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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss market valuations after this recent run higher we have seen for stocks with MorningStar's David Sekera.
MoneyTalk's Anthony Okolie is going to take us through a new report from TD on when we might expect some rate cuts from the Bank of Canada.
And in today's education segment, Caitlin Cormier is going to shows how you can customize Advanced Dashboard to suit your needs. Here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Forget our guest of the day, let's get you an update on the markets. It's a different story on Wall Street but we will start here at home on Bay Street with the TSX Composite Index. We've got a triple digit pullback of 121 points, little more than 1/2 a percent to the downside. American benchmark crude right now has taken a significant step back. It's not about 3%.
78 bucks and $0.33 per barrel for West Texas intermediate. Best explanation I'm seeing right now is data out of China, perhaps you'll concerned about their appetite for crew. That's the best thing I'm seeing at the moment but it's definitely having an effect on the energy space. Let's look at Crescent Point Energy. There are two things happening. On the broader energy sector, it's down on the pullback in crude prices but Crescent Point yesterday after the close down made a big acquisition in the Montney. We will tell you about that later in the show.
It's weighing on the name. At nine bucks and $0.99, you got Crescent Point down almost 9%. Barrick Gold seeing a pullback in the price of gold today. Affecting a lot of the minors. At 2155, Barrett down about 3 1/2%. South of the border, different story. A winning streak happening here since really the final innings of October into November. The S&P 500 is modest today but keeping it going, 14 points to the upside, about 1/3 of a percent. The NASDAQ is up a little bit more than a full percent. Some of the chipmakers getting a bid today. Not that one, Nvidia, but Advanced Micro Devices and Intel. AMD at 113 bucks in chains, it's of about 1.6%. And that's your market update.
After a rough couple of months, markets had a good move to start November. How does that set us up for the rest of the year and what does it mean for market valuations? Joining us now to discuss, David Sekera, chief US market strategist with Morningstar Research. Great to have you back on the program.
>> Hey, great. Great to see you as always.
>> We are keeping the winning streak alive. November has a reputation for being a good month for stocks. So far living up to it. Let's talk about where this leaves us in terms of valuations.
>> Is looking pretty good. In our November market outlook that we published last week, as of October 31, the US market is trading at about an 11% discount to a composite of those fair values of the over 700 stocks that we cover the trade on US exchanges. To put that in context, on a historical basis, since 2011, the markets only traded that much of a discount or more about 12% of the time. Now we have had a pretty good rally here since the Fed meeting. The market trading at an 8% discount right now. With that in context, the market has traded at about this discount or more 25% of the time. It's still well into undervalued territory but not nearly as deep into undervalued territory as we were.
Then, when we break this down into the MorningStar style box, I would note that the value category is the area that we see most undervalued in the marketplace today, trading at about 20% discount to a composite of our fair values. Core stocks trading much closer to fair value and growth stocks trading at about a 7% discount, so pretty much in line with the overall bond market.
>> We have a market now entering a period of traditional seasonal strength. You said we entered this undervalued. At the same time, we have a Fed that might be done hiking.
Markets are trying to figure that out.
These all seem like positives, tailwinds.
What about headwinds for investors?
>> First thing in the short term, I think we always have to keep an eye on geopolitical events, whether it's the war in Ukraine, the conflict in the Middle East, all of those certainly could have negative implications for the markets if they worsen or spread any further.
I am also keeping a close eye on long-term interest rates. If they turn around and start to meaningfully rise back up again, specifically of the 10 year breakthrough 5% and stays there, I think that would be pretty negative for equity markets as well.
Fundamentally, over the medium term, I think the biggest headwind is the slowing rate of economic growth. Our base case from our US economic steam is we still are looking for that soft landing but I would note that our forecast is that we expect the rate of economic growth essentially to get cut in half each quarter sequentially until the third quarter of next year. We expect the economy to get pretty close to stall speed at that point and then start to re-accelerate.
Of course, that slowing growth will pressure earnings as well. So while the equity market is undervalued from the perspective of long-term intrinsic valuations, I do think that's going to generate some volatility and we probably could see some brief selloffs over the course of the next few quarters.
>> Not necessarily a smooth path going forward. We have come to the sake of earnings season, at least for a lot of the big US names. In Canada, we still have a few to get through. What are you seeing out there?
>> The take away here isn't about third-quarter earnings. The third quarter earnings were generally pretty good. It was easy for most companies to meet or beat expectations.
Guidance was pretty low coming into the quarter. I don't think anyone thought the economy would be as strong as it was. That past quarter. The thing is the Outlook really has deteriorated.
The feds put out her note the other day and they noted that earnings estimates had been cut at twice the percentage that earnings reactions have been cut historically. I think that does indicate the economy is slowing and is in turn pressuring earnings growth. I don't think it was a sharp enough reduction to make me believe that we are on the precipice of slipping into a recession in the near term.
>> Let's talk about recession a little bit because you laid out your forecast. You see the economy evolving. It's been about a year and 1/2 now of investors worried about the recession that doesn't seem to want to arrive. The US economy has been pretty resilient. Can we skate through?
Every couple of days I see another bit of conversation, hey, maybe everything will be fine South of the border.
Maybe the US gets inflation under control without too much economic damage. Is that still a bit of a lofty dream?
>> Well, we are looking for that soft landing, but unfortunately high interest rates, tight monetary policy, tightening lending standards by the banks, they will all end up taking their toll on the economy. We expect to start seeing that here in the fourth quarter.
Also expecting the consumer spending which really has been propping up the US economy will also start slowing. A couple of different factors there. We still have inflation working its way through household balance sheets.
A lot of households had excess savings to the pandemic, those have been spent. We have student loan repayments which are starting back up again. I think there's a couple of different factors that are all coming together to pressure consumer spending.
As an old consumer analyst, I always agree with the adage, never underestimate the US consumer's propensity to want to spend but it's going to have to come down and that will essentially pressure the overall economy for the next couple of quarters.
As we have talked about this rally that we have had to start off the month of November, the large-caps get all the attention. The rally continues on the S&P 500, the big names, but it's not taking part at least today. Small caps versus large-caps, what does it look like in this environment?
>> When we break our valuations down by capitalization, small-cap stocks are very undervalued as well as mid caps and I know the small-cap valuations are probably pretty close to some of the lowest valuations compared to our intrinsic valuations that we have seen over time.
The only thing I would caution you about is it might be a couple of quarters out before the small caps really begin to outperform the large-caps. The reason for that is with the economy slowing, I think a lot of investors, specifically institutional investors, are going to want to hide out in large cap stocks.
They are not going to want to take the greater earnings volatility that we see in the small caps space.
But I do think that once that market begins to price in an economic rebound, probably by the middle of next year, we expect to see a pretty good snapback rally in those small caps to not only catch up to you but then outperform the large-caps.
>> An interesting look into next year and perhaps a place where some of our viewers want to do their research.
In terms of the rest of this year, November, December, before we know it, the year is going to be over. What do we need to be mindful of?
>> Again, just looking at the calendar, I think we need to be very careful as far as what the Fed is going to be doing at the next meeting. We have a couple of different Fed officials who are out giving there speeches today so I'm going to be listening to hear what their languages, whether or not that really agrees with that shift we heard from chair Powell.
