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Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We are going to take you through its moving the markets and answer your questions about investing.
Coming up on today show: we'll get reactions to today's later than expected US inflation report and what it means for interest rates and the markets with TD Asset Management Christian Medeiros.
and in today's WebBroker education segment, Jason Hnatyk's going to take us through how it dual listed shares work and how you can research them on the platform.
So here's how you can get in touch with us.
Just email us, moneytalklive@td.com or fillers that view response box right under the video player here on WebBroker. Before we get to our guest of today, let's get you an update on the market action.
A pretty big pop at the open. We are hanging into positive territory, but not as firmly as we were on the heels of that US inflation report,Sending market sharply higher at the open. The TSX right now is up a modest 50 points, about 1/4 brewers sent, 20,000.
There was a substantial pullback that held in the US book and in commodities, we saw some mining names move higher as a result as well. We got Kinross Gold 5 bucks and $0.83, not a size it was earlier in the session, up more than a full percent. Some tech names gotta pop too.
Want to see if they are hanging onto it. Shopify 53 bucks and $0.45, up 2%. So they did get that big pop out of the open. Still also green on the screen, but not quite as aggressive as it was in the early hours of today's trading. Let's check in on the S&P 500. The fact that we got the letter than expected US inflation report to drive people into equities butwe are also at the beginning of a two day Fed meeting which will be coming out tomorrow with an interest rate decision.
Something so here. There is almost a full percent gain on the S&P 500, 4026. The tech heavy NASDAQ seems to be faring better than other parts of the market.
It's still up a full 2%. And some of the big mega-cap tech names have had a pretty rough run this year it did get a bid today on the back of that inflation report, including Alphabet, the parent company of Google.
Right now, it's up to the tune of three and 75%.
That's your market update.
the latest read on US inflation coming in later than expected, adding to investors hopes that thisrecent environment of aggressive Fed rate hikes may soon be coming to an end. Joining us now for his take, Christian Medeiros, Portillo manager at TD Asset Management.
Kristin, great to have you back and on a day like this when we really dig into the inflation report.
What you see?
>> Great to be back.
Much later than consensus.
Lighter than expected.
As a result, markets are celebrating because they expect the fence hiking campaign to push inflation closer to their 2% target.
What we see in markets is that they were pricing a lower terminal rate than they were yesterday and that terminal rate is happening sooner in the year than was expected.
so the market is expecting a less aggressive Fed going forward and this is opportune.
We have a meeting later this week. As a result, we see stocks, yields down and the US dollar weaker.
So strong across the board.
>> Does this feel like a bit of a one-two punch? One being the inflation report this morning, comes in later than expected, see a rally in the markets.
But at the same time, I'm not entirely convinced what Jerome Powell is going to tell us tomorrow, what type of central bank governor were gonna getor Fed chair I should say on the back of this report. What will he make of it?
>> This inflation report is not likely to change the hike expected later this week. You will still probably get that 50 basis points. But we do get economic projections from the Fed so people will be closely watching where the average expectation for the terminal rate will be and what their projections are for economic growth and key points from the Fed.
That we one thing to watch. He probably won't affect that but that will be really interesting for markets to interpret.
The main thing that I think investors are concerned about is how will the Fed, particularly Jerome Powell, speak about things at the press conference when he is answering Q&A. We remember the last press conference, he pushed back pretty strongly when he heard that markets were stronger of the day just because he wants to keep financial conditions in line.
So it is possible that the Fed will continue to toe the line on being a little bit hawkish, make sure the condition stay moderate because it doesn't wants so much change of financial conditions that it undoes the positive progress we are seeing inflation.
>> I had the exact same thought when I saw the markets pop on the back of the report.
Before things calmed down a little bit, I thought, we might get us started pelican.
Last time we got Jerome Powell again because he wasn't happy with what he was seeing there.
>> I think he'll be middleground, try to play both sides, continue to press the agenda that we can expect the Fed to continue going on its rate hike trajectory to get inflation under control. We shouldn't expect the Fed to lighten up too much in the interim, as it's been just a couple of months now as sequential improvements they don't want to make the mistake of the 70s and letting up too early. To the messaging is really going to be about the pace, how much lower is going to get, where the terminal rate will be and how long they will hold it there.
These are the questions that investors will start to be asking.
>> They need to see a longer-term trend and it would make a lot of sense to hear that from them. Are we starting to see the seeds of that longer-term trend?
Can we believe in the numbers that we have seen that have taken us to this point that perhaps in 2023, we are in an environment where we see inflation continue to work itself down and we don't have to deal with jumbo sized rate hikes?
>> Yeah, so let's dig into what we saw with the inflation print. Last time we talked about the onion analogy.
the second layer would be durable goods and products.
we saw quite big declines in that category this month.
One really notable one was used cars. If you remember back to the pandemic, everyone was bidding on used cars, prices were higher, as a result new cars were hard to get because of supply chain issues. Prices for new cars were skyrocketing as well.
We saw a big decline in used cars this month.
We also saw a new cars flat month over month.
This is a big improvement in durable goods.
We also saw some moderation and other durable goods.
Supply chain portion of the inflation mix is moderating.
At the centre part of the onion is shelter and core services.
We can expect some improvement hereto.
It's still strong. We still see his strong wages which feed into this category.
But we do see some improvement. I think the big thing that we can expect here that we will need to see sequential improvement is on the shelter side. Still the biggest portion of inflation.
But when you look at the leading indicators of shelter, such as rent, what are the new rents in the economy month over month, we can see that that's declining quite quickly.
The way it's measured in CPI it's by far the most legging because is pulling all the rents in the economy and looking at the historic leg relationship, it might be 12 months. We saw the rents declining in May this year, by May next year we will likely is see it rents moderating.
In all layers of the onion, we can see a pass to lower inflation over the course of 2023. What level we get to is a different question but we can differently see moderating from here.
>> How does the set of the market for 2023? If you get past the jumbo sized rate hikes and there are some effective drive inflation down, it's going to be a process and perhaps part of that process, the central banks eventually find their terminal rate and stay there for a while. How does that set us up as investors?
>> Yeah, given that we see the path moderating across the onion, we think the narrative next year might be a little bit different.
We are moving away from the jumbo sized hikes, they will be slowing, the questions will move it from inflation to growth. What will growth look like?
Will the record pace of hiking lead to a recession?
Will the declining in goods economy that we are seeing in PMI's lead to a recession in North America? Will lead to a recession globally? These are the growth questions that I think investors will be asking next year.
That's really going to determine the path the markets.
It will also determine the path of interest rates.
Right now, the market is predicting cuts in the latter part of 2023, which could indicate that the market is seeing a potential softening.
So I think that trajectory recession is really the key thing to watch in 23, moving away from the inflation environment.
>>interesting stuff and a great start to the show. We are going to get to your questions about asset allocation for Christian Medeiros in a moment. You can get in touch with us anytime.
Email moneytalklive@td.com or fellow that your response box on the video player here on WebBroker.
Right now, let's get you updated on some of the top stories in the role of business and take a look at how the markets are trading.
Shares of Moderna are in the spotlight today, that on news that a combination of Moderna's experiments will melanoma vaccine with the therapy from market cut the recurrence risk of skin cancer by more than 40%. The findings are the result of a mid-stage trial. Into the stock up almost 24%.
United Airlines is updating its fleet, ordering 200 airplanes from Boeing worth more than $40 billion at list prices. The Chicago-based air carrier says it will buy 100 Boeing 787 Dreamliner and 100 of the 737 Max Jets. The deal also includes options for future purchases.
business for giant Oracle beat the profit and revenue applications and inflated order. Oracle is pointing to strengthen its cloud business, although adjusted earnings did feel some pressure from the strong US dollar during the period.
You can see Oracle shares right now are flat.
We will check in on Bay Street and Wall Street, we will start here at home with the TSX Composite Index.
We are still in positive territory, a modest 59 points, a little shy of 1/3%.
South of the border, on the heels of that software, later than expected print inflation but the Fed heading intoit's meeting today, the S&P 500 holding onto some decent gains, up about a percent or 39 points.
