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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 are going to talk about what's ahead for the markets.
US inflation coming in a little harder than expected this morning. David Sekera from Morningstar Research will dig in.
TD Securities Andres Rincon is going to take us through how bitcoin ETFs work is they received regulatory approval in the United States.
In today's WebBroker education segment, killing Cormier will show us how you can find information on bitcoin exchange traded funds using the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before you get all that and our Guest of the day, let's get you an update on the markets. As we said, that US inflation report, the first one to land for this year reflects Decembers price pressure south of the border but came in a little hotter than expected. We are seeing a nice rally in the price of crude today. It's up to the tune of 3% but still the headline TSX number, almost 200 points in the whole or a full percent.
One of the most actively traded names on the TSX at this hour is Ariccia, the women's fashion retailer, meeting expectations for the most recent quarter.
The street is please. At almost 32 bucks per share, it's a jump of 20%.
It's been a bit of a tough go for Aritzia shares and they're making up some of that ground today. Manulife, a big life Co., one of the companies taking points off the table today.
At 2850, you're down about 1 1/2%. Now, south of the border, not exactly the kind of inflation print that perhaps market participants were perhaps looking forward to. Think about all the excitement at the end of last year about Fed rate cuts in the offing this year.
Inflation still stuck about 3%, at 4743, you're pulling back about 40 points, a little shy of a full percent for that broader read of the US market. The tech heavy NASDAQ, want to take in on that part of the market. Keeping pace, you're down almost full percent or 142 points. Tesla is a name taking points off the table. At 226 bucks and change, you've got tesla shares down about 3 1/3%. And that is your market update.
Well, the US securities and exchange commission has approved the availability of 11 spot bitcoin ETFs for trading on the US markets.
Earlier, I was joined by Andres Rincon, head of ETF sales and strategy at TD Securities.
>> After many, many years of work between issuers and regulators, the SEC has finally approved the first spot bitcoin ETF in the US. It was already an approval for several future space bitcoin ETFs in the us but this is the first 14 spot bitcoin ETF. They have approved 11 spot bitcoin ETFs in the US with a variety of management fees and different indices and whatnot.
There is a lot of diversity in their to get exposure to spot bitcoin ETFs. Whether there regulators like that or not, what that is done is provide a little bit more legitimacy to the crypto space. It's also encouragement for investors to invest in this big and growing market through the regulated market of ETFs.
It also gives access to a lot of people who didn't have access to spot bitcoin ETFs or spot bitcoin before. If you were an advisory probably did not have access to a wallet for your clients.
A cold or a hot wallet. Now, you do through spot bitcoin ETFs.
>> We were to showing the audience a list of the 11 that the SEC has set to begin trading. How do they work?
If someone says I understand the SEC has done something here, what is the product?
>> The spot bitcoin ETFs, all they do is hold crypto.
In this case specifically bitcoin that they hold.
You, the investor, gives money to the ETF to buy units of the ETF and the ETF goes and buys bitcoin on behalf of the unit holders and they store it in a cold wallet on behalf of the investors. Same thing as if you had a wallet on a crypto exchange but they do that for you. So what we see now is the launch of many different ETFs, as you mentioned, 11, and the management fee varies quite a bit between these ETFs.
So you have as low as 20 beeps or a face of a percent to as high as 1 1/2%.
It varies quite a bit. What's really interesting is we have already seen a fee war… >> I was going to ask you about that. You talk about ETFs all the time and fee wars.
So this is already happening in this very new space.
>> Before I forget, these ETFs are trading today and we've already seen a fee war on these ETFs. Seven of these ETFs have already waived their fee for half a year, so zero management fee to start the year with many of these ETFs and we are going to very likely seal on trading of these ETFs.
>> Interesting space. We are talking about what the SEC has allowed in the US. Canada has had a market, I believe, and products like this for a while.
>> Yes. As I mentioned earlier, we have had futures based ETFs for some time now.
The market is sizable in the US. Call it 12 products. But Canada has had futures based bitcoin ETF and… We are the leaders in the world to be the first to launch a bitcoin ETF in the world.
We have a fairly large market of about 28 crypto ETFs already in Canada.
We cover about 4 1/2 billion dollars. Was going to be really interesting is that one of the ETFs that launch today is really a conversion from a different fund structure.
So the crypto industry in the US on the ETF side will already have $30 billion as of today.
>> These are very interesting developments. Obviously, with any asset class, he talked about legitimacy.
If you like this has been the crypto currency story for several years, Wall Street and Bay Street start to adopt it.
One of the risks here for asset classes like bitcoin, crypto currency?
>> Has many of your guests would understand and your viewers, there are a lot of risks with crypto. There are volatility risks.
This is a very volatile asset. There are also principal risks, that you could lose a big portion of your investment.
I'm going to paraphrase the very person that approved these ETFs, chair Gensler from the SEC, when he approved them, he said that although they approved all these ETFs, this is not really an encouragement to investors to invest in crypto.
They're citing a lot of risks that are out there. They are saying that even though they approved them, this is not necessarily an approval of bitcoin in itself or the appropriateness of it. It's important to understand the risks for investors when you are investing in these.
From our perspective on the ETF side, something to bear in mind is that in the same way when you invest in crypto through a crypto exchange and then store it in your cold wallet, these assets are also stored in a cold wallet. We have known that historically some of these cold wallet could be at risk from theft and whatnot.
So it's important to understand those risks as an investor and so it's important to do your due diligence now. A lot of the crypto ETFs have very professional large custodians so the risk is very low in those circumstances but it's a risk that's important to mention.
>> That was Andres Rincon, head of ETF sales and strategy at TD Securities.
As always, make sure you do your own research before making any investment decisions.
Now, for today's WebBroker education segment.
US securities and exchange commission has approved the availability of 11 spot bitcoin ETFs for trading on the US markets. If you are interested in finding out more information on these products, WebBroker has tools which can help.
Joining us on to discusses Caitlin Cormier, client education instructor at TD Direct Investing.
Always great to see you. If we are interested in these ETFs, where do we get started on my broker?
>> Absolutely. With these developments in the US ETF market, there are a couple of things we might want to consider as investors at TD Direct Investing.
The first thing to consider is that these investments are going to be in US dollars.
The specific ones that have just been approved our US dollar ETFs.
If you are an investor and you are looking to be able to have a US dollar account to do investing to avoid those foreign currency exchanges when you are buying and selling, you may want to consider opening up a US dollar account. You can buy these ETFs in margin or nonregistered cash accounts. You can also purchase them in tax-free savings, retirement savings and other registered plans.
Let's jump into WebBroker and see where you would actually be able to open an account. We are going to click on accounts.
On the right-hand side undersell service, we can click the third option here to open a new account.
It's going to open up in a new window and you will be able to go through the account opening process and make sure you have that US dollar account there. Once the account is open you will be able to transfer money into it either from within TD, another trading account or another institution.
Once the account is opened, the next thing we might want to consider is what are the ETFs that are approved.
We have heard information that they are approved but what are those symbols that are approved.
So what I'm going to do is click on my name appear in the top right-hand side.
I'm going to go down to messages and for those of you who come into your web broker for the first time today, you will notice a message here and this is kind of that official notification of the approval of these ETFs and it also has a listing of the different symbols, the different ETFs that were approved. This is kind of a jumping off point to do a little bit more research and understand what specific ETFs are available and an opportunity for you to get a little bit deeper into those specific investments.