Again, watching for what the Fed may do.
Our own expectation is that we expect that with the economy slowing, our forecast for inflation continuing to moderate, we think the Fed is not only going to be on pause for a while but we think they're going to be in a position in the first half of next year to start cutting rates. I want to make sure that the other Fed officials are kind of on board with that shift in language that we've heard from the Fed.
>> Always great insights with David Sekera.
We are going to get your questions on US stocks for David in a moment's time.
And a reminder that you can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Uber in the spotlight today. The right healing company giving an optimistic forecast for its current quarter in anticipates the holiday season will bring strong demand for both right hailing in their food delivery business. That said, who were did Ms. earnings expectations for its latest quarter. Right now it 4928, got the stock up a little more than 2%.
The word filing for bankruptcy protection, a stunning reversal of fortunes for a company that was once valued at $47 billion. All for sharing of food struggling out of the way of long-term leases and they signed those when business was booming before the pandemic hit and lockdowns had millions of us working from home. Crescent Point Energy is buying Hammerhead Energy in a deal valued at $2.55 billion Canadian. The pending deal will seep Crescent Point increase its dominance in the Montney region of Alberta and also become Canada's seventh largest energy producer.
Right now, at nine bucks and $0.96, down almost 9% on Crescent Point.
A quick check in on the market, we will start with Bay Street and the TSX Composite Index. A pullback in the price of crude and pullback in the price of gold, not great for materials or energy stocks today. 19,592, your down 151 points or three quarters of a percent. South of the border, the rally continues.
The broader S&P 500 right now, it's modest green on the screen. 10 points to the upside, 1/4 of a percent.
We are back with David Sekera, taking your questions about US stocks. Let's get to them.
First one for you here, David. What's your outlook for defensive stocks, like the utilities?
>> Well, utility specifically are especially attractive right now in our view. The utility sector was hit pretty hard in August and September's interest rates were rising and of course, utilities are very correlated to interest rates. We did see that sector bottom out in October.
What's most interesting is in early October, our utility team noted that the sector was trading at the greatest discount to our fair value since 2009, in fact I think they called it a once in a decade opportunity.
The fundamentals for the utility sector are just as strong as ever.
We've seen a pretty good bounce in utilities over the past week or so but I do think there is still a lot more upside left, according to our valuations within that sector. Taking a look at the other defences, healthcare, that's pretty much trading at the same discount as the market. The opportunities that are there are generally more idiosyncratic to individual companies than anything else.
Although I would note that there are some opportunities in the med tech area, specifically some of the medical device makers.
So with device makers, I think there is still some backlog that needs to work to the system following the pandemic but, again, you have the tailwind from the aging demographics there.
And then lastly, consumer defensive, that sector as a whole, according to our numbers, is pretty close to fair value.
Some of the opportunities there I think are among the food companies.
A lot of those companies are trading at pretty low valuations and there are two reasons why for that.
So one, what we seem, with inflation the size it has been for the past year and 1/2, their price increases were not able to keep up with their own cost increases and we have seen those margins under pressure there. Plus, we have a lot of growth in 2020 and 2021 so I think investors are looking at stagnating growth compared to what we had seen back then.
But our outlook here is twofold. One, as inflation slows, we think the bank will be able to get further price increases through two more historically normal margins. As we continue to map these year-over-year comparison, we will get back to more normalized intrinsic and organic growth there.
Those would be the areas in the defensive sectors that we do like.
>> Interesting ideas for our audience to do research on. I want to take it back to the utilities. You said it could be setting up for some interesting things.
What you get in the way of that thesis?
>> The biggest thing with utilities is the regulatory environments they are working in. They do have to work with regulators to put through their own price increases to the end consumer.
Of course, with inflation at size it is, those regulators are really going to want to keep those price increases down as much as possible so there could be some margin pressure in that area.
The other big one would be of interest rates to start rising again, I think a lot of investors would like to get out of utilities. That would drive some negative sentiment in that sector.
>> Interesting stuff. Another question from the audience. What are your thoughts on the real estate sector right now?
>> Yeah, so real estate in our view is actually the most undervalued sector across our coverage right now.
Personally, I would still steer away from the urban office space. I still think that there is too much risk to the downside in the values there.
I would focus on a couple of different types of real estate. The first would be real estate which has defensive characteristics. Specifically, a lot of the REITs in the healthcare sector, whether that's medical office buildings or hospitals or so forth. I would look for those REITs were the real estate that have improving fundamentals. For example, Classe shopping malls. And I would stick with the Classe, the high-end, because they are seeing a rebound with foot traffic and a lot more retail sales. Deep value plays, cell towers, those have sold off in sympathy when we had the rising interest rates, we think those have sold off too much at this point in time.
Lastly, real estate that has long-term structural tailwinds.
Just thinking about the growth that we are looking for an artificial intelligence, I think that's going to be a big benefit for the data centres.
>> The fact that you broke it down into several different things that reminds me that when people talk about real estate investing that you're not just talking about one kind of thing, you really have to start parsing at the different parts of that space and who they are serving.
>> Exactly.
>> This question, they want to get your take on the banks, David.
>> I think after break the bank down, you have megabanks, wells and city, they are doing just fine.
They are still seeing increases in that interest income, the loan losses are under control, we are seeing some cost control being implemented among the Wells Fargo and Citibank, so really no concerns in that area. A couple that are undervalued but again, nothing that interesting to me honestly, going up the megabanks. The regional banks are another story. We are still seeing a lot of earnings pressure with the regional banks and in fact that's what we have expected to see and we expect the earnings will still be under pressure for another couple of quarters before they start to rebound. But really what's interesting there is that the deposit loss that we have seen earlier this year mainly has stopped and so I think that's really going to put a floor under the regional banks. In our view, a lot of them had sold off too much after Silicon Valley Bank and some of the other bank failures earlier this year, a lot of negative sentiment because earnings are still under pressure.
But I expect by the middle of next year according to our forecast as earnings bottom out but start rebounding, there's going to be a lot of opportunities for investors there.
>> When it comes to the banks, particularly the regionals, thinking back to the screen, part of the problem before Money started command of the deposits, there were problems with their bond holdings. It can we expect those pressures to ease as well?
>> While >> And we also see long-term interest rates coming back down pretty significantly over the past couple of days after the Fed meeting. That's gonna take a lot of pressure off of those unrealized losses in their hold to maturity account.
Again, something that as long as we don't see much more deposit loss and they don't have to sell any of that and they could hold onto it until they are able to mature those bonds.
>> As always, make sure you do your own research before making any investment decisions. we are going to get back to your question for David Sekera on US stocks and just moments time.
And a reminder that you can get in touch with us any time.
just email moneytalklive@td.com.
Now look at our educational segment of the day.
We are taking a look at tedious Advanced Dashboard, platform designed for active traders available within TD Direct Investing. Caitlin Cormier, client education instructor with TD Direct Investing is going to take a how you can customize Advanced Dashboard to suit your needs. Have a listen.
>> One of the great features of Advanced Dashboard isn't being able to create custom layouts to put in any tools and widgets that you would like to see.
However, how are you going to know which widgets you would like if you don't have time to look through them?