We are back now with Christian Medeiros taking your questions about asset allocation to look after them.
One of the big stories of the year, the Russian invasion of Ukraine. It's getting close with one year anniversary. The viewer wants to know what sort of impact this could have an assets in the new year?
>> Yes, the war is still ongoing. There is still humanitarian crisis. I think the impact on markets is really nuanced. It's different than people expect.
initially, it was a big shock to commodity and energy prices which had a big impact on inflation earlier in the air. When you look at the key commodities affected such as oil and wheat, both of those are flat on the air almost as if nothing happened. Where we are seeing more of an effect is on European assets.
The euro is fairly close to parity with the dollar and we can see that European equities have been impacted as well.
it also has impact on European growth projections going forward, just given that energy scarcity is still going to be an issue. And so I think the big question on whether war gets resolved or not, the biggest impact we are going to see take place will be in the European assets and the euro. Our view on where we are going in the conflict in both potential scenarios as we think that the war will continue to go on for some time.
We think rumours of peace talks are premature.
Neither side has much to negotiate with one of the other.
There is still significant Western support for Ukraine to continue the war, to regain their territory.
Russia is recently mobilized. They will be optimistic that they can maybe gain some new ground in the new year.
With both leaders, there is no immediate risk of a coup. We don't see there being a much change in the war for the immediate future. But we think things might get more interesting going into the new year if any material gains are made on either side or of Western support were to sway.
But in the meantime, we don't see much changing as a result, we can expect her to be material resolution in European energy scarcity so we have to hope for a mild winter in Europe and in Europe, they will have to pay a higher prices for energy in the foreseeable future.
Release of the outcome, they will have to continue to diversify towards American LNG and other sources of natural gas to fund their heating and the industrial portion of the economy. So with the big ships we are seeing in European politics in energy and for structure will continue to take place were girls of the outcome.
>> You talked about how the markets adjusted after the shock almost a year ago, he talked about wheat and oil and energy products globally. If there was a surprise resolution, the kind of resolution everyone wants to see, a peace broker,you see that's on the forecast right now but if that happened, could there be a surprise in the markets?
>> There could definitely be a surprise to the upside for European assets. For commodity prices, there might be a surprise. But we think it will be more muted on commodities than we would've expected.
The most will be seen on the European assets I.
>> Interesting stuff. Look at another question.
The US midterms, it wasn't that long ago, with the midterms behind us, with the outlook for US fiscal policy going into next year and could it be a boost to the markets?
>> That's a great question.
We think that's an aspect that's underappreciated.
After midterm elections, Republicans won control of the house.
That creates a split government.
Republicans generally but particularly when they are in the minority, they tend to prefer deficits, is strong fiscal hawkish vanish and as a result, going into next year, one of the key things that need to be passed, such as the debt ceiling, which caps the debt the US government can raise, new budgets and spending initiatives, Republicans gonna push back on Democrats on that front. So we can expect is one of potentially a contentious debt ceiling rise.
We saw that in the 2011, 2012 era, that led to the default of the US government. It was a big event for US markets at summer. There will also be big pushback on any new spending initiatives.
as a result, if we go into recession in the United States next year, it will be more likelythat we get a huge fiscal response and we would have in past crisis.
Such as 2020 or 2008.
so that we expect a big change in fiscal policy next year, then the last two years where there was a record fiscal spinning.
>> Will that align US fiscal policy with US monetary policy? That's been a concern to you. Central banks gave us the jumbo sized rate hikes this year to bring down inflation, it causes pain in theeconomy and perhaps in the fiscal side, there might be, let's give people money. They are in a tough time. That's a delicate balance.
>> They won't be at loggerheads anymore. Both of them are going to be quite tight.
that does mean that if we are slowing economically, that is an additional headwind, if you will, on the economy, both fiscal and monetary should continue to be tight for most of next year.
>>interesting stuff. Another question now. Lots coming in for Christian. Some are member your last appearance.
Latin Christian was on the show, he had a market bottom checklist.
Can we get an update? Remind us on what the checklist was to try to figure out if we were at a market bottom and how things look now.
>> We were checking alternative data and key leading indicators in four categories that we think need to be met from an asset allocation point of view for us to get more constructive on the equity market.
The first one is inflation. We need to see moderating inflation.
That's happening. But we do need to see it go closer to 2%, which is the fed target, so they do not just pause but start to list and become more dovish.
In that case, we are not there quite yet.
Wage growth is still quite strong.
Services are still strong. However, we do see significant moderation. So we getting much closer on the inflation front but we want to see, just as the Fed does, sequential lower rate. The second category was growth.
We want to see growth not only a fall but then begin to reflect again. We are in the following state.
We see global PMI's and other similar indicators, these are indicators of manufacturing activity, all of them have fallen into contracting territory.
I think there is a bit further to fall. And then we want to see the uptick before you get more constructive.
So we are getting closer, but not yet at this checkmark point. The third indicator was earnings and evaluations. Valuations we think have declined materially. That was the big story of the last year and the equity market.
But we haven't seen earnings price and what we expect on the recessionary side or flea price and what we are seeing on manufacturing indicators.
As a result, we want to see more earnings downgrades into next year.
In the fourth area is market sentiment and volatility prayer what has to happen with a substantial market bottom around a recession is a cathartic increase in volatility, a big spike in volatility, and a big spike in concerns and fears. But that hasn't really happened this year.
It has been quite tame as the equity market has reached lower.
If there is another downtrend in the market and it comes with a big spike in volatility, that may check that final box.
>> We made progress but we are not quite there on your metrics. If you had to put it in baseball parlance, our we in the fifth or sixth or seventh inning?
> We are past, for Sure. Six or Seven.
>> Interesting Stuff.
As Always a Home, Make Sure You Do Your Own Research before You Make Any Investment Decision. We Will Get Back to Your Question for Christian Medeiros on Asset Allocation in Just a Moment Time.
A Reminder That You Can Get in Touch with Us at Any Time. Just Email Moneytalklive@td.Com.
Now, Let's Go to Our Educational Segment of the Day.
If you're doing research on a big Canadian listed stock, you may also notice the trades when exchange is in the United States. Joining us now for more on dual listed stocks is Jason Hnatyk, client education director at TD Direct Investing. Great to have you with us.
How can you use WebBroker to identify which stocks are dual listed?
>> Great to be here, great. Thanks very much. It's always a pleasure.
Yes, we have slowly know that world economies and markets are all very interconnected and WebBroker gets you access to trading in both Canadian and US dollar currency is. It's one of the nice things that makes it convenient for investors is that when you open up your account, most accounts are opened up with both Canadian and US components to allow not only ease of access and transferring foreign exchange between accounts but making sure that you can trade in the currency that you have and try to save some money. We are all trying to save a bit of money with the way that inflation's been going, it's holiday time.
Moving money back between the Canadian and US accounts unnecessarily can help create extra expenses. So the use of dual listed securities can be a helpful tactic to minimize those types of exchanges you need to make.
So I will bring you into WebBroker so I can help show you how to identify those opportunities.
So we are looking at a quote for TD right now. We can see that it is a Canadian quote based on the Canadian flag listed in the top left-hand corner and the primary exchange being the TSX. We are all aware that the quotes we are looking at here happened to be in Canadian dollars, if we are buying this in our Canadian account, we know there will be no impact of foreign exchange on that transaction.
Let's just say you happen to have US dollars in your US margin no or your US RRSP I want to make sure you get into this particular company, while you can effectively do that without needing to move money back to the Canadian portion of your account.
You will notice that next to the flag you have a view on NYSE. So the same style, the same company is trading about the TSX as well as the New York Stock Exchange.
You will see the prices are different. They are off by the stock rate of exchange. But all of these prices are now listed in US funds.
So you get to make efficient use of the money that you have in your account to ensure that you are not maybe playing any inflated foreign exchange which could impact the profit loss at the end of the day on your particular trait.