>> All right, so we have the list of names there, the takers. What if we want to find out more information about these new ETFs on my broker?
>> Yeah, absolutely.
Not all of the information that we typically have about ETFs on my broker.
It's so new, we just got this approval yesterday so we are in the process of making sure everything is available for you on my broker. But 1 Really Great Pl.
to start is adding all of these securities to a watchlist.
We have gone through watchlist before but let's take a quick look together on what that watchlist might look like. I'm going to click on the top right-hand corner where my watchlist is and I have created one here called crypto. I have added some of the symbols here to this list. Dad them, you have to type this symbol appear at the very top or if you navigate to kind of the ETF page for these individual ETFs, you can add them to a watchlist from there.
Now we can kind of keep an eye on the pricing, what change we have had so far in the day, the volume of trading, all that information at a quick glance about these individual investments. If we want, we can go ahead and click the down button and see some information as far as charts go. We can see the open price as fundamentals come in, we will see additional information there. Again, because they are new, there isn't a ton of history but what we do have is going to be available here.
And if you decide once you've gone through if there is a particular ETF you would like to purchase, they are absolutely able to be purchased right away on WebBroker.
So if you decide, we can go ahead and click this by button and that's going to take us to our standard ETF purchase screen. First off, you want to make sure you choose the account you would like to make the purchase in. If it's a US dollar, make sure you choose US dollar. Make sure the funds are available.
Another thing to keep in mind is with something like bitcoin or crypto in general, you might kind be familiar with the volatility of these types of currencies and with that being the case, you might want to consider doing a limit order as opposed to a market order.
So that would just essentially ensure you a maximum price that you are going to pay for an individual ETF. For example, if I were going through, I may say for example that I don't want to pay any more than $40 per unit for this particular ETF. I can put that limit pricing, preview order and submit and that way I'm guaranteeing that I'm not going to see a huge spike in price and pay way more than I initially expected. That's just one option to keep in mind as you are going through these types of orders.
Lots of exciting stuff going on with these ETFs. We will keep you up-to-date with updated research information on WebBroker as well.
>> Thanks a lot, Caitlin.
>> Thanks, Greg.
>> That was Caitlin Cormier, client education instructor with TD Direct Investing.
As always, make sure you do your own research before making any investment decisions.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Let's talk about the market. They had a strong run into the end of last year.
Investors consider the potential for interest rate cuts from the Fed.
Today's US inflation report came out a little hotter than expected, so where might the markets go from here? 20 a centre discusses David Sekera, chief US market strategist with Morningstar Research. Always great to see you.
>> Good to see you, Greg, and happy new year.
>> Happy new year indeed.
It was interesting the end of last year, we had a bit of a market rally on the expectation that as we enter 2024, where we are now, we would see rate cuts from the Fed. We got some fresh inflation. What is the market stand right now in terms of valuation of that run?
>> We still think the market overall is really very close to our fair value and when we think about her value for the market, we do take a bottom-up approach.
We compare where the market is trading, so the composite of the fair values of all the stocks we cover that trade on US exchanges, over 700 stocks, and compare that with what they actually are in the market place today.
That's why we think that the market is trading at pretty close to fair value. A lot of other strategists take much more of a top-down approach. They start off with some sort of algorithm or model to come up with like S&P 500 earnings for the end of the year and apply some sort of forward multiple to it but the way that we look at it is what we think the market is actually worth today and what we mean by fair value is that for long-term investors, going forward, we expect that you should be able to earn the markets cost of equity on a blended basis. We are looking for a much more normalized returns going forward, probably in that 8 to 9% area.
>> Okay, so in a market that you say is pretty much fairly valued right now, as we dig in be on the broader market, where might we be seeing somebody?
>> Yeah, so even though the broad market is pretty close to fair value, there are still some dislocations that we do think investors can take advantage of. So we break it down the valuation into the MorningStar style box by category. The value category is trading at about a 10% discount on fair value whereas core stocks, those are the ones that have some attributes of value, some attributes of growth, they are trading at a slight premium to our fair values and the growth category after the huge run that we had last year is now trading up at fair value and then when we look at it by capitalization, small-cap stocks in our view are still very attractive trades at about a 16% discount to that blended fair value average.
I think 2024 is really set up to be probably a pretty good year for value stocks and especially small-cap stocks.
I think a lot of the reasons that we saw value in small caps leg the past couple of years, and I think a lot of the reasons are behind us at this point so those are going to be to good areas for investors to look at going forward.
>> The setup seems perhaps promising for value and small caps. What could be the risks to these parts of the market? What could get in their way?
>> For the overall market, inflation is going to be a risk. We saw CPI numbers come out this morning. I would note and actually I talk to our economist earlier this morning and he is still of the opinion that he thinks the Fed will cut and potentially cut as soon as the March meeting. When we look at those numbers and really dig into them, a couple of the different areas that cause the numbers to be higher than what the market expected, such as used vehicle prices and shelter prices, we still project those will moderate over the next couple of months and specifically we are very focused on core inflation. He notes that PCE, the Personal Consumption Expenditure Price Index or inflation which is the feds real targeted number that they are focused on, for the 6 Months Ending in November, it was at 1.9%. In his view, given that core CPI was relatively steady on a year-over-year basis, and we still have kind of that same correlation between CPI and PCE, that allows PCE to come and still below the core right at the Fed's target so it will give them the route to potentially cut here in March.
>> Interesting. If we did see that come to pass, let's talk about the shift to easing from the Fed and what it means to the markets.
>> I think if nothing else without going to do is provide a good floor if we do have some downturns later this year. I am a little concerned with earnings season coming up here that it might be an opportunity for the management teams to look to set the bar lower for their earnings expectations for the year. We do expect that the rate of economic growth will slow here for the next three quarters so if management teams have that same kind of projections in their models they may try to lower the bar guidance and that could drive some negative sentiment.
However, with the Fed cutting, easing, we are looking for six rate cuts this year, that would put the Fed funds rate at three and three 3:45 percent, an area by the end of the year. I think that will end up bolstering the economy later this year and going into 2025. So if we do have some cell us, that would probably be a better opportunity for investors to maybe go back into overweight positions in equities.
>> A wild card here, we were speaking earlier in terms of risks, imagine inflation doesn't come down and we hoped it did?
>> That is really the big risk. If inflation doesn't come down and the Fed decides that they need to keep rates higher for longer, I think that would have a lot of negative implications not just in the equity market but in the fixed income market.
We do think that interest rates also should subside this year even on the longer end of the curve. So if interest rates stay high, in fact if the 10 year were to start moving back up again, I do think that would pressure both equity and fixed income very significantly.
>> Let's talk about 2024 in terms of something interesting and significant. I found in my work, it has been gradual over the past year and 1/2, I see the word pandemic less and less. You're saying that 24 might be the year that we actually put all that really behind us for good.
