Chris Whelan of TD Securities. With earnings a season in the rear view mirror MoneyTalk's Anthony Okolie will give us a scorecard and in today's WebBroker education segment, Nugwa Haruna will show us how you can find economic reports using the platform. you can get in touch with us by emailing MoneyTalkLive@td.com or Philip at viewer response box on WebBroker. Let's get you an update on the markets. We start here with the home of the TSX Composite Index. Some disappointing factory data out of China today. Further weighing on the crude prices. Left West Texas intermediate below is 69 bucks a barrel, that is weighing on some of the energy names in Toronto. So you have 173 point deficit of the TSX Composite Index, a little shy of a full percent. It's been a bit rough go, a bump ego recently in the energy trade. I want to check in on Suncor today. I did notice that the underlying commodity was under pressure with some of the stocks under pressure. Not too dramatic but 37, will call that down to half percent today. There seems to be, I guess word out there, scuttlebutt, rumours, whatever it is, people are chatting that perhaps Glenn core will get ready to take another run at TECK Ressources. That would suggest a sweetened … Greg Barnes was anticipating another round from Glenn core but it hasn't arrived yet. Check with a modest bid today at 50 to 52. Up 1.4%. South of the border there is still going through all the proceedings in Washington when it comes to that tentative debt ceiling agreement. A lot will happen today. Investors are being careful. Down about 35 points. Almost a full percent. The tech heavy NASDAQ is been a little bit of a tear lately, a lot of excitement around artificial intelligence, taking a pause today and actually pulling back run hundred 12 points, a little shy of a percent. And Nvidia of course made it into the trillion dollar market Group. It didn't hold until the close. A bit of giveback today. Based on AI demand for that name mainly but down about three to half percent. And that you market update. The latest Canadian GDP report surprised to the upside and are featured yesterday says that's going to keep the pressure on the Bank of Canada have their next rate decision. That's only a week away! Joining us now discusses Chris Whelan, Senior Canada and head of portfolio in ESG Strategy TD Securities. >> Thanks for having me. >> Another report other the Canadian economy for the Bank of Canada to weigh another stronger-than-expected report. What will they do with this? >> I think there is two things that happened today in the report. It was stronger-than-expected, A, and B, the flash estimate for the coming month is also positive and strong. So what does that mean? That means that the pressures of dial-up for the main Canada the Bank of Canada start hiking is pretty much getting into the red zone here. So hikes are highly probable at this stage. And that GDP report is very notable. We were basically in a cycle where we were going from, bad anecdotes on the economy, bad data on the economy to good data and I kept joking that every week it would flip-flop. Are they hiking again? Are they done? And now it seems that the "are they hiking again"? Camp is becoming more dominant in its training more positively. This GD print is a big deal today. >> When you dial it back a year all the aggressive rate hikes we had you would think it would take its hold on the labour market and slowly economy and therefore you bring inflation down. What is going on? The details of this report… What is going on that we have not seen this weakening that perhaps was anticipated? >> I think a, it takes time. Last year was the year of hikes in this year is the year of seeing through the economy. It takes time. It's not it wouldn't be surprised for the Bank of Canada pause and cut soon after. We've seen this before. We didn't have interest rates further out the curb much today on that report. Because a lot of it is a near term dynamic and I think that investors and the market as a whole remains confident that this will slow the economy down. It's the uncertainty of the near-term past. To get that slowdown in motion. Then I guess they do but still is going to end up slowing us down regardless. So not so much of a big… The GDP report matters more than near-term than a dozen long-term. >> That's interesting. Let's dial back several days to the inflation report. Hand-in-hand right now. Is this a case of the last mile being the hardest mile? You have inflation of an elevated level and start raising rates of the headline comes down and the word "sticky" starts to show up. >> I think in general we always forget about the resilience of people. People want to grow and improve their life. They want to maintain their standard of living. And I think that everyone is doing everything they can to keep going. And I think that's exactly what were saying right now. Eventually we can't keep it going forever so eventually the slowing will come. But I think just taking that CPI, together with the GDP, that's why the red zone for risk of hikes, we are strongly reading on the red, i.e., the close to 10 out of 10 on the hiking pressure. > So we are in the red zone only a week away from her rate announcement. With a move as quickly as next Wednesday? >> I