Now, one word of the wise, word to the wise, is just to make sure, I want to point out there that just because stocks are trading actively in the Canadian market, does not necessarily mean that they are going to see the same volume south of the border. So TD happens to be trading quite actively still down south but if we look at may be a smaller Stop, if we pull it up on the ticker now, it's got a very small volume here on the Canadian side, but looking at the dual listed portion, is listed through the pink sheets or the over-the-counter market, if I flip over to look at its US quote, and showing me a very minimal, fractional number of shares. So before you go ahead and make your buys and sells, be aware of the market conditions you are entering yourself into. One of the thing I'd like to show everybody here is when we are placing our trades, be very certain you're placing the trade in the correct currency of the account.
So jumping back to TD here, if you call over to the US quote, we just conveniently click on the buy button to get things started. We will note that up to the top of the screen here, I happened to be in my US margin accounts, no edits need to be made, but when you are making the trade for yourself, make sure that you are choosing the right account so that you can be sure you're not can have any uninfected foreign exchange take place which could obviously increase the value of the trade, causing extra cost to you.
> All right. Great tips there is always.
Is there a way to transfer the dual listed stock between currencies in WebBroker?
>> There is, and it's a really convenient point on WebBroker. If you've ever made it US dollar transaction to the platform, transferring securities is going to be just as quick and easy to have that done.
so to accomplish that, we are going to click on accounts the top of the page and under the transfers and withdrawals portion, you will see there is a transfer security section.
Now, I'm in my demo account. I don't have any securities here so I won't be able to walk you through the whole thing, but it's just as simple as the cash transfers as I outlined earlier.
It's just as easy to choose the account you like that you own the security and and then putting in the account they want to transfer to. You will select the shares and transferred over.
Because it is a security not cash, there is no foreign exchange when we are transferring stocks from US dollar to Canadian or back-and-forth, whichever way is best for you.
One of the nice things in here as well as you should be able to transfer between your margin components. You can also make security contributions to your TFS a sore your RRSPs. We are going towards the end of the year.
If you are making those sorts of considerations, you can make that, you can get that done through here as well.
>> Fascinating stuff as always.
Take that, Jason.
>> My pleasure.
>> Are things to Jason Hnatyk, client education director at TD Direct Investing. Make sure to check out the learning centre on WebBroker for more educational videos, live, interactive master classes and some upcoming webinars.like five ways to help lower taxes before the year end.
Before you back to your questions about asset allocation for Chris Medeiros, a reminder of how you can get in touch with us.Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind so send us your questions.there are two ways to get in touch with us.
You can send us an email anytime at moneytalklive@td.com you or you can use the question box right below the screen here on WebBroker. Just writing 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 now is Christian Medeiros, we are taking your questions about assetallocation. Here's a question about China.
If China opens up, will decorate more global demand and drive inflation even higher?
>>looking at the trajectory of China's reopening,they are making progress towards reopening with a whole host of announcements being made of the past few weeks, so there is a very high likelihood that they will reopen through the course of 2023. So the question is, yeah, what is I do for demand and inflation? Historically, when China has rebounded from a recession or rebounded from a period of economic… Does come with a lot of fiscal spending and come with a lot of consumption activity. This has been beneficial for similar assets across the globe such as commodities, commodity exporting nations and the rest of the economy as well, just given how big China is in the global economy.
This time around, I don't expect something as strong as we seen in past cycles.
Why do we effect a difference?
First, China has been cutting back and tamping down property market speculation over the course of the last few years, and worse throughout the COVID period.
Unless there is pressure lightning onthe property area.
.
.
I don't expect the same move on commodity prices as we have seen in the past. However, there will be improved consumer activity.
people will go to restaurants, people will travel again. They have been able to do about travel really over the course of the last two years, so that will result in more consumption of jet fuel and similar energy based commodities and so we could see some benefits to oil and similar commodity prices.
So net net, there is going to be some improvement and that will feed through into inflation and demand. But I wouldn't expect a bonanza in economic growth coming out of China and pushing inflation globally, especially when headline… Encore inflation, I would expected to be changing the narrative entirely for other countries.
>> When it comes to the earlier drivers of inflation, when we thought it was transitory, about supply chains, will China reopening affect things?
Would China having a full reopening is supply chains?
>> We continue to see disruptions out of China due to their zero COVID policy, even into the current year.
just given that lockdowns have shut down factories and caused certain difficulties. If they reopen, when they reopened and if they are able to work through the challenges to look with vast disease, we think of the interim period, the high levels of disease and sickness will result in high levels of disruption.
Once I get to that opening period, that will ease the problems that are residual in the system.
>> Interesting stuff. Let's get another question. It's about the sectors and what we can expect out of them in 2023.
What sectors will outperform next year?
>> Big question.
I don't have a crystal ball.
We have a few thoughts. As we can see today, most rate sensitive sectors like technology performed really strongly on the back of the potential for the Fed to be less hawkish next year, and as a result, we do think that if we do see a pause, if we potentially see it cuts in the back half of the year like the market is expected, maybe we do see technology doing a lot better in 2023 than in 2022.
The other thing I would caution in terms of sectors of I don't do as well, energy, which is had a monster year 2022, it's on weight well, even in the recent period, despite the fact that oil has actually we can material off the back of 2022, we may see energy we can in 2023 if growth slows down and we enter a recession, just given the economic opinion on energy. My quotation going into 2023 would be most economically sensitive sectors should continue to performance the first half of the year.
Then, on the back half of the year, we may see, as the economy recovers economically is sensitive sectors do better.
>> Ultimately does the whole recession story and of being the hardest part to figure out? Will there be a recession?
If there is a recession, is it mild and short-lived, is a deep, is it long? This seems to really play into any kind of thesis we have about what sectorswill perform better than others in 2023, depending on what the economy does.
>> The most important question next year is when will the recession be, how deeply be? Perhaps we won't even have one. That's by far the most important question.
That will determine our sector allocation.
the path of interest rates has a big impact on interest rate sensitive sectors and the policy will determine what we can expect from our commodity and grow sensitive sectors, energy, materials, etc. Will have a big impact next year.
>> Let's get another question right here.
Okay. The classic asset allocation question.
Is the asset allocation formula by age, you take 100, you might as your age, still relevant?
A lot of questions about 6040, how you design your portfolio, a lot of people question whether that would still were going forward.
>> It's not about starting heuristic but it's not the be-all and all how you should decide.
Beyond the heuristic, what investors think about is with the volatility drawback expected for that portfolio historically be sending you are comfortable with that given your age and tolerance?
If you are entering retirement, you probably want to lower volatility in your portfolio because big drawdowns on your portfolio close to retirement will have an impact on the longevity of your assets.
As a young investor, you can have a higher volatility because a higher return will allow you to cumulate walls and no short-term drawdowns are just buying opportunities if you can continue to be reinvesting in the market through your savings plan.
It really depends on your experience of what you want as will as I heuristic.
The second aspect is an issue with that heuristic is that it only considers to asset classes, equity and fixed income.
As result during this year, both asset classes did quite poorly.
Alternatives should be considered. Whether that be commodities, real assets or perhaps active and correlated strategies within your polio. Although should be considered.
The other thing that should be considered to is what type of equities, right?
What type of fixed income?
That fixed income portion is going to be entirely high-yield debt, it's going to be a problem and is going to be courtly with you or equity exposure. If you are concentrated in one sector, that's also going to change the calculus on that heuristic.
So I think it's not a bad place to start and you modify the mix within both asset classes, continue adding more.
And then also think about the ones you have an idea of what your profile you might look like, look at what the volatility drawdowns would've been historically, is that something you can live with and sleep well with at night? If it is, that might be a comfortable portfolio.
>> Interesting stuff. We will take a little break from the questions but we will get back to them. Christian Medeiros is not going anywhere. We will talk asset allocation we get back. As always, at home, make sure you do your own research before you make any investment decisions and a reminder that you can get in touch with us at any time.
do you have a question about investing or was driving the markets? Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways to in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box rright below the screen here on WebBroker.
Just writing your question and its end. We will see if one of our guest can get you the answer right here at MoneyTalk Live.