>> I do think so. In my opinion, I think this is really the first year after the pandemic that it's not only those initial disruptions that are behind us but all the dislocations that were caused by those disruptions. So when we think about initially during the pandemic we had a huge shift in consumer behaviour, a big shift in consumer spending. We are starting to see that revert back to pre-pandemic norms, the amount of spending on goods and services going back to more normal historical levels. We have people returning back to office. Even thinking about monetary policy and fiscal policy, we had some of the larger stimulus programs in history. Those are all moving back towards more normal type of spending going forward. We had zero interest rate policy for the first couple of years and then inflation ramped up to high and the Fed had to catch back up so we had some restrictive monetary policy for the past 6 to 9 months which we do think that the Fed will take their foot off the brake and get back to more of a neutral policy. Again, looking at the market, I think this year is really going to be back to basics and looking at individual company fundamentals, looking back at individual sector fundamentals. I think stockpicking and selection is going to be increasingly more idiosyncratic this year and going forward.
>> Interesting times ahead. We will get your questions about US stocks for David Sekera in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
First, though, let's get you an update on how the markets are trading.
All right. Quick check in on Bay Street and Wall Street. We will start here at home with the Yukon.
We are seeing a down day. Even though you get a pretty firm rally in the price of crude. American benchmark crude of almost 3% now. You still have a 160 point deficit or three quarters of a percent on the TSX.
Other parts of the market are weighing all my topline number.
South of the border, as David and I were discussing, US inflation came in a little hotter than expected. Some of the underlying trend perhaps saying we are still moving to a lower inflationary environment. Right now you're down 32.2 Apollo, little more than half a percent on the S&P 500.
Okay, we are back at David Sekera from Morningstar Research, we are take your questions about US stocks, so let's get to that. First when HearVue, David. This is going to be a big one all your. How should we be thinking about the US election when it comes to investing?
>> That's going to be a big one all year.
I think investors really need to think about elections and really divorce themselves from emotions. Elections are very highly emotionally charged.
Certainly, the US presidential election this year is going to be very electric, let's just say. So I do think there is probably a pretty high probability depending on who's on the ticket from each party that we could see some volatility may be late this summer and into the fall but I think as an investor you really need to separate noise from signal.
When we have looked at what's happened in the markets and what's happened in the economy over time, historically, there's really no strong correlation between who is in the White House and what subsequent market returns are.
When we think about all the policies the politicians will talk about when they're running for office, the policies are also what to depend on who is in charge in Congress and exactly what they can get through. What I find is that over time, there are just so many different exogenous forces that come up over the course of a presidential cycle that even what they say they are going to do when they end up taking office, a lot of that is really going to be much more impacted by what's going on in the world and what's going on in the US economy and that really is going to impact policy much more than anything else so, again, I would not read too much into it and I think that if we do have too much downward volatility, again, probably a better opportunity to go from what I would consider to be more of a neutral position in equities today to maybe an overweight.
>> All right, interesting moments ahead.
We will be watching them and discussing them all year as well. Let's get to another question from the audience. This one about the Magnificent Seven, those big stocks that led the way last year. Will they continue to lead the markets in 2024?
>> I don't think so.
When I take a look at our valuations almost 7 stocks, coming into the year last year and early 2023, six of those seven stocks were very undervalued as compared to our intrinsic valuations. Following the run-up, only one is still undervalued according to our valuations at this point.
Five of them are trading pretty close to fair value and one we think has actually run up too much and is an overvalued territory. My think about returns this year, I think those returns are would to start abroad now much more across the rest of the market and we have already started to see that in the latter part of the fourth quarter and I expect that trend will continue.
So I do think that we will see a good year moving into may be the value category as well as downing capitalization into mid-cap and small-cap stocks.
>> Apart from those Magnificent Seven names back out so much headline attention last year, what about the tax base in general? Everyone is still excited about AI.
>> Text certainly had a big year last year. It was one of the most undervalued sectors coming into the year.
Having said that, the MorningStar US technology Index was up 59% last year. In our view, we think technology has moved to high.
Technology is a sector is now trading at a 9% premium so it's in our view the most overvalued sector.
Now is probably a good time to look through your portfolio, look for maybe some of those names that have become overvalued and overextended in technology, take some profit there and look for some of the more economically sensitive sectors that had leg last year that we do think provide better opportunities for investors on a valuation basis today.
>> okay, that is the tax base there. As always, make sure you do your own research before making any investment decisions.
another question from the audience, they want your view on the industrial sector.
>> It's probably the second most overvalued sector after technology. It's trading at a 5% premium to fair value. I think this is a good sectors probably underweight at this point. Again, take a look to your portfolio, see which of those industrial stocks probably moved a bit to the upside, probably getting into some overextended area and I think you can take some profits there and reinvest that in some other areas in the market.
Especially when I think about what's going to happen with the economy, we are still in the soft landing camp.
We expect there is not going to be a recession in the US but we do expect the rate of economic growth will slow sequentially of for the next three quarters until it bottoms on the third quarter of this year so that could put some pressure in the industrial space until we see the economy started to re-accelerate late this year and into 2025.
>> When I think of the markets being forward-looking instruments, we are obviously concerned about economic slowdown because this is what central banks have been trying to engineer.
In Canada, we have been slowing here. The stocks usually lead the rebound or the other way around?
>> Again, it's always going to depend on each individual economic cycle.
In this case with us kind of getting back to more of a normal world than we have for the past four years, I do think that we will see stocks probably lead to the upside later this year with the market being at fair value but again, I'm not looking for necessarily huge gains in the equity market, looking more for historically normalize type of returns over the course of this year and next.
>> That was the industrial space. We have a viewer now wants get your outlook for the energy stocks.
The price of crude itself has been a fairly volatile trade lately.
>> We are very positive on energy stocks right now. Interestingly, energy was the most overvalued sector according to our evaluations coming into 2023. I believe it's the only sector that actually fell last year. Now it is trading at an 80% discount to fair value so we are seeing a lot of those expiration and production companies that were too highly valued last year now starting to look much more attractive, especially some of the names that we see paying higher dividend rates, I think they will be very attractive for investors going forward.
>> 20 talk about energy, we look to benchmark crude in the states and the gyrations we are seeing their that's based off of a lot of things, whether it's US production or what OPEC is up to you or whether it's geopolitical concerns. Does that make it tougher when you're looking at energy space, trying to wear all these different factors?
>> As long-term investors, we try not to get wrapped up too much into what's going on with the spot price of oil. When you look at our financial models, for the next two years, we actually use the market strip price, with the futures market is pricing in, and then we have longer-term production for the price of oil.
At this point, we are looking for oil over the longer term to come down in price and our models are using $55 per barrel for West Texas intermediate and $60 over the long term for Brett so while oil prices are still relatively high here in the short term, we think that they will be coming down over the long term, especially over the course of the next decade as we see more electric vehicles, more renewable energy out there decreasing the amount of demand for oil. We think these companies have moved down to much and are trading at a significant margin of safety from the long-term value.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
we will get back your questions for David Sekera on US stocks and just moments time.
And a reminder that you can get in touch with us at any time.
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Okay, we are back at David Sekera, we are taking your questions about US stocks. I have another one here for you, David.
Thoughts on financials in these current conditions?
Pretty apt, pretty timely question.
Tomorrow we are going to get a lot of results.
>> Financials are a very volatile sector.
Last year with the failure of Silicon Valley Bank and a couple of other banks last March, the sector got hit pretty hard for them most of the year but we seen a pretty good rebound by the sector in the latter half of the year. Overall, the sector according to our valuations trading at a slight discount of fair value but I still think the best opportunities and financials in the US are going to be among the US regional banks, those were the ones that were hit the hardest last year. Still a number of those that are trading well below our intrinsic valuation.