think they have the GDP report, the CPI report is behind us and they will have lots of time to process that. It is totally on the table. >> You talked about the fact that we might get 50 out there, I was thinking if we get another hike, of 25, maybe then they are done they go back on pause what you said it could be as much is 50 before this rate hiking psych is over. >> Maybe 250. Just kidding (they laugh ( >> We will have to edit that out (laughing) >> I think it's that much not that much of a notable increment and so when they make a decision to hike again, 50 basis points feels more notable to us. That will take us to 5%. So that 50, it's in the context of the whole hiking cycle. It's not tremendous but yes we would think of the hiking again to at least 225 beeps. >> You talk about after that they could see a fairly quick reversal on that. It's not uncommon. Going through cycles like this. To say we have a scenario with the Bank of Canada. We have a scenario where you have two more rate hikes, cumulative of 50 basis points and then they are in a position where they need to start cutting. What a need to see to start back cutting cycle? >> What are the need to see is really GDP slowing or contracting. We need to see inflation under control. So we need to see inflation getting to below 3% and we need to see the GDP trending lower. That's what we need to see. We basically need the two of them working together. OR, if inflation was about 3% we saw a substantial contraction in GDP, then that would give them confidence that inflation is going to come down as well. And the economy is Artie moving down and that would give them confidence as well. What I've set on this show before is we are going into restrictive territory. This is not, this is not perceived by the market. It's not perceived by the central banks to be the new norm in rates. This is perceived to be restrictive territory to cool this inflation cycle that we are in and bring us back to… They will be cutting and that will get us back to a neutral state. That's the idea scenario. We hiked, slow the economy down, inflation is under control in GD growth is stable. They cut back to say 2 1/2%. They cut back to 2% worth and we end up in a steady neutral state. That's the ideal. A lot of times we overshoot on that. Who knows if we can continue moving a lot higher. It's potentially going even to 6%. It's a possibility. We don't think that the high probability right now. It's still a possibility. >> Inflation just will not relent. > I think we have to entertain the possibility that that is entering conversations that we have. That talk of 6%. More so in the US and this in Canada. But it's still a conversation. So interest rates can swing a lot. They have swung a lot off of the lower bound. So it's tricky right now. It's a really hard market to have a high degree of confidence in where we are in the next six months. > Very interesting times indeed. We will get your questions about the economy and Chris Whelan in just a moment's time. A reminder of course that you can get in touch as any time by emailing moneytalklive@td.com or fill out the your response box under the video player on WebBroker. Now let's get you updated and some of the top stories in the world of business and take a look at how the markets are trading. Shares of Centerra Gold are in the spotlight today on the TSX. The miner says it has approval for an amended environmental impact assessment for its operations in Turkey. In a note to clients, TD Cowen says that will allow Centerra to ramp up quickly and produce significant cash flow from the mine. American Airlines says lower fuel costs and strong travel demand will provide a boost for the bottom line. The air carrier is raising its forecast for adjusted profit in the second quarter and revising its projected fuel costs lower. The news comes after Memorial Day weekend that saw travel demand across the US airline industry surpassed three pandemic levels. Shares of Advance Auto Parts are under significant pressure today. At this hour, down almost 35%. The car parts retailer missing earnings estimates by a wide margin in its latest quarter. The company is also cutting its full-year guidance in reducing the dividend advance auto part says it's late says it's facing inflationary pressures and supply chain issues among several other issues. A quick check in the markets, we have oil under pressure yet again today. We have some pressure on some of the energy names. Hundred 81 points to the downside almost a full percent and south of the border, investors watching Washington today, of course, that tentative debt ceiling agreement moving through the political process, we have a lot of big events on the radar in the next couple of hours to keep an eye on. Right now the markets down about 33 points. So we will call that a little shy of a full percent. We are back now with Chris Whelan taking your questions about the economy and interest rates. There you go. How should we be viewing the debt ceiling risk ahead of tonight's vote? >> Our house view is they do push the resolution through. Even with some risks. The market is down, the S&P 500 is down just about a percent right now. That's reflecting a potentially, some uncertainty about this but in general the