So let's take a look today in our market policy Leah. It's one of our pre-created layouts within Advanced Dashboard and we will get a feel for some of the tools that we have.
First we have our bubble chart which gives us some visual representation of the TSX 60. It showing us the one your performance of those securities. We have the heat map which is giving us up-to-date information on how the markets are trading, specifically the TSX. We can see the most actively traded securities, this is within Canada on the TSX. You can see the top 10 securities. We can also see how the markets are performing, so different indices, both here and in the US, we can see market news as it comes in as well is our earnings calendar here on the left-hand side.
You will also notice that once we choose a security that we want to do a bit more research on, for example, I could go ahead and click let's just choose the one on the far left here, the right hand side of my screen is going to automatically update to represent information from that security.
So we can see a chart here from that security.
I can click on news and get information about that security.
Equity analytics, which gives us all of the information we need to have as far as fundamental information on the company.
And finally, the earnings analyser.
The great thing about this is we are able to get this up-to-date information between these two screens, so again, if you click on most active and we choose a security within the screen, it will automatically populate on the right-hand side and give us information about a particular security.
This is one way you can get a little bit more familiar with the different tools that we have in Advanced Dashboard so you can really create your own custom screen.
>> Our thanks to Caitlin Cormier, client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before we get back to your questions about US stocks for David Sekera, 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 you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with David Sekera, taking your questions about US stocks.
Here's an interesting one, David. A year away from the US election, we are heading into another presidential cycle, how could that cycle impact the markets?
>> Personally, Greg, I am not looking forward to the election cycle this year.
It certainly going to bring a lot of heightened uncertainty that will probably lead to increased volatility. The only thing I would note here is if we do really see any meaningful market selloff, that will probably end up providing investors good buying opportunities. We have done a lot of research here looking a past election cycles and administrations and our research shows that historically there is very little correlation with who is in the White House and the market returns thereafter. There are just too many other exogenous factors that occur over any one a ministration that have impacts of the markets, whether it's a Democrat or Republican in the house. I wouldn't read too much into it but I do think it's going to be a very difficult election cycle here in the US.
>> Part of the difficulty might be for investors, hearing people saying, if you get this outcome, then you get these policies and vice versa. You end up with a lot of divergent ideas on your plate that you're trying to make investment decisions around.
>> It kind of just depends on what those policies are and if those policies get pushed through. There's always a big difference between what people originally start talking about, what gets voted on and put into play. A lot of those policies take years in order to play out so even when they do get pushed through and when they are quite large, I don't think it has as big of a market impact is a lot of people maybe talk about them.
>> Okay, been an interesting year indeed.
Another question from the audience about the chipmakers. How do you see the semiconductor space performing?
>> The semiconductors, I think you need to break that down into different types of semiconductors. There are so many different types and uses today that you have to look at them individually.
The hot sector right now is artificial intelligence. Huge demand there. Still very strong.
We will see in video, I think the report on November 21, what the results are. I talked to their semiconductor analyst this morning. He noted that AMD is forecasting 2 million in revenue for their AI products and that's in 2024 where is in prior years they essentially had nothing, even Intel's pipeline is doubled for AI to 2 billion as well.
We are starting to see that spread into some of the other chipmakers. Our opinion is that we think AMD will end up being the number two competitor to Nvidia for AI.
Next is the PCs and the smart phone. Those have pretty poor performance in 2022. And most of 2023. A lot of that is because there was so much pull forward during the pandemic in 2020 and 2021 so now that we are lapping that is starting to see recovery off the bottom there, you got the automotive, very mixed performance.
Production is pretty flat. We expect the shift towards electric vehicles will be long-term tailwind for X PIN companies that are more involved in that sector.
Lastly, the more commodity oriented chips like the memory chips, I think the take away there is a it's less bad now than it's been but I expect that there is still some inventory in the channel that needs to be cleared out before you can really see the bottom in the part of the market.
>> Clearly a lot going on in the semiconductor space and the uses for those chips depending on the market.
The AI thing. Is there anything that could get in its way or is this sort of like a train that's going to keep moving forward whether we wanted to or not?
>> When you are in such early stages of something that could be such a real paradigm shift in the industry, it's tough to tell. We are looking for some really big increases in the hardware in order to drive AI. We are looking at 50% plus growth for the next couple of years for a company like Nvidia but I think for investors, some of the second derivative plays are actually going to be more interesting. All of the obvious place right now, I think a lot of those stocks have already been driven up but we are looking at other areas that all benefit from that long term trend in AI so for example the consulting companies that have specific expertise in that area I think are very interesting. When we think about AI, there are huge costs to be able to build and develop models and roll them out so I think a lot of companies just don't have the expertise or the financial wherewithal they would need it so they hire those consulting companies. I think some of the second derivative plays might be some of the areas that investors should look at.
>> Interesting stuff there. Let's stay on technology. We have a viewer that wants to talk about big tech stocks. Will they be the ones to drive the next leg of growth?
>> I don't think so.
I think really when we get that next sustainable big leg up, it's going to be much more broad-based. Again, we see some select value among the tech stocks but probably not enough left to drive the market the way that we had seen in the first half of 2023. I would just know, everybody's been talking about the Magnificent Seven stocks, how much of the attribution of the market performance they've been responsible for this year, I would say at the beginning of the year, six of those seven we saw were significantly undervalued, we rated them with four and five stars. Now they have moved up as much as they have, only one of them is still undervalued in our view.
Five of them now are trading into fair value category. In fact, one of them has moved into overvalued territory. So I think the tailwind from those are behind us at this point and with value stocks being the area that we see as being the most undervalued, I do expect that they should perform well and we will see that broadening market performance.
>> What would it take for the investors mind to shift, to take their capital from the area that has been working so far and move it towards those value parts of the market?
>> Well, part of it is going to be thinking about the economy and how that plays out over the next couple of quarters. I think that value category will look a little bit better to the downside.
We could see some of these growth stocks, especially some that have high valuations get hit once people start pricing and some of that earning slowdown. The other risk there is long-term interest rates.
Again, kind of that five handle area is the area I really look at, the demarcation line, if we start getting about five and stay above five, I really do think that starts to decrease some of the value of those growth stocks whose earnings are much farther out in the future.
>> We are going to get back to questions for David Sekera on US stocks in just a moment time. As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
began to There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right, the Bank of Canada has one more interest rate decision before the end of this year and that's going to come next month. Now we have the R word, recession, creeping back into the discussion. Recent monthly GDP data suggesting slight retraction for the third quarter and that would mark what we would call a technical recession. So what are we thinking about in terms of what's going on out there?
Anthony Okolie joins us now with the look from TD Securities for that long term interest rate forecast. What are we seeing?
>> Thanks very much, Greg.
The last GDP print in Canada raises question of whether the Canadian economy is already in recession. TD Economics is the technically speaking, we may be in a recession but we won't know that until we get the official third quarter GDP report at the end of this month.
The recession discussion aside, the TD Economics believes you are in a prolonged period of below trend growth before activity does pick up by the second quarter of next year, alongside potential rate cuts by mid next year as this chart shows.
We also got Friday's employment report which reported a weakening trend in the labour market as well. The Bank of Canada as well as acknowledged that the economy is showing clear signs of weakening and will continue to do so has a higher interest rate that we've seen over the past year and have continued to weigh on consumer spending.
