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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 the potential opportunity in the markets beyond the Magnificent Seven. Morningstar Research is David Sekera joins us.
MoneyTalk's Anthony Okolie is going to have a look at the health of Canada's household balance sheets.
And in today's WebBroker education segment, Hiren Amin is going to shows how to use one technical analysis tool you're on the platform.
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 we get to all that and our guest of the day, let's get you an update on the markets.
We will start her at home with the TSX Composite Index. There is a firming and the price of gold and in oil today, copper among some of the commodities on the rise as well. 173 points to the upside for the TSX Composite Index, above 22,004 gain of just shy of 1%. Among most actively traded names are Capstone Copper. You've got Capstone up to the tune of almost 8%.
Also Athabasca oil, we are looking at US supply levels, some hits on US refineries, sorry, refineries hit by Ukrainian jewels.
Oils higher and so is Athabasca. At $5.16 per share, it's up about 2%.
South of the border, let's check in on the S&P 500. We are modestly in negative territory.
Nothing too dramatic, down 1/10 of a percent or about five points.
The tech heavy NASDAQ, a little more weakness.
A pullback in the tech shares. You are down 110 points, a little more than half a percent.
And has low, there's been some negative sentiment building around the name, not only among investors as you can see from the stock charts since the beginning of the air but also Wall Street analysts questioning growth heading through the next year. They have been slashing prices aggressively to capture market share, there have also been a lot of headlines and commentary lately on automakers not quite as bullish on EVs as they were before. Interesting time for the EV space.
It has let us down a little more than 3%.
And that's your market update.
With big tech leading the way to new highs for equity markets, some investors may be looking for opportunities beyond the Magnificent Seven. Joining us now to discuss the potential opportunity in value stocks is David Sekera, chief US market strategist at Morningstar Research. Great to have you back on the program.
>> Great to see you again.
>> Let's talk about this. Obviously, we have seen these markets make impressive gains over the past year, through the beginning of this year.
People want to talk about market breadth but we look at those big tech names, is there potential opportunity outside of that space?
>> Yes, we think so. The market overall is trading a few percent above our fair value, not yet what we consider to be overvalued territory but it is starting to feel a little stretched to us at this point. When we break our numbers down, we note that value is the area that still remains undervalued for investors today.
When I think about what's happened with the market over the past 16 months, a year ago, growth was undervalued. Tech was one of the more undervalued sectors according to our evaluations, but at this point, these have all grown up so much, so far, so fast.
A lot of them are now trading well into overvalued territory.
Value stocks have lagged.
Looking forward, in order to outperform, I think investors will have to start bucking the trend of what has worked for the past year, start scaling out of some of these that are overvalued, overextended, lacking profits. I think you need to start looking for some more contrary in place. The areas we have been digging into most recently are those that have underperformed the market over the past year, those that are unloved, those with the worst market sentiment, and those we still see being undervalued today.
>> I think we can break those down according to the work that you been doing, David, into three buckets. Let's start with the utility space.
>> Utilities are highly correlated with interest rates. A lot of investors have been using utilities as a fixed income substitute when rates were so low a few years ago.
We sell the tenure go above 4%, it has recovered a bit. Utility space has recovered a bit.
Fundamentally, we still think utilities Outlook is really as strong as it's ever been.
Our utility analyst team has noted they have seen along the runway of growth here, the transfer into renewable energy, a lot of government spending and investment into infrastructure, updating the grade, fundamentally we think things are looking positive here.
When I talk to our US economic scheme, they expect interest rates are going to decline across the entire curve in the second half of this year, so I think between good, positive fundamentals and a tailwind from declining interest rate, that should portend well for that sector looking forward.
>> That's the bullish case. What could get in the way of the utility's thesis?
>> Interest rates, if we do see interest rates continue to keep moving up from here, that is going to pressure the utility space a lot more than what we expect. Of course, it is budget season in Washington DC, if we were to see the budget get changed such that they start pulling some money out of the investment that they plan on spending in the utility space, specifically in the grade and infrastructure, that would pressure our thesis there as well.
>> Another area I know you been looking into in terms of value is the energy space. What's happening there?
>> The energy space overall is still trading at a pretty good discount from our fair value.
I like energy for a couple of different reasons. First, fundamentally, when I look at our evaluations, I would note that we use the two-year forward strip price, the market implied price for the next two years for oil, and our model and then we project oil prices will start declining towards our $55 a barrel at midcycle price.
Once you get past year to, we start looking for lower prices but even based on those lower prices, our models are still telling us that the stocks are undervalued today plus it also gives your portfolio a good, natural hedge. If we are wrong in inflation stays higher for longer, that certainly would help out that case.
I also think it's a good portfolio had four geopolitical risk. I think the downside here is if demand falls off faster than what we expect, and we do expect demand will continue to climb for the next couple of years, level off towards the end of this decade before it starts to decline or if we do see a lot more drilling in the US or we start seeing a lot more supply coming onto the market, that could push oil prices down faster than what we currently expect.