market is set up and we are set up for this resolution to be pushed through. Then I think now we look forward to "what does this mean on a go forward basis?" There is to be a lot of debt for the U.S. Treasury to issue. They didn't term out a lot of their issuance during the low rate cycle so they will have a lot of maturities and that's going to be a pressure on rates for the US economy. We think that they will still end up entering a recession. That should help bring the rates lower and help them with that. But I think the debt ceiling has been behind us, we will be talking about a month from now and we will be right back to "is inflation pulling it? Is the economy pulling it? Are we cutting it, is there still inflationary pressure?" The same uncertainty we are in right now and we can stop thinking about the debt ceiling. Pretty close to that. >> Pretty close to forgetting that the debt ceiling and moving onto the next thing. We talked about the amount of debt issue in the United States. Who's the market for that issue? Who solves that? >> The other day, there is never an easy answer to put all the pieces together. But in the end of the day, if the investors aren't there, it has to clear the higher level of interest rates. That would generally mean a steepening of the yield curve. So you can see rates, two-year rates, sorry five year rates, it five year rates, rates higher than tenure rates… That would be with the amount of issuance would do. What is helpful is if there is, it's not necessarily helpful for the economy but it's helpful for the debt issuance is when or if the recession comes in the next year or so, that's going to create a lot of demand for bonds. Because of positioning for lower interest rates. That will be really helpful. So I think there might be more of an issue two or three years out but I think the demand for bonds should be pretty strong as we go from late cycle to the entering of a recession. >> Okay. A few things in the coming hours in the debt ceiling. Hopefully soon we can put that behind us. Another question from our viewer, are more hikes back on the table for the Fed? We had a nice full discussion with the Bank of Canada off the top. What you think the Fed has on its mind? >> We think there's at least another 25 basis points for the Fed to go on the hiking side. And I think the economy, the fact that we see dictating here kind of more help they go… Without a doubt very hard to forecast the next few months. As we set a couple of times today. We are always happy to do the homework and be confident but it is really hard right now with these inflation pressures are going to do and when we will slow down. For now, 25 beeps of hikes and the risk is still to more hikes than near-term cuts for now. > There was disagreement in certain points of the year between the market and the likes of Jerome Powell. Or… The market was pricing in certain scenarios of the central bankers said "no, we need to get rates up to restrictive enough of a place were we cool inflation and stay there for quite some time." Are the markets in Central Bank Gov. Seymour iodine now? I feel like they keep falling out of sync with each other. >> There is an expression in the stock market that it's a wall of worry and I think the bond market is climbing a bit of a wall of worry were we keep worrying that these high rates are going to tumble over the economy and that constantly gets pushed forward and forwarded forward. Like we said, people are resilient and want to improve their life. They want to maintain their standard of living and there's a push forward. There is a push to sustain but eventually that power and ability to sustain, eventually taps out a generally speaking, what we have highly restrictive policies, highly restrictive times in the economy going back many of many cycles, it works. It tends to work and we have a lot of debt in the system now which makes us highly interest rate sensitive and so I think the market remains highly confident that that's going to work. It's just the market keeps setting up for pain to come. But the market kind of keeps, maybe pricing that into soon. So we price and the pain coming and realized to backtrack and one of these times it's going to be correct and it's going to click. So we are kind of in that zigzag pattern of "are we about to slow? Are we not? " But we think we are getting closer as we approach 2024. >> Another question especially after last year when it was such a tough go of the markets: does this 60/40 strategies to work in this environment? Portfolios at a 60/40 strategy. >> I think this 60/40 is dead. It's gone. It was a conversation we had that was popular the last few years. Especially when interest rates were zero. That was probably wise because interest rates are much higher. Now we are talking about potentially more hikes on the tail of the Bank of Canada and the US, already high levels of interest rates in general, Bond returns are going to generally speaking, your bond yield today is very indicative of your tenure return. Your return in bonds 10 years from now. That would make bonds very attractive and, given that the yield is so high now, they will give you those defensive characteristics. Because if we do had a recession, there is going to be yield compression