US small business optimism rebounded in November as the crucial holiday season kicked into high gear.
But inflation and worker shortages remain a major issue for owners.
Joining us now with more on this, Anthony Okolie.
>> Thank you very much, Greg. As you mentioned, US small business optimism rebounded in November, signalling and improvement in the share of owners expecting better business conditions in the next six months.
But look underneath the head lion and the score of about 92 points it was the 11th straight month the index fell below the 49 year average of 98.
When we dig into the numbers a bit further, owners expecting a better business over the next six months is still sitting at -43%.
And that is still in a recession reading. Despite recessionary worries about inflation, there are signs that price pressures are slowly easingand the number of owners raising the average selling praise inched up to 51%.
It's still high reading, but it's lower versus earlier readings this year.
And today's US inflation reading, which showed that consumer prices rose less than expected in November, that could potentially translate into higher optimism in this index component going forward if the trend continues over the next few months.
Now, the biggest improvement in the index was in profit trends. That became less negative, which means that fewer net negative profit reports from owners in November.
Despite the improving profit picture, a tight labour market is still a big issue for small business owners.
About 44% of owners say job openings are hard to fill.
And finally, than a percentage of owners expecting higher retail sales rose 5 points but it is still a net -8%. That's a fairly weak reading. Overall, I think small business confidence can be best described as less gloomy in November with signs that worries about labour shortages, supply chain woes and inflation easing slightly. Greg?
>> So you still have these tight labour market conditions, Anthony, which industries are feeling the pain about the most?
>> They point to areas like transportation, wholesale and construction industries, which were still the most impacted in November.
In wholesale, of course, they have more unfulfilled jobs.
but given the aggressive interest rate hikes so far this year, TD Economics says that the unemployment rate will rise. It's only a question of how much and how fast.
Given the resilience in employer demand and job vacancies, TD Economics is forecasting a low and slow economic growth framework that produces a 1.5 percentage point rise in the unemployment rate through 2023 and 2024.
>> Good stuff, Anthony. Thanks.
>> My pleasure.
>> MoneyTalk Anthony Okolie.
Let's get you an update on the market because things are changing out there.
They pop this morning on both sides of the border on the heels of a softer than expected US inflationary report.
we are not only giving us of those gains were drifting into negative territory at least on Bay Street. The TSX is down by 1/10 of a percent. Still got a pretty firm price for crew but I'm looking at financials and telecom and cyclical consumer socks weighing on the trading on the side of the border.
want to check in on the energy names because crude is still pretty firmly. The US market is still down about a percent on the day against a basket of its international trading partners so we are still seeing some money moving into the energy space Crescent Point at nine bucks and $0.31, up a little more than 2%.
Some of the mining games got a pretty strong bid this morning.
I think they're hanging onto it as well. Barrick at 2357, bright parts of the market still, it's a 3.5%.
The financial telecom heavyweights, the consumer stocks more tied to the cycles of the economy that are under pressure today in Toronto. Want to see what's happening south of the border. Of course, the inflation report definitely put some momentum into trading. But now, perhaps, drawing attention to the fact that the Fed is entering into a two day meeting, they will come out the other side tomorrow, what kind of Jerome Powell do you get?
He has been pretty stern all the way back to the summer in terms of wanting to see inflation on a downward path for quite some time before they change pace.
we will so we get from Jerome Powell tomorrow, what kind of interest rate decision we are going to get. The S&P 500 is still in positive territory but well off the highs of the session, just 1/5 of a percent right now.
The tech heavy NASDAQ, let's he was happening there now.
Still again in positive territory but well off the highs of the session. Up of full 2% and the NASDAQ when we started the program 37 minutes ago, so it's a bit of a reversal of fortune. Check in on Amazon, look it the mega-cap tech names making fairly healthy gains. Amazon hanging in, at $90 and change, up just 12:45 percent.
We are back now Christian Medeiros from TD Asset Management. We are talkingAsset allocation. Should investors still be viewing big moves like we saw earlier today as they start to fade a little as potential bear market rallies?
>> Yeah, so we seem to have seen some major bear market rallies this year, one in the summer and then one from October to November.
This is something really common within a bear market experience.
We sell this in 2008 and we saw this throughout other periods of historic recessions and market drawdowns.
And these tend to coincide with some sort of positive news that gives hope and change the picture.
Often, it's news that the Fed might lighten up.
And that tends to result in quite strong moves that result in bear market rallies.
I think that these are really dangerous times, in fact, because if you are an investor, you don't want to get caught offside to early with a bear market rally.
Feel that the signs are clear, everything based on, let's go… Let's take a risky move.
I think it's really important for investors to take a step back and noticed that drawdown. So the most volatile periods aredrawdown. And it's easy to get chopped up by volatility.
It's time to secure plan and don't get too excited or despondent based on incremental changes.
>> Doesn't really take you back to that check list of the four things were looking for? When you're in the middle of a bear market rally, you get ahead of yourself and think, maybe the worst is behind us.
A little optimism creeps in. You just sort of need your discipline?
>> Yes, discipline.
One big part of dad is back to the checklist approaches that drawdown surrounding a recession tend to really follow leading indicators of growth.
We do need to see the recession play out andleading indicators like BMIs, orders and other data points. The kind of want to see that recession narrative and recession data really play itself through before we get overly excited on the market rebounding. In the other aspect to his inflation is moderating. It's a great sign.
But again, the Fed is looking for 2%. So I think investors need to be… It's good to be optimistic when use is improving but we also have to be realistic. The Fed still has some work ahead of them and if they do keep rates at high level for the foreseeable future because we also maybe four or 3% but not 2%, that is material because those rates are high levels for a long period of time will be a drag on market. There is work to be on. So I think it still warrants being mildly cautious going into 2023.
>> Alright, we touched on this a bit earlier.
We talked about China's reopening of what it could mean for demand and inflation. We have of you are asking if China eases its COVID restrictions, could that be a tailwind for stocks next year? What effect could that have on the market?
>> Again, China is a major engine of growth in the world historically. It impact less over time as they spend less money on infrastructure, building a modern economy.
It's become much more mature than people expected.
The demographics are more mature than expected and they are shifting more towards a consumption based economy.
So the impact on global stocks is not as impactful as it would've been coming out of 2008 were coming out of midcycle slowdowns in 2015, 2016.
So those historical analogues are not likely to be as true today as they were back then.
So China reopening is definitely a big boon for sectors in the Chinese economy and stocks in the Chinese economy that are more oriented towards people eating out again, travelling again. That'll find good but for global stock markets, there will be some benefits to demand but we don't think it's going to be necessarily a major game changer. Again, to add to that , there is still a little research is the economy that need to be lifted.
We don't think it's going to beas optimistic as it would've been in past periods of reopening.
> We are out of time for viewer questions. Before I let you leave though, I want to get your take on, I don't know, should we go very short-term as in what should we expect from the Fed tomorrow?
Or double barrel, what you think you're going to get from the Fed tomorrow and your thoughts on the 2023 agenda?
>> The Fed tomorrow, 50 basis points as well expected and what people will be looking at as one of their projections for rate hikes into next year, people will want to listen to Powell's statement to try to get a sense of what we can expect in the February meeting and if we might see a pause into the next year.
So that pace.
And listeners will want to get a sense of the lingo to Powell's using. I think he will still be hawkish. He still knows that there is adultery done. He does a lot of too early.
Can't let financial condition solution too much.
I still expect similar language on Wednesday. In terms of the end of the year, we are going through to big events, CPI and then the Fed.
Barring any extreme reactions on Wednesday, I think markets would be within the same range going into the end of the year, we don't expect there to be too many surprisesgoing into the end of the year.
We have had a strong rally.
that would be my expectation.
>> As always, it's a pleasure to have you here.
> Thank you.
>> That will probably be in 2023.
It is coming quickly. Our thanks to Christian Medeiros, portfolio manager at TD Asset Management. Tomorrow's guest will be Hussein Allidina, head of commodities at TD Asset Management. You can get a head start on questions for tomorrow. Email moneytalklive@td.com.