So if people are looking for interesting opportunities they are, the ones I'd really highlight are those that… The reason we highlight that as we forecast interest rates will decline over the course of 2024 and even further into 2025.
As interest rates come down, that's going to help erase the losses that are embedded in those portfolios and those US regional banks will be able to earn their way out of those losses much faster than what the market is currently expecting.
>> Interesting. The big Wall Street titans will be reporting starting tomorrow.
You're talking about regionals. As investors are doing their homework here, are they looking at a different set of factors if they are looking at regional banks versus those big money centre banks?
You mention some of the trouble they got into last year with bond holdings.
>> Yeah, and we don't see the same dynamics of the large banks. It will be interesting to see what comes out tomorrow. As far as the large banks, one of the things I'm really going to be listening for is what they are doing with their loan-loss reserves. We are expecting loan-loss reserves should comment on a pretty normal basis with the economy slowing. Yes, there will be some additional bankruptcies and defaults but we are not looking for a large take up their. If we do see greater loan-loss reserves, that could actually mean that the large banks themselves are predicting may be a bigger downturn in the economy than what we are projecting right now.
As far as the big banks, that's what I'm going to be looking for the most tomorrow.
>> We are going to start getting some of that information tomorrow as well.
With the bank supporting tomorrow, it would leave the kickoff of earnings season. We are going to be in the thick of it for several weeks. What's your outlook for earnings season overall in this environment?
>> I'm really not all that concerned about fourth-quarter earnings and where they come in.
I think that they will probably be very close or may be generally better than what even guidance was.
The fourth-quarter economy still held up relatively well in the US. My real concern is going to be healed management guidance for the first quarter and what kind of body language they might be giving to the market as far as earnings for all of 2024.
The concern here is that they may look to lower the bar for earnings growth, maybe try and set the bar lower so it's easier for them to outperform expectations over the course of the year. And, of course, taking a look at the slowing rate of economic growth, I think that does give them the cover to be able to do so.
So of course that could drive some short-term downward volatility here over the next month or two but again if that does happen I do think that that would be an interesting opportunity to look for some of those stocks that maybe get beaten up a little bit too hard so assuming there are no big exogenous variables that come into drive our valuations lower, I do think that also could provide some opportunities.
>> I find it very interesting in terms of when you feel it companies are perhaps lowering the bar, being cautious about the outlook going forward. Whether the market sees through that or reacts to it.
Even on an individual basis depending on the company.
>> It always has a lot to do with the individual management teams to. I think more than that, there are certainly some management teams that are more known for trying to go very low guidance so it's very easy for them to beat and there are other management teams which I think are much better at providing the market probably more with error real thoughts as to what guided should be so very idiosyncratic based on the company and based on that management team.
>> At some point in this earnings season, we are starting to get the semis coming in as well. We have of you are saying there was a lot of hype around the semiconductor stocks last year. Is there still interest?
>> I think the semiconductor space this year we are going to have to be very selective. Of course, Nvidia being the huge upside surprise last year with other artificial intelligence chips and the amount of demand, the amount that they can charge customers for chips. At this point, when I look in Nvidia specifically, it's trading what I would consider to be the upper end of what we think the fair value range for that company is. AMD is probably actually moved up a little bit too high in our view.
It's getting to be a little bit higher than what we think the long-term intrinsic value is.
But there are still a number of different semi companies that have like the market.
Taiwan Semiconductor is one. There is certainly a lot of noise around that name but when you really dig through that noise it is one that we do you think is attractive for investors today.
>> Before we let you go, let's go back to the top of the conversation. We are into 2024 but we are not too deep yet. We got our first inflation report of the year.
A little hotter than expected.
The job sort of stood out to you in the United States. When he put it all together, what we need to be thinking about as investors in the macro and what could it mean for the markets this year?
>> For the broader economics, we are looking for that sequential slowing in the rate of economic growth this year.
Almost getting down to stall speed in the third quarter before bottoming out and thus starting to come back in the fourth quarter and looking for relatively stronger growth in 2025. Reducing interest rates will continue to keep coming down both on the short end of the curve as the Fed cuts rates as low as the longer end of the curve.
So I think this year is set up to be a good solid year for investors. Not a homerun year like we saw last year where we came into the year being very undervalued but we do think that with the Fed cutting and easing and what we see going on macro economically, a good, strong basis for the market.
>> I guess as we discussed earlier the key risk to all of that is just that inflation does not do what we wanted to do. That's go back down to two at some point.
>> Exactly. If the Fed does keep rates higher for longer, I think that would cause us probably to reevaluate our economic outlook because a lot of the economic outlook is going to be based on that easing of policy with rates coming down and of course that supporting all of those interest rate sensitive markets like housing and autos and so forth which we do expect will be weak the next couple of quarters with rates coming down, moving to the upside in the second half of the year.
>> It's always great to your insights. I look forward to the next chat.
>> Thank you, Greg.
>> Are things to David Sekera, chief US market strategist at Morningstar Research.
As always, make sure you do your own research before making any investment decisions.
Now, let's give you a little update on the markets.
We are taking a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, gives us a view of the market movers. Let's start here with the TSX 60. We are screening by price and we are screening by volume. As we said earlier, American benchmark rate above 73 bucks per barrel, 3% gains today, getting reflected somewhat in energy space but not all that much green on the screen.
The leader in energy space is not an oil and gas name. It Cameco, CCO, up 2%. His been making gains in recent sessions, the uranium play. But it's been a choppy ride for American benchmark crude so we haven't seen stocks move all that aggressively off of the sometimes aggressive moves on a daily basis.
What's clearly weighing us down today, if we look at the financials, we got the banks to the downside along with some of the big life codes. If we look at the material space, you've got big names like Barrick Gold down about 2%. Nothing too dramatic to taking points off the table, not adding points to the top line. The technology space as well including Shopify, not too much drama, is down about 1%, but not putting points on the table.
South of the border, I want to check in on the S&P 100, we got that fresh read of US inflation.
It was the first big print to land in our laps for 2024. Headline came in a little hotter than expected. We heard David Sekera saying that when you look beneath the surface, some of those other measures are showing that inflation is coming off.
If we look at some of the TD notes coming out today, the Fed will be in a position at some point this year if things continue in this direction to start cutting rates.
Not seeing a lot of green on the screen though today in this environment. We will start with the positive. Netflix down there up just one and 1/3%. Also got Nike showing a little bit of strength. Some of the energy names with American benchmark crude. The real estate in the middle of the screen is a name like Tesla, down a little more than 3%.
AMD in the chip space, Nvidia pretty much flat. But the financials, I want to hone in on those because as I was discussing with David, we are going to start getting, we are getting the kick off from earning season tomorrow, starting with the big Wall Street banks reporting. Today, and of that, we see some downward pressure. Bank of America, BAC, down to the tune of almost 2%.
J.P. Morgan, Citigroup, also under pressure today. It will be interesting when we start getting those reports tomorrow and what they are telling us about the quarter past and perhaps more importantly when talking about financials, how they see the economy going forward.
You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We will be back tomorrow with an update on the markets, highlights from our best interviews of the week.
That's all the time we have the show today.