because there is a lot of room to zero. Tremendous amount. So your protection factor is there which is what 60/40 is all about for a diversified portfolio. And your return factors there. So you have a strong return factor and high interest rates are, make it less easy for equities to really be a tremendous moneymaking machine. It increases their interest costs. It's a bit of a drag so you have a relative Dragon equities. You have a windfall for bonds in your the protection there. So I think 60/40 is the world should be moving back more further back to 60/40. I don't think the world in general is positioned for 60/40 as much as the world probably will be or should be in the coming year or so. >> Is it a matter of patients? I think people are so used a big news moving things so dramatically. If you're waiting for the bond story to happen you need to have a bit of patience. >> I think so. I think it's a bit of the patients but the one thing though is when markets are tricky and they require patience, sometimes it's about getting ready for something and, because it's very hard to ACT! very fast. If the economy slows, probably within one to two weeks, at least 35% of the bond market move is going to have occurred. Once return. So that's really emotional to position or hard to position to something that's moved so much. And then it just keeps going. So when interest rates turn, lower or higher, they generally turn for a while and turn fast. So I think for the people that want to balance or a balanced risk portfolio and feel 60/40 meets their needs when they discuss with their financial advisor or discuss within their own context, I think if that makes sense, I think it's a good time to be in that. >> As always. Make sure, as Chris was saying, to do your own research for making any investment decisions. We will get back your questions with Chris Whelan on the economy and just a moment time. A reminder of course you can get in touch with us any time by emailing moneytalklive@td.com. Let's get to our educational segment of the day. We've been talking about Canada's latest GDP report today and if you're interested in economics reports, WebBroker can help. Nugwa Haruna, Senior Client Education Instructor with TD Direct Investing joins us now is more. Nugwa, always great to see you let's talk about how investors can stay up to date in WebBroker with all this economic data. >> I was having a conversation of Chris with all the GDP data potential for the government of Canada to review its rate hikes. Investors who want to stay up-to-date can actually utilize information in WebBroker to do so. So I'm going to hop into WebBroker and I'll show us where we can find this information. Once in WebBroker, as an investor you will click on "research". Under "markets " you want to go "reports " once you find that tab you scroll down and that's where you'll find the TD Economics page. Of already open that for us. It will open as a separate pop up or you can just right-click and open it in its habit cells. So once you come on here, the updated the Canadian page and this is where you actually are able to see up-to-date information on the Canadian quarterly to defeat, if you do as of today. So a lot of timely information that you will be able to find on this screen. For investors who are interested in seeing what the potential forecasts are we talk about rate hikes, you can also find information on this economics page as well. On here if I go to forecasts, I'm actually able to see what some of the latest financial forecasts are. When I click on their, will be brought to a different page. Here I can start to look at the Canadian and US markets. I can see what economists are projecting as the overnight target rate for the Bank of Canada. They are anticipating that we stayed 4.5. The based on your conversation with Chris today-the potential to maintain a think the here is well under the. >> Notify these reports. I'm thinking of the average person be I follow a little more carefully because of my job. Average person might think all, the Canadian economic report today. What if they want to get ahead of them and know what's coming at a time? >> Right. So investors can still use WebBroker to do that. Especially also if you want to stay within the WebBroker site itself. So we will hop back into WebBroker. Other options that they have available to them. So in WebBroker, under research, this time you can click on events. You can decide about events for the economy, the markets as well. Right now we are on the Canadian side of things. You can see for today's date, 31 May, you can see some highlights. Some announcements, like range changes. We don't have any economic events in the system for the Canadian markets today but you can go over and let's say we go over to the United States. You'll be able to say there are five economic events. You can see. You can go as far as you want. Let's say Friday I can see there are two economic events in the United States. You can click on it and see what those events are. Now, some investors may decide "I may forget to go in and check on this information. You also are able to set alerts for important things that you want to keep track of. So if you go on alerts, we typically show you how to set alerts on stocks and