That's all the time we have the show today. Thank you for watching. We'll see you tomorrow.
[music]
Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We are going to take you through its moving the markets and answer your questions about investing.
Coming up on today show: we'll get reactions to today's later than expected US inflation report and what it means for interest rates and the markets with TD Asset Management Christian Medeiros.
and in today's WebBroker education segment, Jason Hnatyk's going to take us through how it dual listed shares work and how you can research them on the platform.
So here's how you can get in touch with us.
Just email us, moneytalklive@td.com or fillers that view response box right under the video player here on WebBroker. Before we get to our guest of today, let's get you an update on the market action.
A pretty big pop at the open. We are hanging into positive territory, but not as firmly as we were on the heels of that US inflation report,Sending market sharply higher at the open. The TSX right now is up a modest 50 points, about 1/4 brewers sent, 20,000.
There was a substantial pullback that held in the US book and in commodities, we saw some mining names move higher as a result as well. We got Kinross Gold 5 bucks and $0.83, not a size it was earlier in the session, up more than a full percent. Some tech names gotta pop too.
Want to see if they are hanging onto it. Shopify 53 bucks and $0.45, up 2%. So they did get that big pop out of the open. Still also green on the screen, but not quite as aggressive as it was in the early hours of today's trading. Let's check in on the S&P 500. The fact that we got the letter than expected US inflation report to drive people into equities butwe are also at the beginning of a two day Fed meeting which will be coming out tomorrow with an interest rate decision.
Something so here. There is almost a full percent gain on the S&P 500, 4026. The tech heavy NASDAQ seems to be faring better than other parts of the market.
It's still up a full 2%. And some of the big mega-cap tech names have had a pretty rough run this year it did get a bid today on the back of that inflation report, including Alphabet, the parent company of Google.
Right now, it's up to the tune of three and 75%.
That's your market update.
the latest read on US inflation coming in later than expected, adding to investors hopes that thisrecent environment of aggressive Fed rate hikes may soon be coming to an end. Joining us now for his take, Christian Medeiros, Portillo manager at TD Asset Management.
Kristin, great to have you back and on a day like this when we really dig into the inflation report.
What you see?
>> Great to be back.
Much later than consensus.
Lighter than expected.
As a result, markets are celebrating because they expect the fence hiking campaign to push inflation closer to their 2% target.
What we see in markets is that they were pricing a lower terminal rate than they were yesterday and that terminal rate is happening sooner in the year than was expected.
so the market is expecting a less aggressive Fed going forward and this is opportune.
We have a meeting later this week. As a result, we see stocks, yields down and the US dollar weaker.
So strong across the board.
>> Does this feel like a bit of a one-two punch? One being the inflation report this morning, comes in later than expected, see a rally in the markets.
But at the same time, I'm not entirely convinced what Jerome Powell is going to tell us tomorrow, what type of central bank governor were gonna getor Fed chair I should say on the back of this report. What will he make of it?
>> This inflation report is not likely to change the hike expected later this week. You will still probably get that 50 basis points. But we do get economic projections from the Fed so people will be closely watching where the average expectation for the terminal rate will be and what their projections are for economic growth and key points from the Fed.
That we one thing to watch. He probably won't affect that but that will be really interesting for markets to interpret.
The main thing that I think investors are concerned about is how will the Fed, particularly Jerome Powell, speak about things at the press conference when he is answering Q&A. We remember the last press conference, he pushed back pretty strongly when he heard that markets were stronger of the day just because he wants to keep financial conditions in line.
So it is possible that the Fed will continue to toe the line on being a little bit hawkish, make sure the condition stay moderate because it doesn't wants so much change of financial conditions that it undoes the positive progress we are seeing inflation.
>> I had the exact same thought when I saw the markets pop on the back of the report.
Before things calmed down a little bit, I thought, we might get us started pelican.
Last time we got Jerome Powell again because he wasn't happy with what he was seeing there.
>> I think he'll be middleground, try to play both sides, continue to press the agenda that we can expect the Fed to continue going on its rate hike trajectory to get inflation under control. We shouldn't expect the Fed to lighten up too much in the interim, as it's been just a couple of months now as sequential improvements they don't want to make the mistake of the 70s and letting up too early. To the messaging is really going to be about the pace, how much lower is going to get, where the terminal rate will be and how long they will hold it there.
These are the questions that investors will start to be asking.
>> They need to see a longer-term trend and it would make a lot of sense to hear that from them. Are we starting to see the seeds of that longer-term trend?
Can we believe in the numbers that we have seen that have taken us to this point that perhaps in 2023, we are in an environment where we see inflation continue to work itself down and we don't have to deal with jumbo sized rate hikes?
>> Yeah, so let's dig into what we saw with the inflation print. Last time we talked about the onion analogy.
the second layer would be durable goods and products.
we saw quite big declines in that category this month.
One really notable one was used cars. If you remember back to the pandemic, everyone was bidding on used cars, prices were higher, as a result new cars were hard to get because of supply chain issues. Prices for new cars were skyrocketing as well.
We saw a big decline in used cars this month.
We also saw a new cars flat month over month.
This is a big improvement in durable goods.
We also saw some moderation and other durable goods.
Supply chain portion of the inflation mix is moderating.
At the centre part of the onion is shelter and core services.
We can expect some improvement hereto.
It's still strong. We still see his strong wages which feed into this category.
But we do see some improvement. I think the big thing that we can expect here that we will need to see sequential improvement is on the shelter side. Still the biggest portion of inflation.
But when you look at the leading indicators of shelter, such as rent, what are the new rents in the economy month over month, we can see that that's declining quite quickly.
The way it's measured in CPI it's by far the most legging because is pulling all the rents in the economy and looking at the historic leg relationship, it might be 12 months. We saw the rents declining in May this year, by May next year we will likely is see it rents moderating.
In all layers of the onion, we can see a pass to lower inflation over the course of 2023. What level we get to is a different question but we can differently see moderating from here.
>> How does the set of the market for 2023? If you get past the jumbo sized rate hikes and there are some effective drive inflation down, it's going to be a process and perhaps part of that process, the central banks eventually find their terminal rate and stay there for a while. How does that set us up as investors?
>> Yeah, given that we see the path moderating across the onion, we think the narrative next year might be a little bit different.
We are moving away from the jumbo sized hikes, they will be slowing, the questions will move it from inflation to growth. What will growth look like?
Will the record pace of hiking lead to a recession?
Will the declining in goods economy that we are seeing in PMI's lead to a recession in North America? Will lead to a recession globally? These are the growth questions that I think investors will be asking next year.
That's really going to determine the path the markets.
It will also determine the path of interest rates.
Right now, the market is predicting cuts in the latter part of 2023, which could indicate that the market is seeing a potential softening.
So I think that trajectory recession is really the key thing to watch in 23, moving away from the inflation environment.
>>interesting stuff and a great start to the show. We are going to get to your questions about asset allocation for Christian Medeiros in a moment. You can get in touch with us anytime.
Email moneytalklive@td.com or fellow that your response box on the video player here on WebBroker.
Right now, let's get you updated on some of the top stories in the role of business and take a look at how the markets are trading.
Shares of Moderna are in the spotlight today, that on news that a combination of Moderna's experiments will melanoma vaccine with the therapy from market cut the recurrence risk of skin cancer by more than 40%. The findings are the result of a mid-stage trial. Into the stock up almost 24%.
United Airlines is updating its fleet, ordering 200 airplanes from Boeing worth more than $40 billion at list prices. The Chicago-based air carrier says it will buy 100 Boeing 787 Dreamliner and 100 of the 737 Max Jets. The deal also includes options for future purchases.
business for giant Oracle beat the profit and revenue applications and inflated order. Oracle is pointing to strengthen its cloud business, although adjusted earnings did feel some pressure from the strong US dollar during the period.
You can see Oracle shares right now are flat.
We will check in on Bay Street and Wall Street, we will start here at home with the TSX Composite Index.
We are still in positive territory, a modest 59 points, a little shy of 1/3%.