Taking a look at market activity, when you look at how many markets are pricing and rate cuts or interest rates, money market pricing, TD Securities does note that after the release of the Canadian GDP data, of course the job support last Friday, the front end of the curve has priced in BOC rate cuts much sooner than we saw in the prior week of October 24 as this chart shows. TD Securities remains biased to see Canadian bond yields moving lower in the months ahead but they do caution that we may not see, the moves may not be in the same leaps and bounds we have seen over the last week or two.
Now given this backdrop, TD Securities recently pushed back their timeline for the Bank of Canada to start cutting interest rates. They look for the first rate cut on July 2024 instead of April. So they have moved it back a little bit. TD Securities does believe that the underlying price pressures have left inflation tracking well above the Bank of Canada's projections from July monetary policy report and that makes it more challenging for the central bank to start easing in the first half of next year.
Now, TD Securities does believe that persistent inflation does leave the door open for another potential rate hike but they still continue to expect a terminal rate of 5%. No rate cuts this year.
Because there is enough evidence of weaker growth conditions for the Bank of Canada, they are expecting a terminal rate of 5%.
TD Securities has raise their estimate for the bank's neutral rate from 2 1/2% to 3% which they expect the Bank of Canada to reach by the end of the fourth quarter of 2025. Greg?
>> Very interest staying, neutral rate of 3%. Of course, as you try to figure out what's been going on for the past year and 1/2, he can shift a lot depending on the conditions. We have had a lot of guests from TD Asset Management and TD Security saying you can't be rigid, you have to move with the flow. There have to be some risks.
>> Great point.
The risk is a potential upside surprise of inflation. TD Securities believes that if we do not see more significant progress in the fourth quarter, it will put more pressure on the Bank of Canada to do more in order to tame inflation or attempt down on inflation, especially with the ongoing risk of inflation expectation. TD Securities believes that an upside surprise in Canadian inflation will increase the risks for the Bank of Canada tightening into next year and that would ensure that inflation excitations remain well anchored. Greg?
>> Interesting stuff. Thanks a lot, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are back into Advanced Dashboard, we are taking a look at the heat map function here. It gives you a view of the market movers.
We will start with the TSX 60, we are going to go through price and volume.
You got American benchmark crew pulling back fairly significantly today. We are taking a look at a price down about three actually, down more than three bucks a barrel for West Texas intermediate. That's a pullback of more than 3 1/2%. 2 1/2 month lows for crude. What's going on?
The explanation out there right now might not be the right one, but it's the one out there on the news website, saying some data coming out of China questioning what China's appetite might be for crude. It's having an impact on energy space. Let's start there.
You could pick any of them, Cenovus, CVE, down to the tune of about 4%. Suncor beside it down a little more than three.
All the big names getting hit right now.
In the material space, it's not good news either for the topline on the TSX Composite Index. You have goal pulling back about 18 bucks an ounce right now.
The US dollar has been firming and we are listening to a lot of fed speakers, as David Sekera was telling us earlier in the show, what kind of slaver are they going to have in their commentary?
There are down about 3%. A lot of pressure across the space. Can Rusty. Shopify has been an interesting one. On the heels of his earnings last week really pops higher.
Give a little bit back to start off the week.
Right now it's steady up about 2%. Want to check in South of the border because as we feel the pressure of a lower price for oil and gold today, the rally on the S&P 500, the broader read of the market and the NASDAQ, frankly, continues. It's been a strong start in November. That's the reputation November has.
We will start in the technology space.
Nothing too dramatic.
There is green on the screen. The market is in positive territory. Apple is up more than 1%.
The chipmakers too. Nvidia for a change is sort of falling behind the pack. You got AMD up a little bit more than a percent, Intel up almost 2% on the day.
A few interesting names there and some of the other plays like Amazon showing some strength as well.
You can get more information on Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with David Sekera, chief US market strategist with Morningstar Research, we have questions from the audience coming in. This one is interesting if people are worried about the yield place. Do you expect to see more dividend hikes or dividend cuts in this current environment?
>> I would still look for more dividend hikes than cuts.
It's poised to slow or maybe reduce the number of dividend hikes or the amount that individual companies will hike their dividends.
But I don't think the economy is going to slow so much that it would reduce earnings to the point that companies would not have free cash flow to support their dividends.
>> Sometimes people when they get into these dividend plays, they think not only about dividends being sustained and paid out regularly but dividend growth. When you're taking a look at dividend investing, he said two streams you are trying to parse through?
>> Exactly, and a lot of that is going to depend on earnings growth in the amount of free cash flow company has and what their dividend policy is, their payout ratio.
Again, I would expect to see more hikes but maybe the hikes aren't going to be as much as we have seen the past couple of years.
>> This one leads nicely into it because in the Canadian energy space, it's been a story about dividends and returning money to shareholders. Your thoughts on the energy space? We had a viewer just right in saying, what is going on with oil today? Fairly sizable setback. The headline I saw suggested data out of China had people concerned but sometimes there just isn't a straight answer.
>> Yeah, it's always hard to know when you see moves like this on the individual day what might necessarily be causing it. It could be some underlying technicals that are making traders with oil prices around.
The energy sector overall did drop 5% in October.
According to our indices, it was the sector that had the greatest drawback. But I'm still not necessarily excited about energy yet.
It is only trading at a 5% discount to fair value. I think they're much more undervalued opportunities in other parts of the market. Generally, the oil market has been tight the past couple of years.
It's been able to keep prices high. Of course, if the conflict in the Middle East spreads, we could see a spike in oil prices. Longer-term, we expect oil prices will subside over time.
Later this decade we think that demand will peak in demand for oil will subside.
We expect electric vehicles by 2030 will end up being two thirds of all new global auto production. So as all of those replace internal combustion engines on the road by 2030, we actually probably start seeing a decrease in demand for oil.
>> Before I let you go, I want to get your final thoughts. Off the top of the show, we talked about the run we have seen in US equities right at the final innings of October and into November. November has a reputation as a seasonally strong. For stocks.
A lot of people feel a little uncertainty with everything that's happened in the past couple of years.
>> Yeah, it's just as uncertain an environment as I have ever seen over the course of my career.
Again, I think a lot of this rally is just because, and I think actually the market missed it. On October 19, chair Powell did a presentation at the Economic Club of New York and I think in his Q&A, that's when he really started to shift the language to being more balanced as opposed to just really talking purely about the feds need to hike rates in order to beat inflation so I think the markets are really definitely reacting to that here in the short term. Longer-term, we do think that the markets are undervalued from a long-term intrinsic valuation perspective but I do think investors need to be cautious as far as the next couple of months with the economy slowing, that could drive negative sentiment so we will see how that flows through overtime but for those long-term investors, I do think now is a good time to make sure that you are properly allocated into the equity market today.
>> Always great to get your insights. Look forward to the next time you're on the show.
>> Thank you, Greg.
>> How are things to David Sekera, chief US market strategist with Morningstar Research.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show.
Damian Fernandes, managing director and portfolio manager with TD Asset Management will be our guest. He wants to take your questions about global stocks. A reminder that you can get a head start. Just email moneytalklive@td.com. That's all the time we have the show today. We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss market valuations after this recent run higher we have seen for stocks with MorningStar's David Sekera.