sells. But you can set alerts on the market as well. We told you earlier but how the markets are down. At one point the TSX was down about 1%. If you want to stay on track to receive notifications about any major changes in the markets, as well as general news itself, you can actually set an alert and decide if you want to receive that as an email. So just a great way as well to stay updated when it comes to import market news and economic news. > Great stuff is always Nugwa. Thanks for that. >> Thanks for having me. >> Our thanks to Nugwa Haruna, Senior Client Education Instructor TD Direct Investing. Make sure to check the Learning Center on WebBroker for more educational videos, live interactive master classes and upcoming webinars. Before we get back to questions about the economy with Chris Whelan a reminder of height get in touch with us. Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com oyou can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! We are back with Chris Whelan taking your questions with the economy and interest rates. This one just coming in in the past couple of moments. (Greg reads the question) >> We are moderately Canadian dollar positive so below 130, pressure to move below 130. On the US side, we think that the US side is going to hit a recession and we think Canada is going to basically narrowly avoid a recession. Why? They have all the debt, they have the higher debt sensitivity. The reason is immigration. Immigration is so substantial that Canada will avoid that. If you take that dynamic into account and you take a bit of late cycle performance where riskier assets can continue to do well for a bit longer, generally the Canadian dollar can do a bit better than US dollar and take the two of us together, both of those put our bias to Canada to outperform the US dollar. Again this is a modest. There is a lot of range pressure on the US dollar. Relative to Canada. > Interesting stuff on the currency trade. Let's talk about interest rates again. If you are wants to know if interest rates are going up again, what does that mean for dividends? >> I think we talk about interest rates going up again, we talk about what interest rates are going up? That's the very front end. That's what the central-bank controls. That's the overnight rate. That impacts variable rates, and that impacts very very short-term borrowing. So when you think about dividends, you think about "how does that affect corporations?" So maybe interest rates going up might mean that interest rates will stay elevated for a while. That impacts corporate earnings a bit. So maybe that means that dividend growth can't grow for a while. We will have a restrictive policy and there is less dividend growth. That's what that could mean in one piece. The next pieces when you think about interest rates, you also think about valuations on dividend stocks. So the higher interest rates are when you keep dividend stocks lower, however, when the reason I said at the beginning, you have to think about talking but interest rates, right now all this talk about more hikes by the Federal Reserve and the Bank of Canada isn't necessarily moving 10 year yields. And there is even an argument that it shouldn't really move 10 year yields, if so very minimally. There is just as much of an argument that I think has just as much merit of them increasing the interest rate with the Bank of Canada. The Federal Reserve increasing their overnight rate, pressure to put 10 year yields lower. Because basically the market pricing is getting too restrictive now they will put us into a recession and we look forward, interest rates are lower. In that case, if interest rates will be lower, were going into a recession. Then that puts corporate earnings at risk. The tenant also pushes dividend stocks, valuations up as well from lower interest rates. So there's always that battle that stocks have where you have the impact on earnings, the impact on valuations and you can have kind of the push/pull of interest rates and valuation processes in the earnings process and also the direction of the economy. So I think that's the way I would frame it and look at it personally. >> Interesting stuff. There is one about a topic always close to Canadians minds. Can we get your view on the housing market? >> I think of the housing market we've learned that immigration has risk. I think we spoke about this last year. Basically the take was this spring market was actually can be pretty decent without interest rates, it would be a bit lower in the spring market. The immigration story would eventually come through and also sales were solo last year that we thought some sales would have to happen, you can't just have no sales habit for a long time. Sales of it to go through. Inventory remains low. Immigration remain strong and the housing market is showing resilience. We are seeing a really frothy, some frothy areas get back on the froth. I think this renewed, we will get a lot of media coverage of the Bank of Canada does hike. About the renewed hike pressures. I could see going out of the spring market into a Summer market. >> Slowing down with people on vacation… >> Right as we are slowing down we are kind of… Notching up the fear dynamic. ôno rates are going down again!" It seems