Thanks for watching, and 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 are going to talk about what's ahead for the markets.
US inflation coming in a little harder than expected this morning. David Sekera from Morningstar Research will dig in.
TD Securities Andres Rincon is going to take us through how bitcoin ETFs work is they received regulatory approval in the United States.
In today's WebBroker education segment, killing Cormier will show us how you can find information on bitcoin exchange traded funds using the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before you get all that and our Guest of the day, let's get you an update on the markets. As we said, that US inflation report, the first one to land for this year reflects Decembers price pressure south of the border but came in a little hotter than expected. We are seeing a nice rally in the price of crude today. It's up to the tune of 3% but still the headline TSX number, almost 200 points in the whole or a full percent.
One of the most actively traded names on the TSX at this hour is Ariccia, the women's fashion retailer, meeting expectations for the most recent quarter.
The street is please. At almost 32 bucks per share, it's a jump of 20%.
It's been a bit of a tough go for Aritzia shares and they're making up some of that ground today. Manulife, a big life Co., one of the companies taking points off the table today.
At 2850, you're down about 1 1/2%. Now, south of the border, not exactly the kind of inflation print that perhaps market participants were perhaps looking forward to. Think about all the excitement at the end of last year about Fed rate cuts in the offing this year.
Inflation still stuck about 3%, at 4743, you're pulling back about 40 points, a little shy of a full percent for that broader read of the US market. The tech heavy NASDAQ, want to take in on that part of the market. Keeping pace, you're down almost full percent or 142 points. Tesla is a name taking points off the table. At 226 bucks and change, you've got tesla shares down about 3 1/3%. And that is your market update.
Well, the US securities and exchange commission has approved the availability of 11 spot bitcoin ETFs for trading on the US markets.
Earlier, I was joined by Andres Rincon, head of ETF sales and strategy at TD Securities.
>> After many, many years of work between issuers and regulators, the SEC has finally approved the first spot bitcoin ETF in the US. It was already an approval for several future space bitcoin ETFs in the us but this is the first 14 spot bitcoin ETF. They have approved 11 spot bitcoin ETFs in the US with a variety of management fees and different indices and whatnot.
There is a lot of diversity in their to get exposure to spot bitcoin ETFs. Whether there regulators like that or not, what that is done is provide a little bit more legitimacy to the crypto space. It's also encouragement for investors to invest in this big and growing market through the regulated market of ETFs.
It also gives access to a lot of people who didn't have access to spot bitcoin ETFs or spot bitcoin before. If you were an advisory probably did not have access to a wallet for your clients.
A cold or a hot wallet. Now, you do through spot bitcoin ETFs.
>> We were to showing the audience a list of the 11 that the SEC has set to begin trading. How do they work?
If someone says I understand the SEC has done something here, what is the product?
>> The spot bitcoin ETFs, all they do is hold crypto.
In this case specifically bitcoin that they hold.
You, the investor, gives money to the ETF to buy units of the ETF and the ETF goes and buys bitcoin on behalf of the unit holders and they store it in a cold wallet on behalf of the investors. Same thing as if you had a wallet on a crypto exchange but they do that for you. So what we see now is the launch of many different ETFs, as you mentioned, 11, and the management fee varies quite a bit between these ETFs.
So you have as low as 20 beeps or a face of a percent to as high as 1 1/2%.
It varies quite a bit. What's really interesting is we have already seen a fee war… >> I was going to ask you about that. You talk about ETFs all the time and fee wars.
So this is already happening in this very new space.
>> Before I forget, these ETFs are trading today and we've already seen a fee war on these ETFs. Seven of these ETFs have already waived their fee for half a year, so zero management fee to start the year with many of these ETFs and we are going to very likely seal on trading of these ETFs.
>> Interesting space. We are talking about what the SEC has allowed in the US. Canada has had a market, I believe, and products like this for a while.
>> Yes. As I mentioned earlier, we have had futures based ETFs for some time now.
The market is sizable in the US. Call it 12 products. But Canada has had futures based bitcoin ETF and… We are the leaders in the world to be the first to launch a bitcoin ETF in the world.
We have a fairly large market of about 28 crypto ETFs already in Canada.
We cover about 4 1/2 billion dollars. Was going to be really interesting is that one of the ETFs that launch today is really a conversion from a different fund structure.
So the crypto industry in the US on the ETF side will already have $30 billion as of today.
>> These are very interesting developments. Obviously, with any asset class, he talked about legitimacy.
If you like this has been the crypto currency story for several years, Wall Street and Bay Street start to adopt it.
One of the risks here for asset classes like bitcoin, crypto currency?
>> Has many of your guests would understand and your viewers, there are a lot of risks with crypto. There are volatility risks.
This is a very volatile asset. There are also principal risks, that you could lose a big portion of your investment.
I'm going to paraphrase the very person that approved these ETFs, chair Gensler from the SEC, when he approved them, he said that although they approved all these ETFs, this is not really an encouragement to investors to invest in crypto.
They're citing a lot of risks that are out there. They are saying that even though they approved them, this is not necessarily an approval of bitcoin in itself or the appropriateness of it. It's important to understand the risks for investors when you are investing in these.
From our perspective on the ETF side, something to bear in mind is that in the same way when you invest in crypto through a crypto exchange and then store it in your cold wallet, these assets are also stored in a cold wallet. We have known that historically some of these cold wallet could be at risk from theft and whatnot.
So it's important to understand those risks as an investor and so it's important to do your due diligence now. A lot of the crypto ETFs have very professional large custodians so the risk is very low in those circumstances but it's a risk that's important to mention.
>> That was Andres Rincon, head of ETF sales and strategy at TD Securities.
As always, make sure you do your own research before making any investment decisions.
Now, for today's WebBroker education segment.
US securities and exchange commission has approved the availability of 11 spot bitcoin ETFs for trading on the US markets. If you are interested in finding out more information on these products, WebBroker has tools which can help.
Joining us on to discusses Caitlin Cormier, client education instructor at TD Direct Investing.
Always great to see you. If we are interested in these ETFs, where do we get started on my broker?
>> Absolutely. With these developments in the US ETF market, there are a couple of things we might want to consider as investors at TD Direct Investing.
The first thing to consider is that these investments are going to be in US dollars.
The specific ones that have just been approved our US dollar ETFs.
If you are an investor and you are looking to be able to have a US dollar account to do investing to avoid those foreign currency exchanges when you are buying and selling, you may want to consider opening up a US dollar account. You can buy these ETFs in margin or nonregistered cash accounts. You can also purchase them in tax-free savings, retirement savings and other registered plans.
Let's jump into WebBroker and see where you would actually be able to open an account. We are going to click on accounts.
On the right-hand side undersell service, we can click the third option here to open a new account.
It's going to open up in a new window and you will be able to go through the account opening process and make sure you have that US dollar account there. Once the account is open you will be able to transfer money into it either from within TD, another trading account or another institution.
Once the account is opened, the next thing we might want to consider is what are the ETFs that are approved.
We have heard information that they are approved but what are those symbols that are approved.
So what I'm going to do is click on my name appear in the top right-hand side.
I'm going to go down to messages and for those of you who come into your web broker for the first time today, you will notice a message here and this is kind of that official notification of the approval of these ETFs and it also has a listing of the different symbols, the different ETFs that were approved. This is kind of a jumping off point to do a little bit more research and understand what specific ETFs are available and an opportunity for you to get a little bit deeper into those specific investments.