MoneyTalk's Anthony Okolie is going to take us through a new report from TD on when we might expect some rate cuts from the Bank of Canada.
And in today's education segment, Caitlin Cormier is going to shows how you can customize Advanced Dashboard to suit your needs. Here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Forget our guest of the day, let's get you an update on the markets. It's a different story on Wall Street but we will start here at home on Bay Street with the TSX Composite Index. We've got a triple digit pullback of 121 points, little more than 1/2 a percent to the downside. American benchmark crude right now has taken a significant step back. It's not about 3%.
78 bucks and $0.33 per barrel for West Texas intermediate. Best explanation I'm seeing right now is data out of China, perhaps you'll concerned about their appetite for crew. That's the best thing I'm seeing at the moment but it's definitely having an effect on the energy space. Let's look at Crescent Point Energy. There are two things happening. On the broader energy sector, it's down on the pullback in crude prices but Crescent Point yesterday after the close down made a big acquisition in the Montney. We will tell you about that later in the show.
It's weighing on the name. At nine bucks and $0.99, you got Crescent Point down almost 9%. Barrick Gold seeing a pullback in the price of gold today. Affecting a lot of the minors. At 2155, Barrett down about 3 1/2%. South of the border, different story. A winning streak happening here since really the final innings of October into November. The S&P 500 is modest today but keeping it going, 14 points to the upside, about 1/3 of a percent. The NASDAQ is up a little bit more than a full percent. Some of the chipmakers getting a bid today. Not that one, Nvidia, but Advanced Micro Devices and Intel. AMD at 113 bucks in chains, it's of about 1.6%. And that's your market update.
After a rough couple of months, markets had a good move to start November. How does that set us up for the rest of the year and what does it mean for market valuations? Joining us now to discuss, David Sekera, chief US market strategist with Morningstar Research. Great to have you back on the program.
>> Hey, great. Great to see you as always.
>> We are keeping the winning streak alive. November has a reputation for being a good month for stocks. So far living up to it. Let's talk about where this leaves us in terms of valuations.
>> Is looking pretty good. In our November market outlook that we published last week, as of October 31, the US market is trading at about an 11% discount to a composite of those fair values of the over 700 stocks that we cover the trade on US exchanges. To put that in context, on a historical basis, since 2011, the markets only traded that much of a discount or more about 12% of the time. Now we have had a pretty good rally here since the Fed meeting. The market trading at an 8% discount right now. With that in context, the market has traded at about this discount or more 25% of the time. It's still well into undervalued territory but not nearly as deep into undervalued territory as we were.
Then, when we break this down into the MorningStar style box, I would note that the value category is the area that we see most undervalued in the marketplace today, trading at about 20% discount to a composite of our fair values. Core stocks trading much closer to fair value and growth stocks trading at about a 7% discount, so pretty much in line with the overall bond market.
>> We have a market now entering a period of traditional seasonal strength. You said we entered this undervalued. At the same time, we have a Fed that might be done hiking.
Markets are trying to figure that out.
These all seem like positives, tailwinds.
What about headwinds for investors?
>> First thing in the short term, I think we always have to keep an eye on geopolitical events, whether it's the war in Ukraine, the conflict in the Middle East, all of those certainly could have negative implications for the markets if they worsen or spread any further.
I am also keeping a close eye on long-term interest rates. If they turn around and start to meaningfully rise back up again, specifically of the 10 year breakthrough 5% and stays there, I think that would be pretty negative for equity markets as well.
Fundamentally, over the medium term, I think the biggest headwind is the slowing rate of economic growth. Our base case from our US economic steam is we still are looking for that soft landing but I would note that our forecast is that we expect the rate of economic growth essentially to get cut in half each quarter sequentially until the third quarter of next year. We expect the economy to get pretty close to stall speed at that point and then start to re-accelerate.
Of course, that slowing growth will pressure earnings as well. So while the equity market is undervalued from the perspective of long-term intrinsic valuations, I do think that's going to generate some volatility and we probably could see some brief selloffs over the course of the next few quarters.
>> Not necessarily a smooth path going forward. We have come to the sake of earnings season, at least for a lot of the big US names. In Canada, we still have a few to get through. What are you seeing out there?
>> The take away here isn't about third-quarter earnings. The third quarter earnings were generally pretty good. It was easy for most companies to meet or beat expectations.
Guidance was pretty low coming into the quarter. I don't think anyone thought the economy would be as strong as it was. That past quarter. The thing is the Outlook really has deteriorated.
The feds put out her note the other day and they noted that earnings estimates had been cut at twice the percentage that earnings reactions have been cut historically. I think that does indicate the economy is slowing and is in turn pressuring earnings growth. I don't think it was a sharp enough reduction to make me believe that we are on the precipice of slipping into a recession in the near term.
>> Let's talk about recession a little bit because you laid out your forecast. You see the economy evolving. It's been about a year and 1/2 now of investors worried about the recession that doesn't seem to want to arrive. The US economy has been pretty resilient. Can we skate through?
Every couple of days I see another bit of conversation, hey, maybe everything will be fine South of the border.
Maybe the US gets inflation under control without too much economic damage. Is that still a bit of a lofty dream?
>> Well, we are looking for that soft landing, but unfortunately high interest rates, tight monetary policy, tightening lending standards by the banks, they will all end up taking their toll on the economy. We expect to start seeing that here in the fourth quarter.
Also expecting the consumer spending which really has been propping up the US economy will also start slowing. A couple of different factors there. We still have inflation working its way through household balance sheets.
A lot of households had excess savings to the pandemic, those have been spent. We have student loan repayments which are starting back up again. I think there's a couple of different factors that are all coming together to pressure consumer spending.
As an old consumer analyst, I always agree with the adage, never underestimate the US consumer's propensity to want to spend but it's going to have to come down and that will essentially pressure the overall economy for the next couple of quarters.
As we have talked about this rally that we have had to start off the month of November, the large-caps get all the attention. The rally continues on the S&P 500, the big names, but it's not taking part at least today. Small caps versus large-caps, what does it look like in this environment?
>> When we break our valuations down by capitalization, small-cap stocks are very undervalued as well as mid caps and I know the small-cap valuations are probably pretty close to some of the lowest valuations compared to our intrinsic valuations that we have seen over time.
The only thing I would caution you about is it might be a couple of quarters out before the small caps really begin to outperform the large-caps. The reason for that is with the economy slowing, I think a lot of investors, specifically institutional investors, are going to want to hide out in large cap stocks.
They are not going to want to take the greater earnings volatility that we see in the small caps space.
But I do think that once that market begins to price in an economic rebound, probably by the middle of next year, we expect to see a pretty good snapback rally in those small caps to not only catch up to you but then outperform the large-caps.
>> An interesting look into next year and perhaps a place where some of our viewers want to do their research.
In terms of the rest of this year, November, December, before we know it, the year is going to be over. What do we need to be mindful of?
>> Again, just looking at the calendar, I think we need to be very careful as far as what the Fed is going to be doing at the next meeting. We have a couple of different Fed officials who are out giving there speeches today so I'm going to be listening to hear what their languages, whether or not that really agrees with that shift we heard from chair Powell.