South of the border, on the heels of that software, later than expected print inflation but the Fed heading intoit's meeting today, the S&P 500 holding onto some decent gains, up about a percent or 39 points.
We are back now with Christian Medeiros taking your questions about asset allocation to look after them.
One of the big stories of the year, the Russian invasion of Ukraine. It's getting close with one year anniversary. The viewer wants to know what sort of impact this could have an assets in the new year?
>> Yes, the war is still ongoing. There is still humanitarian crisis. I think the impact on markets is really nuanced. It's different than people expect.
initially, it was a big shock to commodity and energy prices which had a big impact on inflation earlier in the air. When you look at the key commodities affected such as oil and wheat, both of those are flat on the air almost as if nothing happened. Where we are seeing more of an effect is on European assets.
The euro is fairly close to parity with the dollar and we can see that European equities have been impacted as well.
it also has impact on European growth projections going forward, just given that energy scarcity is still going to be an issue. And so I think the big question on whether war gets resolved or not, the biggest impact we are going to see take place will be in the European assets and the euro. Our view on where we are going in the conflict in both potential scenarios as we think that the war will continue to go on for some time.
We think rumours of peace talks are premature.
Neither side has much to negotiate with one of the other.
There is still significant Western support for Ukraine to continue the war, to regain their territory.
Russia is recently mobilized. They will be optimistic that they can maybe gain some new ground in the new year.
With both leaders, there is no immediate risk of a coup. We don't see there being a much change in the war for the immediate future. But we think things might get more interesting going into the new year if any material gains are made on either side or of Western support were to sway.
But in the meantime, we don't see much changing as a result, we can expect her to be material resolution in European energy scarcity so we have to hope for a mild winter in Europe and in Europe, they will have to pay a higher prices for energy in the foreseeable future.
Release of the outcome, they will have to continue to diversify towards American LNG and other sources of natural gas to fund their heating and the industrial portion of the economy. So with the big ships we are seeing in European politics in energy and for structure will continue to take place were girls of the outcome.
>> You talked about how the markets adjusted after the shock almost a year ago, he talked about wheat and oil and energy products globally. If there was a surprise resolution, the kind of resolution everyone wants to see, a peace broker,you see that's on the forecast right now but if that happened, could there be a surprise in the markets?
>> There could definitely be a surprise to the upside for European assets. For commodity prices, there might be a surprise. But we think it will be more muted on commodities than we would've expected.
The most will be seen on the European assets I.
>> Interesting stuff. Look at another question.
The US midterms, it wasn't that long ago, with the midterms behind us, with the outlook for US fiscal policy going into next year and could it be a boost to the markets?
>> That's a great question.
We think that's an aspect that's underappreciated.
After midterm elections, Republicans won control of the house.
That creates a split government.
Republicans generally but particularly when they are in the minority, they tend to prefer deficits, is strong fiscal hawkish vanish and as a result, going into next year, one of the key things that need to be passed, such as the debt ceiling, which caps the debt the US government can raise, new budgets and spending initiatives, Republicans gonna push back on Democrats on that front. So we can expect is one of potentially a contentious debt ceiling rise.
We saw that in the 2011, 2012 era, that led to the default of the US government. It was a big event for US markets at summer. There will also be big pushback on any new spending initiatives.
as a result, if we go into recession in the United States next year, it will be more likelythat we get a huge fiscal response and we would have in past crisis.
Such as 2020 or 2008.
so that we expect a big change in fiscal policy next year, then the last two years where there was a record fiscal spinning.
>> Will that align US fiscal policy with US monetary policy? That's been a concern to you. Central banks gave us the jumbo sized rate hikes this year to bring down inflation, it causes pain in theeconomy and perhaps in the fiscal side, there might be, let's give people money. They are in a tough time. That's a delicate balance.
>> They won't be at loggerheads anymore. Both of them are going to be quite tight.
that does mean that if we are slowing economically, that is an additional headwind, if you will, on the economy, both fiscal and monetary should continue to be tight for most of next year.
>>interesting stuff. Another question now. Lots coming in for Christian. Some are member your last appearance.
Latin Christian was on the show, he had a market bottom checklist.
Can we get an update? Remind us on what the checklist was to try to figure out if we were at a market bottom and how things look now.
>> We were checking alternative data and key leading indicators in four categories that we think need to be met from an asset allocation point of view for us to get more constructive on the equity market.
The first one is inflation. We need to see moderating inflation.
That's happening. But we do need to see it go closer to 2%, which is the fed target, so they do not just pause but start to list and become more dovish.
In that case, we are not there quite yet.
Wage growth is still quite strong.
Services are still strong. However, we do see significant moderation. So we getting much closer on the inflation front but we want to see, just as the Fed does, sequential lower rate. The second category was growth.
We want to see growth not only a fall but then begin to reflect again. We are in the following state.
We see global PMI's and other similar indicators, these are indicators of manufacturing activity, all of them have fallen into contracting territory.
I think there is a bit further to fall. And then we want to see the uptick before you get more constructive.
So we are getting closer, but not yet at this checkmark point. The third indicator was earnings and evaluations. Valuations we think have declined materially. That was the big story of the last year and the equity market.
But we haven't seen earnings price and what we expect on the recessionary side or flea price and what we are seeing on manufacturing indicators.
As a result, we want to see more earnings downgrades into next year.
In the fourth area is market sentiment and volatility prayer what has to happen with a substantial market bottom around a recession is a cathartic increase in volatility, a big spike in volatility, and a big spike in concerns and fears. But that hasn't really happened this year.
It has been quite tame as the equity market has reached lower.
If there is another downtrend in the market and it comes with a big spike in volatility, that may check that final box.
>> We made progress but we are not quite there on your metrics. If you had to put it in baseball parlance, our we in the fifth or sixth or seventh inning?
> We are past, for Sure. Six or Seven.
>> Interesting Stuff.
As Always a Home, Make Sure You Do Your Own Research before You Make Any Investment Decision. We Will Get Back to Your Question for Christian Medeiros on Asset Allocation in Just a Moment Time.
A Reminder That You Can Get in Touch with Us at Any Time. Just Email Moneytalklive@td.Com.
Now, Let's Go to Our Educational Segment of the Day.
If you're doing research on a big Canadian listed stock, you may also notice the trades when exchange is in the United States. Joining us now for more on dual listed stocks is Jason Hnatyk, client education director at TD Direct Investing. Great to have you with us.
How can you use WebBroker to identify which stocks are dual listed?
>> Great to be here, great. Thanks very much. It's always a pleasure.
Yes, we have slowly know that world economies and markets are all very interconnected and WebBroker gets you access to trading in both Canadian and US dollar currency is. It's one of the nice things that makes it convenient for investors is that when you open up your account, most accounts are opened up with both Canadian and US components to allow not only ease of access and transferring foreign exchange between accounts but making sure that you can trade in the currency that you have and try to save some money. We are all trying to save a bit of money with the way that inflation's been going, it's holiday time.
Moving money back between the Canadian and US accounts unnecessarily can help create extra expenses. So the use of dual listed securities can be a helpful tactic to minimize those types of exchanges you need to make.
So I will bring you into WebBroker so I can help show you how to identify those opportunities.
So we are looking at a quote for TD right now. We can see that it is a Canadian quote based on the Canadian flag listed in the top left-hand corner and the primary exchange being the TSX. We are all aware that the quotes we are looking at here happened to be in Canadian dollars, if we are buying this in our Canadian account, we know there will be no impact of foreign exchange on that transaction.
Let's just say you happen to have US dollars in your US margin no or your US RRSP I want to make sure you get into this particular company, while you can effectively do that without needing to move money back to the Canadian portion of your account.
You will notice that next to the flag you have a view on NYSE. So the same style, the same company is trading about the TSX as well as the New York Stock Exchange.
You will see the prices are different. They are off by the stock rate of exchange. But all of these prices are now listed in US funds.
So you get to make efficient use of the money that you have in your account to ensure that you are not maybe playing any inflated foreign exchange which could impact the profit loss at the end of the day on your particular trait.