>> All right, so we have the list of names there, the takers. What if we want to find out more information about these new ETFs on my broker?
>> Yeah, absolutely.
Not all of the information that we typically have about ETFs on my broker.
It's so new, we just got this approval yesterday so we are in the process of making sure everything is available for you on my broker. But 1 Really Great Pl.
to start is adding all of these securities to a watchlist.
We have gone through watchlist before but let's take a quick look together on what that watchlist might look like. I'm going to click on the top right-hand corner where my watchlist is and I have created one here called crypto. I have added some of the symbols here to this list. Dad them, you have to type this symbol appear at the very top or if you navigate to kind of the ETF page for these individual ETFs, you can add them to a watchlist from there.
Now we can kind of keep an eye on the pricing, what change we have had so far in the day, the volume of trading, all that information at a quick glance about these individual investments. If we want, we can go ahead and click the down button and see some information as far as charts go. We can see the open price as fundamentals come in, we will see additional information there. Again, because they are new, there isn't a ton of history but what we do have is going to be available here.
And if you decide once you've gone through if there is a particular ETF you would like to purchase, they are absolutely able to be purchased right away on WebBroker.
So if you decide, we can go ahead and click this by button and that's going to take us to our standard ETF purchase screen. First off, you want to make sure you choose the account you would like to make the purchase in. If it's a US dollar, make sure you choose US dollar. Make sure the funds are available.
Another thing to keep in mind is with something like bitcoin or crypto in general, you might kind be familiar with the volatility of these types of currencies and with that being the case, you might want to consider doing a limit order as opposed to a market order.
So that would just essentially ensure you a maximum price that you are going to pay for an individual ETF. For example, if I were going through, I may say for example that I don't want to pay any more than $40 per unit for this particular ETF. I can put that limit pricing, preview order and submit and that way I'm guaranteeing that I'm not going to see a huge spike in price and pay way more than I initially expected. That's just one option to keep in mind as you are going through these types of orders.
Lots of exciting stuff going on with these ETFs. We will keep you up-to-date with updated research information on WebBroker as well.
>> Thanks a lot, Caitlin.
>> Thanks, Greg.
>> That was Caitlin Cormier, client education instructor with TD Direct Investing.
As always, make sure you do your own research before making any investment decisions.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Let's talk about the market. They had a strong run into the end of last year.
Investors consider the potential for interest rate cuts from the Fed.
Today's US inflation report came out a little hotter than expected, so where might the markets go from here? 20 a centre discusses David Sekera, chief US market strategist with Morningstar Research. Always great to see you.
>> Good to see you, Greg, and happy new year.
>> Happy new year indeed.
It was interesting the end of last year, we had a bit of a market rally on the expectation that as we enter 2024, where we are now, we would see rate cuts from the Fed. We got some fresh inflation. What is the market stand right now in terms of valuation of that run?
>> We still think the market overall is really very close to our fair value and when we think about her value for the market, we do take a bottom-up approach.
We compare where the market is trading, so the composite of the fair values of all the stocks we cover that trade on US exchanges, over 700 stocks, and compare that with what they actually are in the market place today.
That's why we think that the market is trading at pretty close to fair value. A lot of other strategists take much more of a top-down approach. They start off with some sort of algorithm or model to come up with like S&P 500 earnings for the end of the year and apply some sort of forward multiple to it but the way that we look at it is what we think the market is actually worth today and what we mean by fair value is that for long-term investors, going forward, we expect that you should be able to earn the markets cost of equity on a blended basis. We are looking for a much more normalized returns going forward, probably in that 8 to 9% area.
>> Okay, so in a market that you say is pretty much fairly valued right now, as we dig in be on the broader market, where might we be seeing somebody?
>> Yeah, so even though the broad market is pretty close to fair value, there are still some dislocations that we do think investors can take advantage of. So we break it down the valuation into the MorningStar style box by category. The value category is trading at about a 10% discount on fair value whereas core stocks, those are the ones that have some attributes of value, some attributes of growth, they are trading at a slight premium to our fair values and the growth category after the huge run that we had last year is now trading up at fair value and then when we look at it by capitalization, small-cap stocks in our view are still very attractive trades at about a 16% discount to that blended fair value average.
I think 2024 is really set up to be probably a pretty good year for value stocks and especially small-cap stocks.
I think a lot of the reasons that we saw value in small caps leg the past couple of years, and I think a lot of the reasons are behind us at this point so those are going to be to good areas for investors to look at going forward.
>> The setup seems perhaps promising for value and small caps. What could be the risks to these parts of the market? What could get in their way?
>> For the overall market, inflation is going to be a risk. We saw CPI numbers come out this morning. I would note and actually I talk to our economist earlier this morning and he is still of the opinion that he thinks the Fed will cut and potentially cut as soon as the March meeting. When we look at those numbers and really dig into them, a couple of the different areas that cause the numbers to be higher than what the market expected, such as used vehicle prices and shelter prices, we still project those will moderate over the next couple of months and specifically we are very focused on core inflation. He notes that PCE, the Personal Consumption Expenditure Price Index or inflation which is the feds real targeted number that they are focused on, for the 6 Months Ending in November, it was at 1.9%. In his view, given that core CPI was relatively steady on a year-over-year basis, and we still have kind of that same correlation between CPI and PCE, that allows PCE to come and still below the core right at the Fed's target so it will give them the route to potentially cut here in March.
>> Interesting. If we did see that come to pass, let's talk about the shift to easing from the Fed and what it means to the markets.
>> I think if nothing else without going to do is provide a good floor if we do have some downturns later this year. I am a little concerned with earnings season coming up here that it might be an opportunity for the management teams to look to set the bar lower for their earnings expectations for the year. We do expect that the rate of economic growth will slow here for the next three quarters so if management teams have that same kind of projections in their models they may try to lower the bar guidance and that could drive some negative sentiment.
However, with the Fed cutting, easing, we are looking for six rate cuts this year, that would put the Fed funds rate at three and three 3:45 percent, an area by the end of the year. I think that will end up bolstering the economy later this year and going into 2025. So if we do have some cell us, that would probably be a better opportunity for investors to maybe go back into overweight positions in equities.
>> A wild card here, we were speaking earlier in terms of risks, imagine inflation doesn't come down and we hoped it did?
>> That is really the big risk. If inflation doesn't come down and the Fed decides that they need to keep rates higher for longer, I think that would have a lot of negative implications not just in the equity market but in the fixed income market.
We do think that interest rates also should subside this year even on the longer end of the curve. So if interest rates stay high, in fact if the 10 year were to start moving back up again, I do think that would pressure both equity and fixed income very significantly.
>> Let's talk about 2024 in terms of something interesting and significant. I found in my work, it has been gradual over the past year and 1/2, I see the word pandemic less and less. You're saying that 24 might be the year that we actually put all that really behind us for good.