Again, watching for what the Fed may do.
Our own expectation is that we expect that with the economy slowing, our forecast for inflation continuing to moderate, we think the Fed is not only going to be on pause for a while but we think they're going to be in a position in the first half of next year to start cutting rates. I want to make sure that the other Fed officials are kind of on board with that shift in language that we've heard from the Fed.
>> Always great insights with David Sekera.
We are going to get your questions on US stocks for David in a moment's time.
And a reminder that you can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Uber in the spotlight today. The right healing company giving an optimistic forecast for its current quarter in anticipates the holiday season will bring strong demand for both right hailing in their food delivery business. That said, who were did Ms. earnings expectations for its latest quarter. Right now it 4928, got the stock up a little more than 2%.
The word filing for bankruptcy protection, a stunning reversal of fortunes for a company that was once valued at $47 billion. All for sharing of food struggling out of the way of long-term leases and they signed those when business was booming before the pandemic hit and lockdowns had millions of us working from home. Crescent Point Energy is buying Hammerhead Energy in a deal valued at $2.55 billion Canadian. The pending deal will seep Crescent Point increase its dominance in the Montney region of Alberta and also become Canada's seventh largest energy producer.
Right now, at nine bucks and $0.96, down almost 9% on Crescent Point.
A quick check in on the market, we will start with Bay Street and the TSX Composite Index. A pullback in the price of crude and pullback in the price of gold, not great for materials or energy stocks today. 19,592, your down 151 points or three quarters of a percent. South of the border, the rally continues.
The broader S&P 500 right now, it's modest green on the screen. 10 points to the upside, 1/4 of a percent.
We are back with David Sekera, taking your questions about US stocks. Let's get to them.
First one for you here, David. What's your outlook for defensive stocks, like the utilities?
>> Well, utility specifically are especially attractive right now in our view. The utility sector was hit pretty hard in August and September's interest rates were rising and of course, utilities are very correlated to interest rates. We did see that sector bottom out in October.
What's most interesting is in early October, our utility team noted that the sector was trading at the greatest discount to our fair value since 2009, in fact I think they called it a once in a decade opportunity.
The fundamentals for the utility sector are just as strong as ever.
We've seen a pretty good bounce in utilities over the past week or so but I do think there is still a lot more upside left, according to our valuations within that sector. Taking a look at the other defences, healthcare, that's pretty much trading at the same discount as the market. The opportunities that are there are generally more idiosyncratic to individual companies than anything else.
Although I would note that there are some opportunities in the med tech area, specifically some of the medical device makers.
So with device makers, I think there is still some backlog that needs to work to the system following the pandemic but, again, you have the tailwind from the aging demographics there.
And then lastly, consumer defensive, that sector as a whole, according to our numbers, is pretty close to fair value.
Some of the opportunities there I think are among the food companies.
A lot of those companies are trading at pretty low valuations and there are two reasons why for that.
So one, what we seem, with inflation the size it has been for the past year and 1/2, their price increases were not able to keep up with their own cost increases and we have seen those margins under pressure there. Plus, we have a lot of growth in 2020 and 2021 so I think investors are looking at stagnating growth compared to what we had seen back then.
But our outlook here is twofold. One, as inflation slows, we think the bank will be able to get further price increases through two more historically normal margins. As we continue to map these year-over-year comparison, we will get back to more normalized intrinsic and organic growth there.
Those would be the areas in the defensive sectors that we do like.
>> Interesting ideas for our audience to do research on. I want to take it back to the utilities. You said it could be setting up for some interesting things.
What you get in the way of that thesis?
>> The biggest thing with utilities is the regulatory environments they are working in. They do have to work with regulators to put through their own price increases to the end consumer.
Of course, with inflation at size it is, those regulators are really going to want to keep those price increases down as much as possible so there could be some margin pressure in that area.
The other big one would be of interest rates to start rising again, I think a lot of investors would like to get out of utilities. That would drive some negative sentiment in that sector.
>> Interesting stuff. Another question from the audience. What are your thoughts on the real estate sector right now?
>> Yeah, so real estate in our view is actually the most undervalued sector across our coverage right now.
Personally, I would still steer away from the urban office space. I still think that there is too much risk to the downside in the values there.
I would focus on a couple of different types of real estate. The first would be real estate which has defensive characteristics. Specifically, a lot of the REITs in the healthcare sector, whether that's medical office buildings or hospitals or so forth. I would look for those REITs were the real estate that have improving fundamentals. For example, Classe shopping malls. And I would stick with the Classe, the high-end, because they are seeing a rebound with foot traffic and a lot more retail sales. Deep value plays, cell towers, those have sold off in sympathy when we had the rising interest rates, we think those have sold off too much at this point in time.
Lastly, real estate that has long-term structural tailwinds.
Just thinking about the growth that we are looking for an artificial intelligence, I think that's going to be a big benefit for the data centres.
>> The fact that you broke it down into several different things that reminds me that when people talk about real estate investing that you're not just talking about one kind of thing, you really have to start parsing at the different parts of that space and who they are serving.
>> Exactly.
>> This question, they want to get your take on the banks, David.
>> I think after break the bank down, you have megabanks, wells and city, they are doing just fine.
They are still seeing increases in that interest income, the loan losses are under control, we are seeing some cost control being implemented among the Wells Fargo and Citibank, so really no concerns in that area. A couple that are undervalued but again, nothing that interesting to me honestly, going up the megabanks. The regional banks are another story. We are still seeing a lot of earnings pressure with the regional banks and in fact that's what we have expected to see and we expect the earnings will still be under pressure for another couple of quarters before they start to rebound. But really what's interesting there is that the deposit loss that we have seen earlier this year mainly has stopped and so I think that's really going to put a floor under the regional banks. In our view, a lot of them had sold off too much after Silicon Valley Bank and some of the other bank failures earlier this year, a lot of negative sentiment because earnings are still under pressure.
But I expect by the middle of next year according to our forecast as earnings bottom out but start rebounding, there's going to be a lot of opportunities for investors there.
>> When it comes to the banks, particularly the regionals, thinking back to the screen, part of the problem before Money started command of the deposits, there were problems with their bond holdings. It can we expect those pressures to ease as well?
>> While >> And we also see long-term interest rates coming back down pretty significantly over the past couple of days after the Fed meeting. That's gonna take a lot of pressure off of those unrealized losses in their hold to maturity account.
Again, something that as long as we don't see much more deposit loss and they don't have to sell any of that and they could hold onto it until they are able to mature those bonds.
>> As always, make sure you do your own research before making any investment decisions. we are going to get back to your question for David Sekera on US stocks and just moments time.
And a reminder that you can get in touch with us any time.
just email moneytalklive@td.com.
Now look at our educational segment of the day.
We are taking a look at tedious Advanced Dashboard, platform designed for active traders available within TD Direct Investing. Caitlin Cormier, client education instructor with TD Direct Investing is going to take a how you can customize Advanced Dashboard to suit your needs. Have a listen.
>> One of the great features of Advanced Dashboard isn't being able to create custom layouts to put in any tools and widgets that you would like to see.
However, how are you going to know which widgets you would like if you don't have time to look through them?