Now, one word of the wise, word to the wise, is just to make sure, I want to point out there that just because stocks are trading actively in the Canadian market, does not necessarily mean that they are going to see the same volume south of the border. So TD happens to be trading quite actively still down south but if we look at may be a smaller Stop, if we pull it up on the ticker now, it's got a very small volume here on the Canadian side, but looking at the dual listed portion, is listed through the pink sheets or the over-the-counter market, if I flip over to look at its US quote, and showing me a very minimal, fractional number of shares. So before you go ahead and make your buys and sells, be aware of the market conditions you are entering yourself into. One of the thing I'd like to show everybody here is when we are placing our trades, be very certain you're placing the trade in the correct currency of the account.
So jumping back to TD here, if you call over to the US quote, we just conveniently click on the buy button to get things started. We will note that up to the top of the screen here, I happened to be in my US margin accounts, no edits need to be made, but when you are making the trade for yourself, make sure that you are choosing the right account so that you can be sure you're not can have any uninfected foreign exchange take place which could obviously increase the value of the trade, causing extra cost to you.
> All right. Great tips there is always.
Is there a way to transfer the dual listed stock between currencies in WebBroker?
>> There is, and it's a really convenient point on WebBroker. If you've ever made it US dollar transaction to the platform, transferring securities is going to be just as quick and easy to have that done.
so to accomplish that, we are going to click on accounts the top of the page and under the transfers and withdrawals portion, you will see there is a transfer security section.
Now, I'm in my demo account. I don't have any securities here so I won't be able to walk you through the whole thing, but it's just as simple as the cash transfers as I outlined earlier.
It's just as easy to choose the account you like that you own the security and and then putting in the account they want to transfer to. You will select the shares and transferred over.
Because it is a security not cash, there is no foreign exchange when we are transferring stocks from US dollar to Canadian or back-and-forth, whichever way is best for you.
One of the nice things in here as well as you should be able to transfer between your margin components. You can also make security contributions to your TFS a sore your RRSPs. We are going towards the end of the year.
If you are making those sorts of considerations, you can make that, you can get that done through here as well.
>> Fascinating stuff as always.
Take that, Jason.
>> My pleasure.
>> Are things to Jason Hnatyk, client education director at TD Direct Investing. Make sure to check out the learning centre on WebBroker for more educational videos, live, interactive master classes and some upcoming webinars.like five ways to help lower taxes before the year end.
Before you back to your questions about asset allocation for Chris Medeiros, a reminder of how you can get in touch with us.Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind so send us your questions.there are two ways to get in touch with us.
You can send us an email anytime at moneytalklive@td.com you or you can use the question box right below the screen here on WebBroker. Just writing 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 now is Christian Medeiros, we are taking your questions about assetallocation. Here's a question about China.
If China opens up, will decorate more global demand and drive inflation even higher?
>>looking at the trajectory of China's reopening,they are making progress towards reopening with a whole host of announcements being made of the past few weeks, so there is a very high likelihood that they will reopen through the course of 2023. So the question is, yeah, what is I do for demand and inflation? Historically, when China has rebounded from a recession or rebounded from a period of economic… Does come with a lot of fiscal spending and come with a lot of consumption activity. This has been beneficial for similar assets across the globe such as commodities, commodity exporting nations and the rest of the economy as well, just given how big China is in the global economy.
This time around, I don't expect something as strong as we seen in past cycles.
Why do we effect a difference?
First, China has been cutting back and tamping down property market speculation over the course of the last few years, and worse throughout the COVID period.
Unless there is pressure lightning onthe property area.
.
.
I don't expect the same move on commodity prices as we have seen in the past. However, there will be improved consumer activity.
people will go to restaurants, people will travel again. They have been able to do about travel really over the course of the last two years, so that will result in more consumption of jet fuel and similar energy based commodities and so we could see some benefits to oil and similar commodity prices.
So net net, there is going to be some improvement and that will feed through into inflation and demand. But I wouldn't expect a bonanza in economic growth coming out of China and pushing inflation globally, especially when headline… Encore inflation, I would expected to be changing the narrative entirely for other countries.
>> When it comes to the earlier drivers of inflation, when we thought it was transitory, about supply chains, will China reopening affect things?
Would China having a full reopening is supply chains?
>> We continue to see disruptions out of China due to their zero COVID policy, even into the current year.
just given that lockdowns have shut down factories and caused certain difficulties. If they reopen, when they reopened and if they are able to work through the challenges to look with vast disease, we think of the interim period, the high levels of disease and sickness will result in high levels of disruption.
Once I get to that opening period, that will ease the problems that are residual in the system.
>> Interesting stuff. Let's get another question. It's about the sectors and what we can expect out of them in 2023.
What sectors will outperform next year?
>> Big question.
I don't have a crystal ball.
We have a few thoughts. As we can see today, most rate sensitive sectors like technology performed really strongly on the back of the potential for the Fed to be less hawkish next year, and as a result, we do think that if we do see a pause, if we potentially see it cuts in the back half of the year like the market is expected, maybe we do see technology doing a lot better in 2023 than in 2022.
The other thing I would caution in terms of sectors of I don't do as well, energy, which is had a monster year 2022, it's on weight well, even in the recent period, despite the fact that oil has actually we can material off the back of 2022, we may see energy we can in 2023 if growth slows down and we enter a recession, just given the economic opinion on energy. My quotation going into 2023 would be most economically sensitive sectors should continue to performance the first half of the year.
Then, on the back half of the year, we may see, as the economy recovers economically is sensitive sectors do better.
>> Ultimately does the whole recession story and of being the hardest part to figure out? Will there be a recession?
If there is a recession, is it mild and short-lived, is a deep, is it long? This seems to really play into any kind of thesis we have about what sectorswill perform better than others in 2023, depending on what the economy does.
>> The most important question next year is when will the recession be, how deeply be? Perhaps we won't even have one. That's by far the most important question.
That will determine our sector allocation.
the path of interest rates has a big impact on interest rate sensitive sectors and the policy will determine what we can expect from our commodity and grow sensitive sectors, energy, materials, etc. Will have a big impact next year.
>> Let's get another question right here.
Okay. The classic asset allocation question.
Is the asset allocation formula by age, you take 100, you might as your age, still relevant?
A lot of questions about 6040, how you design your portfolio, a lot of people question whether that would still were going forward.
>> It's not about starting heuristic but it's not the be-all and all how you should decide.
Beyond the heuristic, what investors think about is with the volatility drawback expected for that portfolio historically be sending you are comfortable with that given your age and tolerance?
If you are entering retirement, you probably want to lower volatility in your portfolio because big drawdowns on your portfolio close to retirement will have an impact on the longevity of your assets.
As a young investor, you can have a higher volatility because a higher return will allow you to cumulate walls and no short-term drawdowns are just buying opportunities if you can continue to be reinvesting in the market through your savings plan.
It really depends on your experience of what you want as will as I heuristic.
The second aspect is an issue with that heuristic is that it only considers to asset classes, equity and fixed income.
As result during this year, both asset classes did quite poorly.
Alternatives should be considered. Whether that be commodities, real assets or perhaps active and correlated strategies within your polio. Although should be considered.
The other thing that should be considered to is what type of equities, right?
What type of fixed income?
That fixed income portion is going to be entirely high-yield debt, it's going to be a problem and is going to be courtly with you or equity exposure. If you are concentrated in one sector, that's also going to change the calculus on that heuristic.
So I think it's not a bad place to start and you modify the mix within both asset classes, continue adding more.
And then also think about the ones you have an idea of what your profile you might look like, look at what the volatility drawdowns would've been historically, is that something you can live with and sleep well with at night? If it is, that might be a comfortable portfolio.
>> Interesting stuff. We will take a little break from the questions but we will get back to them. Christian Medeiros is not going anywhere. We will talk asset allocation we get back. As always, at home, make sure you do your own research before you make any investment decisions and a reminder that you can get in touch with us at any time.
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US small business optimism rebounded in November as the crucial holiday season kicked into high gear.