>> I do think so. In my opinion, I think this is really the first year after the pandemic that it's not only those initial disruptions that are behind us but all the dislocations that were caused by those disruptions. So when we think about initially during the pandemic we had a huge shift in consumer behaviour, a big shift in consumer spending. We are starting to see that revert back to pre-pandemic norms, the amount of spending on goods and services going back to more normal historical levels. We have people returning back to office. Even thinking about monetary policy and fiscal policy, we had some of the larger stimulus programs in history. Those are all moving back towards more normal type of spending going forward. We had zero interest rate policy for the first couple of years and then inflation ramped up to high and the Fed had to catch back up so we had some restrictive monetary policy for the past 6 to 9 months which we do think that the Fed will take their foot off the brake and get back to more of a neutral policy. Again, looking at the market, I think this year is really going to be back to basics and looking at individual company fundamentals, looking back at individual sector fundamentals. I think stockpicking and selection is going to be increasingly more idiosyncratic this year and going forward.
>> Interesting times ahead. We will get your questions about US stocks for David Sekera in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
First, though, let's get you an update on how the markets are trading.
All right. Quick check in on Bay Street and Wall Street. We will start here at home with the Yukon.
We are seeing a down day. Even though you get a pretty firm rally in the price of crude. American benchmark crude of almost 3% now. You still have a 160 point deficit or three quarters of a percent on the TSX.
Other parts of the market are weighing all my topline number.
South of the border, as David and I were discussing, US inflation came in a little hotter than expected. Some of the underlying trend perhaps saying we are still moving to a lower inflationary environment. Right now you're down 32.2 Apollo, little more than half a percent on the S&P 500.
Okay, we are back at David Sekera from Morningstar Research, we are take your questions about US stocks, so let's get to that. First when HearVue, David. This is going to be a big one all your. How should we be thinking about the US election when it comes to investing?
>> That's going to be a big one all year.
I think investors really need to think about elections and really divorce themselves from emotions. Elections are very highly emotionally charged.
Certainly, the US presidential election this year is going to be very electric, let's just say. So I do think there is probably a pretty high probability depending on who's on the ticket from each party that we could see some volatility may be late this summer and into the fall but I think as an investor you really need to separate noise from signal.
When we have looked at what's happened in the markets and what's happened in the economy over time, historically, there's really no strong correlation between who is in the White House and what subsequent market returns are.
When we think about all the policies the politicians will talk about when they're running for office, the policies are also what to depend on who is in charge in Congress and exactly what they can get through. What I find is that over time, there are just so many different exogenous forces that come up over the course of a presidential cycle that even what they say they are going to do when they end up taking office, a lot of that is really going to be much more impacted by what's going on in the world and what's going on in the US economy and that really is going to impact policy much more than anything else so, again, I would not read too much into it and I think that if we do have too much downward volatility, again, probably a better opportunity to go from what I would consider to be more of a neutral position in equities today to maybe an overweight.
>> All right, interesting moments ahead.
We will be watching them and discussing them all year as well. Let's get to another question from the audience. This one about the Magnificent Seven, those big stocks that led the way last year. Will they continue to lead the markets in 2024?
>> I don't think so.
When I take a look at our valuations almost 7 stocks, coming into the year last year and early 2023, six of those seven stocks were very undervalued as compared to our intrinsic valuations. Following the run-up, only one is still undervalued according to our valuations at this point.
Five of them are trading pretty close to fair value and one we think has actually run up too much and is an overvalued territory. My think about returns this year, I think those returns are would to start abroad now much more across the rest of the market and we have already started to see that in the latter part of the fourth quarter and I expect that trend will continue.
So I do think that we will see a good year moving into may be the value category as well as downing capitalization into mid-cap and small-cap stocks.
>> Apart from those Magnificent Seven names back out so much headline attention last year, what about the tax base in general? Everyone is still excited about AI.
>> Text certainly had a big year last year. It was one of the most undervalued sectors coming into the year.
Having said that, the MorningStar US technology Index was up 59% last year. In our view, we think technology has moved to high.
Technology is a sector is now trading at a 9% premium so it's in our view the most overvalued sector.
Now is probably a good time to look through your portfolio, look for maybe some of those names that have become overvalued and overextended in technology, take some profit there and look for some of the more economically sensitive sectors that had leg last year that we do think provide better opportunities for investors on a valuation basis today.
>> okay, that is the tax base there. As always, make sure you do your own research before making any investment decisions.
another question from the audience, they want your view on the industrial sector.
>> It's probably the second most overvalued sector after technology. It's trading at a 5% premium to fair value. I think this is a good sectors probably underweight at this point. Again, take a look to your portfolio, see which of those industrial stocks probably moved a bit to the upside, probably getting into some overextended area and I think you can take some profits there and reinvest that in some other areas in the market.
Especially when I think about what's going to happen with the economy, we are still in the soft landing camp.
We expect there is not going to be a recession in the US but we do expect the rate of economic growth will slow sequentially of for the next three quarters until it bottoms on the third quarter of this year so that could put some pressure in the industrial space until we see the economy started to re-accelerate late this year and into 2025.
>> When I think of the markets being forward-looking instruments, we are obviously concerned about economic slowdown because this is what central banks have been trying to engineer.
In Canada, we have been slowing here. The stocks usually lead the rebound or the other way around?
>> Again, it's always going to depend on each individual economic cycle.
In this case with us kind of getting back to more of a normal world than we have for the past four years, I do think that we will see stocks probably lead to the upside later this year with the market being at fair value but again, I'm not looking for necessarily huge gains in the equity market, looking more for historically normalize type of returns over the course of this year and next.
>> That was the industrial space. We have a viewer now wants get your outlook for the energy stocks.
The price of crude itself has been a fairly volatile trade lately.
>> We are very positive on energy stocks right now. Interestingly, energy was the most overvalued sector according to our evaluations coming into 2023. I believe it's the only sector that actually fell last year. Now it is trading at an 80% discount to fair value so we are seeing a lot of those expiration and production companies that were too highly valued last year now starting to look much more attractive, especially some of the names that we see paying higher dividend rates, I think they will be very attractive for investors going forward.
>> 20 talk about energy, we look to benchmark crude in the states and the gyrations we are seeing their that's based off of a lot of things, whether it's US production or what OPEC is up to you or whether it's geopolitical concerns. Does that make it tougher when you're looking at energy space, trying to wear all these different factors?
>> As long-term investors, we try not to get wrapped up too much into what's going on with the spot price of oil. When you look at our financial models, for the next two years, we actually use the market strip price, with the futures market is pricing in, and then we have longer-term production for the price of oil.
At this point, we are looking for oil over the longer term to come down in price and our models are using $55 per barrel for West Texas intermediate and $60 over the long term for Brett so while oil prices are still relatively high here in the short term, we think that they will be coming down over the long term, especially over the course of the next decade as we see more electric vehicles, more renewable energy out there decreasing the amount of demand for oil. We think these companies have moved down to much and are trading at a significant margin of safety from the long-term value.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
we will get back your questions for David Sekera on US stocks and just moments time.
And a reminder that you can get in touch with us at any time.
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Okay, we are back at David Sekera, we are taking your questions about US stocks. I have another one here for you, David.
Thoughts on financials in these current conditions?
Pretty apt, pretty timely question.
Tomorrow we are going to get a lot of results.
>> Financials are a very volatile sector.
Last year with the failure of Silicon Valley Bank and a couple of other banks last March, the sector got hit pretty hard for them most of the year but we seen a pretty good rebound by the sector in the latter half of the year. Overall, the sector according to our valuations trading at a slight discount of fair value but I still think the best opportunities and financials in the US are going to be among the US regional banks, those were the ones that were hit the hardest last year. Still a number of those that are trading well below our intrinsic valuation.