So let's take a look today in our market policy Leah. It's one of our pre-created layouts within Advanced Dashboard and we will get a feel for some of the tools that we have.
First we have our bubble chart which gives us some visual representation of the TSX 60. It showing us the one your performance of those securities. We have the heat map which is giving us up-to-date information on how the markets are trading, specifically the TSX. We can see the most actively traded securities, this is within Canada on the TSX. You can see the top 10 securities. We can also see how the markets are performing, so different indices, both here and in the US, we can see market news as it comes in as well is our earnings calendar here on the left-hand side.
You will also notice that once we choose a security that we want to do a bit more research on, for example, I could go ahead and click let's just choose the one on the far left here, the right hand side of my screen is going to automatically update to represent information from that security.
So we can see a chart here from that security.
I can click on news and get information about that security.
Equity analytics, which gives us all of the information we need to have as far as fundamental information on the company.
And finally, the earnings analyser.
The great thing about this is we are able to get this up-to-date information between these two screens, so again, if you click on most active and we choose a security within the screen, it will automatically populate on the right-hand side and give us information about a particular security.
This is one way you can get a little bit more familiar with the different tools that we have in Advanced Dashboard so you can really create your own custom screen.
>> Our thanks to Caitlin Cormier, client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before we get back to your questions about US stocks for David Sekera, 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 you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with David Sekera, taking your questions about US stocks.
Here's an interesting one, David. A year away from the US election, we are heading into another presidential cycle, how could that cycle impact the markets?
>> Personally, Greg, I am not looking forward to the election cycle this year.
It certainly going to bring a lot of heightened uncertainty that will probably lead to increased volatility. The only thing I would note here is if we do really see any meaningful market selloff, that will probably end up providing investors good buying opportunities. We have done a lot of research here looking a past election cycles and administrations and our research shows that historically there is very little correlation with who is in the White House and the market returns thereafter. There are just too many other exogenous factors that occur over any one a ministration that have impacts of the markets, whether it's a Democrat or Republican in the house. I wouldn't read too much into it but I do think it's going to be a very difficult election cycle here in the US.
>> Part of the difficulty might be for investors, hearing people saying, if you get this outcome, then you get these policies and vice versa. You end up with a lot of divergent ideas on your plate that you're trying to make investment decisions around.
>> It kind of just depends on what those policies are and if those policies get pushed through. There's always a big difference between what people originally start talking about, what gets voted on and put into play. A lot of those policies take years in order to play out so even when they do get pushed through and when they are quite large, I don't think it has as big of a market impact is a lot of people maybe talk about them.
>> Okay, been an interesting year indeed.
Another question from the audience about the chipmakers. How do you see the semiconductor space performing?
>> The semiconductors, I think you need to break that down into different types of semiconductors. There are so many different types and uses today that you have to look at them individually.
The hot sector right now is artificial intelligence. Huge demand there. Still very strong.
We will see in video, I think the report on November 21, what the results are. I talked to their semiconductor analyst this morning. He noted that AMD is forecasting 2 million in revenue for their AI products and that's in 2024 where is in prior years they essentially had nothing, even Intel's pipeline is doubled for AI to 2 billion as well.
We are starting to see that spread into some of the other chipmakers. Our opinion is that we think AMD will end up being the number two competitor to Nvidia for AI.
Next is the PCs and the smart phone. Those have pretty poor performance in 2022. And most of 2023. A lot of that is because there was so much pull forward during the pandemic in 2020 and 2021 so now that we are lapping that is starting to see recovery off the bottom there, you got the automotive, very mixed performance.
Production is pretty flat. We expect the shift towards electric vehicles will be long-term tailwind for X PIN companies that are more involved in that sector.
Lastly, the more commodity oriented chips like the memory chips, I think the take away there is a it's less bad now than it's been but I expect that there is still some inventory in the channel that needs to be cleared out before you can really see the bottom in the part of the market.
>> Clearly a lot going on in the semiconductor space and the uses for those chips depending on the market.
The AI thing. Is there anything that could get in its way or is this sort of like a train that's going to keep moving forward whether we wanted to or not?
>> When you are in such early stages of something that could be such a real paradigm shift in the industry, it's tough to tell. We are looking for some really big increases in the hardware in order to drive AI. We are looking at 50% plus growth for the next couple of years for a company like Nvidia but I think for investors, some of the second derivative plays are actually going to be more interesting. All of the obvious place right now, I think a lot of those stocks have already been driven up but we are looking at other areas that all benefit from that long term trend in AI so for example the consulting companies that have specific expertise in that area I think are very interesting. When we think about AI, there are huge costs to be able to build and develop models and roll them out so I think a lot of companies just don't have the expertise or the financial wherewithal they would need it so they hire those consulting companies. I think some of the second derivative plays might be some of the areas that investors should look at.
>> Interesting stuff there. Let's stay on technology. We have a viewer that wants to talk about big tech stocks. Will they be the ones to drive the next leg of growth?
>> I don't think so.
I think really when we get that next sustainable big leg up, it's going to be much more broad-based. Again, we see some select value among the tech stocks but probably not enough left to drive the market the way that we had seen in the first half of 2023. I would just know, everybody's been talking about the Magnificent Seven stocks, how much of the attribution of the market performance they've been responsible for this year, I would say at the beginning of the year, six of those seven we saw were significantly undervalued, we rated them with four and five stars. Now they have moved up as much as they have, only one of them is still undervalued in our view.
Five of them now are trading into fair value category. In fact, one of them has moved into overvalued territory. So I think the tailwind from those are behind us at this point and with value stocks being the area that we see as being the most undervalued, I do expect that they should perform well and we will see that broadening market performance.
>> What would it take for the investors mind to shift, to take their capital from the area that has been working so far and move it towards those value parts of the market?
>> Well, part of it is going to be thinking about the economy and how that plays out over the next couple of quarters. I think that value category will look a little bit better to the downside.
We could see some of these growth stocks, especially some that have high valuations get hit once people start pricing and some of that earning slowdown. The other risk there is long-term interest rates.
Again, kind of that five handle area is the area I really look at, the demarcation line, if we start getting about five and stay above five, I really do think that starts to decrease some of the value of those growth stocks whose earnings are much farther out in the future.
>> We are going to get back to questions for David Sekera on US stocks in just a moment time. As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
began to There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right, the Bank of Canada has one more interest rate decision before the end of this year and that's going to come next month. Now we have the R word, recession, creeping back into the discussion. Recent monthly GDP data suggesting slight retraction for the third quarter and that would mark what we would call a technical recession. So what are we thinking about in terms of what's going on out there?
Anthony Okolie joins us now with the look from TD Securities for that long term interest rate forecast. What are we seeing?
>> Thanks very much, Greg.
The last GDP print in Canada raises question of whether the Canadian economy is already in recession. TD Economics is the technically speaking, we may be in a recession but we won't know that until we get the official third quarter GDP report at the end of this month.
The recession discussion aside, the TD Economics believes you are in a prolonged period of below trend growth before activity does pick up by the second quarter of next year, alongside potential rate cuts by mid next year as this chart shows.
We also got Friday's employment report which reported a weakening trend in the labour market as well. The Bank of Canada as well as acknowledged that the economy is showing clear signs of weakening and will continue to do so has a higher interest rate that we've seen over the past year and have continued to weigh on consumer spending.