But inflation and worker shortages remain a major issue for owners.
Joining us now with more on this, Anthony Okolie.
>> Thank you very much, Greg. As you mentioned, US small business optimism rebounded in November, signalling and improvement in the share of owners expecting better business conditions in the next six months.
But look underneath the head lion and the score of about 92 points it was the 11th straight month the index fell below the 49 year average of 98.
When we dig into the numbers a bit further, owners expecting a better business over the next six months is still sitting at -43%.
And that is still in a recession reading. Despite recessionary worries about inflation, there are signs that price pressures are slowly easingand the number of owners raising the average selling praise inched up to 51%.
It's still high reading, but it's lower versus earlier readings this year.
And today's US inflation reading, which showed that consumer prices rose less than expected in November, that could potentially translate into higher optimism in this index component going forward if the trend continues over the next few months.
Now, the biggest improvement in the index was in profit trends. That became less negative, which means that fewer net negative profit reports from owners in November.
Despite the improving profit picture, a tight labour market is still a big issue for small business owners.
About 44% of owners say job openings are hard to fill.
And finally, than a percentage of owners expecting higher retail sales rose 5 points but it is still a net -8%. That's a fairly weak reading. Overall, I think small business confidence can be best described as less gloomy in November with signs that worries about labour shortages, supply chain woes and inflation easing slightly. Greg?
>> So you still have these tight labour market conditions, Anthony, which industries are feeling the pain about the most?
>> They point to areas like transportation, wholesale and construction industries, which were still the most impacted in November.
In wholesale, of course, they have more unfulfilled jobs.
but given the aggressive interest rate hikes so far this year, TD Economics says that the unemployment rate will rise. It's only a question of how much and how fast.
Given the resilience in employer demand and job vacancies, TD Economics is forecasting a low and slow economic growth framework that produces a 1.5 percentage point rise in the unemployment rate through 2023 and 2024.
>> Good stuff, Anthony. Thanks.
>> My pleasure.
>> MoneyTalk Anthony Okolie.
Let's get you an update on the market because things are changing out there.
They pop this morning on both sides of the border on the heels of a softer than expected US inflationary report.
we are not only giving us of those gains were drifting into negative territory at least on Bay Street. The TSX is down by 1/10 of a percent. Still got a pretty firm price for crew but I'm looking at financials and telecom and cyclical consumer socks weighing on the trading on the side of the border.
want to check in on the energy names because crude is still pretty firmly. The US market is still down about a percent on the day against a basket of its international trading partners so we are still seeing some money moving into the energy space Crescent Point at nine bucks and $0.31, up a little more than 2%.
Some of the mining games got a pretty strong bid this morning.
I think they're hanging onto it as well. Barrick at 2357, bright parts of the market still, it's a 3.5%.
The financial telecom heavyweights, the consumer stocks more tied to the cycles of the economy that are under pressure today in Toronto. Want to see what's happening south of the border. Of course, the inflation report definitely put some momentum into trading. But now, perhaps, drawing attention to the fact that the Fed is entering into a two day meeting, they will come out the other side tomorrow, what kind of Jerome Powell do you get?
He has been pretty stern all the way back to the summer in terms of wanting to see inflation on a downward path for quite some time before they change pace.
we will so we get from Jerome Powell tomorrow, what kind of interest rate decision we are going to get. The S&P 500 is still in positive territory but well off the highs of the session, just 1/5 of a percent right now.
The tech heavy NASDAQ, let's he was happening there now.
Still again in positive territory but well off the highs of the session. Up of full 2% and the NASDAQ when we started the program 37 minutes ago, so it's a bit of a reversal of fortune. Check in on Amazon, look it the mega-cap tech names making fairly healthy gains. Amazon hanging in, at $90 and change, up just 12:45 percent.
We are back now Christian Medeiros from TD Asset Management. We are talkingAsset allocation. Should investors still be viewing big moves like we saw earlier today as they start to fade a little as potential bear market rallies?
>> Yeah, so we seem to have seen some major bear market rallies this year, one in the summer and then one from October to November.
This is something really common within a bear market experience.
We sell this in 2008 and we saw this throughout other periods of historic recessions and market drawdowns.
And these tend to coincide with some sort of positive news that gives hope and change the picture.
Often, it's news that the Fed might lighten up.
And that tends to result in quite strong moves that result in bear market rallies.
I think that these are really dangerous times, in fact, because if you are an investor, you don't want to get caught offside to early with a bear market rally.
Feel that the signs are clear, everything based on, let's go… Let's take a risky move.
I think it's really important for investors to take a step back and noticed that drawdown. So the most volatile periods aredrawdown. And it's easy to get chopped up by volatility.
It's time to secure plan and don't get too excited or despondent based on incremental changes.
>> Doesn't really take you back to that check list of the four things were looking for? When you're in the middle of a bear market rally, you get ahead of yourself and think, maybe the worst is behind us.
A little optimism creeps in. You just sort of need your discipline?
>> Yes, discipline.
One big part of dad is back to the checklist approaches that drawdown surrounding a recession tend to really follow leading indicators of growth.
We do need to see the recession play out andleading indicators like BMIs, orders and other data points. The kind of want to see that recession narrative and recession data really play itself through before we get overly excited on the market rebounding. In the other aspect to his inflation is moderating. It's a great sign.
But again, the Fed is looking for 2%. So I think investors need to be… It's good to be optimistic when use is improving but we also have to be realistic. The Fed still has some work ahead of them and if they do keep rates at high level for the foreseeable future because we also maybe four or 3% but not 2%, that is material because those rates are high levels for a long period of time will be a drag on market. There is work to be on. So I think it still warrants being mildly cautious going into 2023.
>> Alright, we touched on this a bit earlier.
We talked about China's reopening of what it could mean for demand and inflation. We have of you are asking if China eases its COVID restrictions, could that be a tailwind for stocks next year? What effect could that have on the market?
>> Again, China is a major engine of growth in the world historically. It impact less over time as they spend less money on infrastructure, building a modern economy.
It's become much more mature than people expected.
The demographics are more mature than expected and they are shifting more towards a consumption based economy.
So the impact on global stocks is not as impactful as it would've been coming out of 2008 were coming out of midcycle slowdowns in 2015, 2016.
So those historical analogues are not likely to be as true today as they were back then.
So China reopening is definitely a big boon for sectors in the Chinese economy and stocks in the Chinese economy that are more oriented towards people eating out again, travelling again. That'll find good but for global stock markets, there will be some benefits to demand but we don't think it's going to be necessarily a major game changer. Again, to add to that , there is still a little research is the economy that need to be lifted.
We don't think it's going to beas optimistic as it would've been in past periods of reopening.
> We are out of time for viewer questions. Before I let you leave though, I want to get your take on, I don't know, should we go very short-term as in what should we expect from the Fed tomorrow?
Or double barrel, what you think you're going to get from the Fed tomorrow and your thoughts on the 2023 agenda?
>> The Fed tomorrow, 50 basis points as well expected and what people will be looking at as one of their projections for rate hikes into next year, people will want to listen to Powell's statement to try to get a sense of what we can expect in the February meeting and if we might see a pause into the next year.
So that pace.
And listeners will want to get a sense of the lingo to Powell's using. I think he will still be hawkish. He still knows that there is adultery done. He does a lot of too early.
Can't let financial condition solution too much.
I still expect similar language on Wednesday. In terms of the end of the year, we are going through to big events, CPI and then the Fed.
Barring any extreme reactions on Wednesday, I think markets would be within the same range going into the end of the year, we don't expect there to be too many surprisesgoing into the end of the year.
We have had a strong rally.
that would be my expectation.
>> As always, it's a pleasure to have you here.
> Thank you.
>> That will probably be in 2023.
It is coming quickly. Our thanks to Christian Medeiros, portfolio manager at TD Asset Management. Tomorrow's guest will be Hussein Allidina, head of commodities at TD Asset Management. You can get a head start on questions for tomorrow. Email moneytalklive@td.com.
That's all the time we have the show today. Thank you for watching. We'll see you tomorrow.
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