So if people are looking for interesting opportunities they are, the ones I'd really highlight are those that… The reason we highlight that as we forecast interest rates will decline over the course of 2024 and even further into 2025.
As interest rates come down, that's going to help erase the losses that are embedded in those portfolios and those US regional banks will be able to earn their way out of those losses much faster than what the market is currently expecting.
>> Interesting. The big Wall Street titans will be reporting starting tomorrow.
You're talking about regionals. As investors are doing their homework here, are they looking at a different set of factors if they are looking at regional banks versus those big money centre banks?
You mention some of the trouble they got into last year with bond holdings.
>> Yeah, and we don't see the same dynamics of the large banks. It will be interesting to see what comes out tomorrow. As far as the large banks, one of the things I'm really going to be listening for is what they are doing with their loan-loss reserves. We are expecting loan-loss reserves should comment on a pretty normal basis with the economy slowing. Yes, there will be some additional bankruptcies and defaults but we are not looking for a large take up their. If we do see greater loan-loss reserves, that could actually mean that the large banks themselves are predicting may be a bigger downturn in the economy than what we are projecting right now.
As far as the big banks, that's what I'm going to be looking for the most tomorrow.
>> We are going to start getting some of that information tomorrow as well.
With the bank supporting tomorrow, it would leave the kickoff of earnings season. We are going to be in the thick of it for several weeks. What's your outlook for earnings season overall in this environment?
>> I'm really not all that concerned about fourth-quarter earnings and where they come in.
I think that they will probably be very close or may be generally better than what even guidance was.
The fourth-quarter economy still held up relatively well in the US. My real concern is going to be healed management guidance for the first quarter and what kind of body language they might be giving to the market as far as earnings for all of 2024.
The concern here is that they may look to lower the bar for earnings growth, maybe try and set the bar lower so it's easier for them to outperform expectations over the course of the year. And, of course, taking a look at the slowing rate of economic growth, I think that does give them the cover to be able to do so.
So of course that could drive some short-term downward volatility here over the next month or two but again if that does happen I do think that that would be an interesting opportunity to look for some of those stocks that maybe get beaten up a little bit too hard so assuming there are no big exogenous variables that come into drive our valuations lower, I do think that also could provide some opportunities.
>> I find it very interesting in terms of when you feel it companies are perhaps lowering the bar, being cautious about the outlook going forward. Whether the market sees through that or reacts to it.
Even on an individual basis depending on the company.
>> It always has a lot to do with the individual management teams to. I think more than that, there are certainly some management teams that are more known for trying to go very low guidance so it's very easy for them to beat and there are other management teams which I think are much better at providing the market probably more with error real thoughts as to what guided should be so very idiosyncratic based on the company and based on that management team.
>> At some point in this earnings season, we are starting to get the semis coming in as well. We have of you are saying there was a lot of hype around the semiconductor stocks last year. Is there still interest?
>> I think the semiconductor space this year we are going to have to be very selective. Of course, Nvidia being the huge upside surprise last year with other artificial intelligence chips and the amount of demand, the amount that they can charge customers for chips. At this point, when I look in Nvidia specifically, it's trading what I would consider to be the upper end of what we think the fair value range for that company is. AMD is probably actually moved up a little bit too high in our view.
It's getting to be a little bit higher than what we think the long-term intrinsic value is.
But there are still a number of different semi companies that have like the market.
Taiwan Semiconductor is one. There is certainly a lot of noise around that name but when you really dig through that noise it is one that we do you think is attractive for investors today.
>> Before we let you go, let's go back to the top of the conversation. We are into 2024 but we are not too deep yet. We got our first inflation report of the year.
A little hotter than expected.
The job sort of stood out to you in the United States. When he put it all together, what we need to be thinking about as investors in the macro and what could it mean for the markets this year?
>> For the broader economics, we are looking for that sequential slowing in the rate of economic growth this year.
Almost getting down to stall speed in the third quarter before bottoming out and thus starting to come back in the fourth quarter and looking for relatively stronger growth in 2025. Reducing interest rates will continue to keep coming down both on the short end of the curve as the Fed cuts rates as low as the longer end of the curve.
So I think this year is set up to be a good solid year for investors. Not a homerun year like we saw last year where we came into the year being very undervalued but we do think that with the Fed cutting and easing and what we see going on macro economically, a good, strong basis for the market.
>> I guess as we discussed earlier the key risk to all of that is just that inflation does not do what we wanted to do. That's go back down to two at some point.
>> Exactly. If the Fed does keep rates higher for longer, I think that would cause us probably to reevaluate our economic outlook because a lot of the economic outlook is going to be based on that easing of policy with rates coming down and of course that supporting all of those interest rate sensitive markets like housing and autos and so forth which we do expect will be weak the next couple of quarters with rates coming down, moving to the upside in the second half of the year.
>> It's always great to your insights. I look forward to the next chat.
>> Thank you, Greg.
>> Are things to David Sekera, chief US market strategist at Morningstar Research.
As always, make sure you do your own research before making any investment decisions.
Now, let's give you a little update on the markets.
We are taking a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, gives us a view of the market movers. Let's start here with the TSX 60. We are screening by price and we are screening by volume. As we said earlier, American benchmark rate above 73 bucks per barrel, 3% gains today, getting reflected somewhat in energy space but not all that much green on the screen.
The leader in energy space is not an oil and gas name. It Cameco, CCO, up 2%. His been making gains in recent sessions, the uranium play. But it's been a choppy ride for American benchmark crude so we haven't seen stocks move all that aggressively off of the sometimes aggressive moves on a daily basis.
What's clearly weighing us down today, if we look at the financials, we got the banks to the downside along with some of the big life codes. If we look at the material space, you've got big names like Barrick Gold down about 2%. Nothing too dramatic to taking points off the table, not adding points to the top line. The technology space as well including Shopify, not too much drama, is down about 1%, but not putting points on the table.
South of the border, I want to check in on the S&P 100, we got that fresh read of US inflation.
It was the first big print to land in our laps for 2024. Headline came in a little hotter than expected. We heard David Sekera saying that when you look beneath the surface, some of those other measures are showing that inflation is coming off.
If we look at some of the TD notes coming out today, the Fed will be in a position at some point this year if things continue in this direction to start cutting rates.
Not seeing a lot of green on the screen though today in this environment. We will start with the positive. Netflix down there up just one and 1/3%. Also got Nike showing a little bit of strength. Some of the energy names with American benchmark crude. The real estate in the middle of the screen is a name like Tesla, down a little more than 3%.
AMD in the chip space, Nvidia pretty much flat. But the financials, I want to hone in on those because as I was discussing with David, we are going to start getting, we are getting the kick off from earning season tomorrow, starting with the big Wall Street banks reporting. Today, and of that, we see some downward pressure. Bank of America, BAC, down to the tune of almost 2%.
J.P. Morgan, Citigroup, also under pressure today. It will be interesting when we start getting those reports tomorrow and what they are telling us about the quarter past and perhaps more importantly when talking about financials, how they see the economy going forward.
You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We will be back tomorrow with an update on the markets, highlights from our best interviews of the week.
That's all the time we have the show today.
Thanks for watching, and we will see you tomorrow.
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