Taking a look at market activity, when you look at how many markets are pricing and rate cuts or interest rates, money market pricing, TD Securities does note that after the release of the Canadian GDP data, of course the job support last Friday, the front end of the curve has priced in BOC rate cuts much sooner than we saw in the prior week of October 24 as this chart shows. TD Securities remains biased to see Canadian bond yields moving lower in the months ahead but they do caution that we may not see, the moves may not be in the same leaps and bounds we have seen over the last week or two.
Now given this backdrop, TD Securities recently pushed back their timeline for the Bank of Canada to start cutting interest rates. They look for the first rate cut on July 2024 instead of April. So they have moved it back a little bit. TD Securities does believe that the underlying price pressures have left inflation tracking well above the Bank of Canada's projections from July monetary policy report and that makes it more challenging for the central bank to start easing in the first half of next year.
Now, TD Securities does believe that persistent inflation does leave the door open for another potential rate hike but they still continue to expect a terminal rate of 5%. No rate cuts this year.
Because there is enough evidence of weaker growth conditions for the Bank of Canada, they are expecting a terminal rate of 5%.
TD Securities has raise their estimate for the bank's neutral rate from 2 1/2% to 3% which they expect the Bank of Canada to reach by the end of the fourth quarter of 2025. Greg?
>> Very interest staying, neutral rate of 3%. Of course, as you try to figure out what's been going on for the past year and 1/2, he can shift a lot depending on the conditions. We have had a lot of guests from TD Asset Management and TD Security saying you can't be rigid, you have to move with the flow. There have to be some risks.
>> Great point.
The risk is a potential upside surprise of inflation. TD Securities believes that if we do not see more significant progress in the fourth quarter, it will put more pressure on the Bank of Canada to do more in order to tame inflation or attempt down on inflation, especially with the ongoing risk of inflation expectation. TD Securities believes that an upside surprise in Canadian inflation will increase the risks for the Bank of Canada tightening into next year and that would ensure that inflation excitations remain well anchored. Greg?
>> Interesting stuff. Thanks a lot, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are back into Advanced Dashboard, we are taking a look at the heat map function here. It gives you a view of the market movers.
We will start with the TSX 60, we are going to go through price and volume.
You got American benchmark crew pulling back fairly significantly today. We are taking a look at a price down about three actually, down more than three bucks a barrel for West Texas intermediate. That's a pullback of more than 3 1/2%. 2 1/2 month lows for crude. What's going on?
The explanation out there right now might not be the right one, but it's the one out there on the news website, saying some data coming out of China questioning what China's appetite might be for crude. It's having an impact on energy space. Let's start there.
You could pick any of them, Cenovus, CVE, down to the tune of about 4%. Suncor beside it down a little more than three.
All the big names getting hit right now.
In the material space, it's not good news either for the topline on the TSX Composite Index. You have goal pulling back about 18 bucks an ounce right now.
The US dollar has been firming and we are listening to a lot of fed speakers, as David Sekera was telling us earlier in the show, what kind of slaver are they going to have in their commentary?
There are down about 3%. A lot of pressure across the space. Can Rusty. Shopify has been an interesting one. On the heels of his earnings last week really pops higher.
Give a little bit back to start off the week.
Right now it's steady up about 2%. Want to check in South of the border because as we feel the pressure of a lower price for oil and gold today, the rally on the S&P 500, the broader read of the market and the NASDAQ, frankly, continues. It's been a strong start in November. That's the reputation November has.
We will start in the technology space.
Nothing too dramatic.
There is green on the screen. The market is in positive territory. Apple is up more than 1%.
The chipmakers too. Nvidia for a change is sort of falling behind the pack. You got AMD up a little bit more than a percent, Intel up almost 2% on the day.
A few interesting names there and some of the other plays like Amazon showing some strength as well.
You can get more information on Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with David Sekera, chief US market strategist with Morningstar Research, we have questions from the audience coming in. This one is interesting if people are worried about the yield place. Do you expect to see more dividend hikes or dividend cuts in this current environment?
>> I would still look for more dividend hikes than cuts.
It's poised to slow or maybe reduce the number of dividend hikes or the amount that individual companies will hike their dividends.
But I don't think the economy is going to slow so much that it would reduce earnings to the point that companies would not have free cash flow to support their dividends.
>> Sometimes people when they get into these dividend plays, they think not only about dividends being sustained and paid out regularly but dividend growth. When you're taking a look at dividend investing, he said two streams you are trying to parse through?
>> Exactly, and a lot of that is going to depend on earnings growth in the amount of free cash flow company has and what their dividend policy is, their payout ratio.
Again, I would expect to see more hikes but maybe the hikes aren't going to be as much as we have seen the past couple of years.
>> This one leads nicely into it because in the Canadian energy space, it's been a story about dividends and returning money to shareholders. Your thoughts on the energy space? We had a viewer just right in saying, what is going on with oil today? Fairly sizable setback. The headline I saw suggested data out of China had people concerned but sometimes there just isn't a straight answer.
>> Yeah, it's always hard to know when you see moves like this on the individual day what might necessarily be causing it. It could be some underlying technicals that are making traders with oil prices around.
The energy sector overall did drop 5% in October.
According to our indices, it was the sector that had the greatest drawback. But I'm still not necessarily excited about energy yet.
It is only trading at a 5% discount to fair value. I think they're much more undervalued opportunities in other parts of the market. Generally, the oil market has been tight the past couple of years.
It's been able to keep prices high. Of course, if the conflict in the Middle East spreads, we could see a spike in oil prices. Longer-term, we expect oil prices will subside over time.
Later this decade we think that demand will peak in demand for oil will subside.
We expect electric vehicles by 2030 will end up being two thirds of all new global auto production. So as all of those replace internal combustion engines on the road by 2030, we actually probably start seeing a decrease in demand for oil.
>> Before I let you go, I want to get your final thoughts. Off the top of the show, we talked about the run we have seen in US equities right at the final innings of October and into November. November has a reputation as a seasonally strong. For stocks.
A lot of people feel a little uncertainty with everything that's happened in the past couple of years.
>> Yeah, it's just as uncertain an environment as I have ever seen over the course of my career.
Again, I think a lot of this rally is just because, and I think actually the market missed it. On October 19, chair Powell did a presentation at the Economic Club of New York and I think in his Q&A, that's when he really started to shift the language to being more balanced as opposed to just really talking purely about the feds need to hike rates in order to beat inflation so I think the markets are really definitely reacting to that here in the short term. Longer-term, we do think that the markets are undervalued from a long-term intrinsic valuation perspective but I do think investors need to be cautious as far as the next couple of months with the economy slowing, that could drive negative sentiment so we will see how that flows through overtime but for those long-term investors, I do think now is a good time to make sure that you are properly allocated into the equity market today.
>> Always great to get your insights. Look forward to the next time you're on the show.
>> Thank you, Greg.
>> How are things to David Sekera, chief US market strategist with Morningstar Research.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show.
Damian Fernandes, managing director and portfolio manager with TD Asset Management will be our guest. He wants to take your questions about global stocks. A reminder that you can get a head start. Just email moneytalklive@td.com. That's all the time we have the show today. We will see you tomorrow.
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