we can cool into the fall here and we will see what kind of interest rates the fall brings. If the fall brings lower interest rates like we think, then maybe you get a renewed bit into the fall and then another strong spring market with lower rates. Same story next year but it seems what we would probably do for a more of a softer environment the Summer with the talk of higher rates and generally less activity. >> People who do watch the market may be in terms of trying to get into the market, probably have been frustrated in the major urban centre's. Even though you do see pullbacks and you saw the pandemic pullback, off to the races then go back again, it doesn't seem like markets get affordable by any great measure even despite going through some bumps in the cycle. >> Is really tough. And you can fix your mortgage up to five years right now. But at a high level of interest rate. It's a really tough environment that you kind of have to help for lower rates. That they actually come one day. But the affordability dynamic is a tough one. How we balance immigration, helping the economy but also making housing. It's not an easy conversation and it's tough. >> Interesting stuff. We will get back your questions for Chris Whelan on the economy and interest rates and just moments time, as always make sure you do your own research for making any investment decisions and a reminder that you can get attention us any time. You can get in touch with us at any time. Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com oyou can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! More than 97% of the S&P 500 companies and reported their first quarterly results. Corporations are recording their best performance relative to analyst expectations since the fourth quarter of 2021. But does that tell the whole story? Here is a recap of the latest earnings season is our Anthony Okolie. Anthony what we see over the quarter? >> Thank you very much Greg. So far we see about three quarters of those reported, about three quarters of reported positive earnings as well as positive revenue surprise in the first quarter. That's well above historical averages. Now, despite that the blended earnings for the index were still slightly negative and if that holds up, it will mark the second straight quarter the index recorded drop. When you break things down by sector, technology of course reported solid earnings results in the second quarter and results from the big US tech companies were generally ahead of estimates. We did get positive earnings surprises from the likes of Microsoft, Apple, Intel and of course Nvidia which is been all over the news recently. They were sizable contributors as well. In Communications, sector, Alphabet of course reeled its revenue grew and its rate of decline in earnings slowed down as well. META Platforms and others also put out earnings that were well ahead of expectations. Now, other sectors of performers rather included industrials and consumer discretionary. When we look at industrial specifically, passenger airline industry outperformed again. That's thanks to a nice rebound and air travel demand. Within consumer discretionary of course it was led by positive earnings EPS surprises from Amazon.com as well as some of the big automakers like Ford and GM. Amazon of course the largest component in the consumer discretionary sector and the biggest contributor to earnings growth. Now, meanwhile six sectors are reporting or have reported year-over-year earnings declines. That was led by utilities and materials but overall, the latest earnings season was better than feared. Based on the size of the surprises in the first quarter. Right? >> Investors are likely to take that information, feel decent about it but of course always forward-looking investors want to know what's going to happen in the current second-quarter reliving through and for the rest of the year. What is the guidance look like for some of these companies? >> The guidance hasn't looking great. They're not as optimistic for second-quarter growth. With more than half the companies issuing negative guidance. Given the concerns of the market, about the debt ceiling and possible economic slowdown and recession, analysts have been lowering their EPS estimates more than normal for the S&P 500 companies. Something we saw in the first quarter and something we are seeing in the other quarters as well. As throughout the year. Greg? >> Great stuff Anthony thanks for that. >> My pleasure. >> MoneyTalk Live's Anthony Okolie. Let's do another market update. China's pressure and oil yet again for another day. Interesting to see how the meeting this week plays out. We have energy names to the downside. The TSX Composite Index data hundred and 74 points. A little shy of a full percent. Genova's not too dramatic but not an easy go for some of these names. 2171, you have Genova stand another two rather Cenovis. . . . Centerra… (…) Investors have their eye on it as Chris and I were talking earlier the show. Chris was saying that soon we can put this behind us and go back to the things we are usually worried about. There's always something to worry about. The S&P 500 down 3/4%. The tech heavy NASDAQ was on a right nice run lately based on a lot of excitement around AI and what it will mean for personal tech names. You're seeing a bit of a pause and that momentum today, don't hundred and two points, about three quarters of a percent. Advance Auto Parts, we told you about them at the top of the show as well. Big disappointment for the latest quarter and that stock is definitely waiting getting hit today on the back of that release 35% of the downside for advance auto. We are back now in Chris Whelan of TD Securities talking the economy and talking rates (Greg reads the question). I think 10% is the S&P 500 that broader read of the American market. >> I think that's a great question. We actually put out a piece talking about this exactly today. Our framework is yes. All the pendants are saying that a recession is coming and what I like to say is there is this notion that when everyone says something, the other thing will happen. I think that there is some wisdom in that but I think at the extremes. So I think a lot of times,so our take right now is if you have a portfolio that takes time to rebalance, if you're a very large investor, they can move is easily. Or maybe you're very conservative and you like to move slowly over time seen on the risk of making an overly large decision at one moment in time. So if you make a decision very slowly over time, you gonna reduce your risk of maybe poor timing. So there are two ways to look at that. For us, very large investors or someone that is very conservative wants to make very gradual changes in their portfolio, with start tilting more defensive now. We see the probability of a recession coming very high. So that would mean that there is prudence to do so. However on the flipside, when you are hiking interest rates, historically and currently, it's because the economy is strong. This is good for stocks. Also the price of stocks is discounted by longer-term interest rates. Longer-term interest rates are not moving higher now. So you don't have that pull on valuations. So stocks are entering late cycles and doing well late cycles. That's why were seeing the strong performance. Now, it makes sense and we need the recession to come first. So a more tactical investor or someone who can move more quickly and wants to be more active in their timing decision, you might want to wait for the momentum to shift for the stock market to start becoming weaker, wants to come in stronger and that data to start showing up. And then lean into the recession. That can prove wise in terms of not getting up too early. Not getting caught up for this and being in for the rally. Also just getting ready for that. Basically our take is "if you're conservative and want to start leaning and getting going, if you want to be more tactical, look for the turn but have it as top of mind". >> We are almost out of time for questions but we want to squeeze one more. (Greg reads the question) it was quite a spring when you think of some of the developments in the states and even overseas. > That's a really tough question. On the commercial side, we have the office dynamic. We don't know how this office story is going to play out. We have, it seems that working from home is here to stay but we also see that hybrid is here to say. We also don't know what a recession is going to do to that environment. So it's very hard to see what the world looks like on a go forward basis. And we've actually said this earlier in the show. People are surprisingly resilient. Maybe the office space can have a rebranding, reemerging and, surprisingly resilient. I think, I wouldn't count about. On the backside, I think there is, it still to be determined with the economic fallout is, if there is tighter lending from all of these Bank feelers, if you look at the amount of assets that these banks that have been negatively impacted, whether put into protection or absorbed by another Bank, it's substantial and it's very similar to the credit crisis. However I think it speaks well to the banking system now that we are continuing to operate and the stock market can be holding up. The economy is still holding up. Time may tell but I think A it may show that banks are more resilient and we did learn that from 2008, there stronger and better for it. There is still the cost of raising interest rates as fast as we did to do some damage. Banks often lead in terms of their actions in showing signs for the economy, maybe that's a leading indicator and time will tell on the office space. It remains a riskier aspect of the economy. But don't count it out. We will also have to watch what happens to lending. If lending tightens from all the banking stress. So time will tell. > Time will tell. Chris always great to have you here. We'll have you back in time to give us an update all these issues. Our thanks to Chris Whelan, Senior Canada and head of portfolio and ESG Strategy. As always make sure you do your own research before making any investment decisions. Stay tuned for tomorrow's show Andres Rincon head of ETF sales and strategy with TD Securities will be our guest take your questions about exchange traded funds. A reminder that you can get a head start in emailing us your questions at moneytalklive@td.com. That's all the time we offer today for the show thanks for watching and we will see you tomorrow. [music]