>> Does that make it challenging when you are trying to build a thesis around energy, when you think about geopolitical conflict, the strength of China's economy, what their appetite is going to be for crude oil, there are so many moving pieces in this bucket.
>> That's why our energy team works hand-in-hand with our US economic scheme in order to put together that supply demand curve, where we expect oil prices to be, not just necessarily coming up in the short term but really throughout the entire economic cycle. That's how we get to that $55 per barrel at mid economic cycle price forecast for WTI and $60 a barrel for Brent.
>> Let's move to another area. We said there were three. Here's three. Real estate, clearly very sensitive to interest rate.
>> Real estate is the most hated area of the market today. I would steer away from urban office space. I'm concerned there could be a downward pressure their valuations.
The good news for investors is that the urban office space and valuations brought valuations down across the entire real estate landscape.
There are a number of areas that we find to be attractive for investor today.
Probably the two areas I would look at the Moe's would be healthcare, medical offices, life-sciences buildings, I think those are going to be good over the longer term and even things like class a retail malls, the high-end malls, we have seen foot traffic rebound, they have changed so small so they are more experiential and less reliant on retail traffic.
For people looking for growth in real estate, I would highlight data centres. I think there will be a long tailwind there for artificial intelligence.
As we talked about utilities, we expect interest rates to decline and that should be a positive tailwind for the real estate sector as well.
Of course, if interest rates stay here or increase from here, that certainly would pressure all of the real estate valuations and could bring them down further.
>> You mentioned artificial intelligence in terms of a real estate thesis. Let's talk AI and the stock that has clearly benefited from all this excitement in the past year, Nvidia. How does it look right now at these levels, fully valid?
>> I think it's going to hike to the upside at this point. When I look at Nvidia, and I look at our base case, I think the market is expecting too much growth for too long. When I look at our model, not only has the revenue for the company doubled over the course of this year, we are already expecting it to double again over the course of next year, an increase of 40 to 50% in 2020%, we are looking for topline 30% annual growth rate over the next five years, looking for margins that they have been stronger than they've ever been over the course of the five year. As well, but the market price is still much higher than what we see today so unless we are completely misreading the amount of growth in AI over time, that stock in our view has gone too much too high to the upside.
>> Fascinating stuff and a great start to the program. We are going to 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.
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.
We have shares of Dollar Tree in the spotlight today, the US based discount retailer says it will close almost 1000 of its Family Dollar stores. It's struggling with shifting consumer habits. Right now, the stock down almost 15%.
This does make sense at first blush. We know households are struggling with high prices and inflation, moving to discount retailers, but when they are at the discount retailers including Dollar Tree and their offerings, they are buying lower margin essentials in the face of soaring costs. That weighs on the bottom line for these natives, particularly the most recent quarter for Dollar Tree. It is also facing competition from e-commerce platforms as well.
Eli Lilly is partnering with Amazon pharmacy operations to deliver prescription medications. The arrangement will see prescriptions that are sent to LillyDirect Pharmacy solutions delivered by either Amazon or Truepill.
LillyDirect was launched last year amid surging demand for weight loss drugs. It's just slightly up on the session. Adidas is posting its first annual loss of more than three decades. The athletic apparel makers also warning of weak sales in North America this year as retailers work through high levels of inventory.
Adidas is still dealing with the effects of ending its relationship with controversial rapper Kanye West, which did see it suspend sales of the Yeezy sneaker line.
Let's check in on the markets.
Oil prices are from her today, commodities such as gold and copper are firmer today.
It is giving us a lift.
160 points to the upside on the TSX Composite Index. South of the border, a little bit of weakness in the market today.
Five points down on the S&P 500, 1/10 of a percent.
We are back with the David Sekera from Morningstar Research, taking your questions on US equities.
First one out of the gate, someone wants to get your opinion on this Reddit IPO.
>> Yeah, so I think our equity team has a lot of concerns here about this one. First of all, read it is a very small player in a much larger social media space. I think the company has less than $1 billion in revenue and I don't think they've even become profitable yet and when we look at their user base, I think our equity analyst team noticed that it was stagnant in 2021 and 2022 and it's only starting to ramp up as of late and I think the company has only recently started to focus on increasing their ad revenue so it might be a tough story to sell here in the short term, but more broadly looking at the conditions in the IPO space, I would note that thus far, the tech sector has really been propelled by the mega-cap tech stocks. There hasn't been much of an appetite for the smaller tech stocks.
When we think about the IPO market today, what we have seen, what has been successful has been the larger ones I don't see a lot of appetite for the smaller, more speculative startup stocks, especially in the tech space today.
>> When we talk about the IPO market, obviously it has not been on fire recently. Is that one of the reasons why so much attention is being paid to read it's offered, to see how the market reads it?
>> Yes, it is one of these ones if it does do well, it could open up a window for the rest of the IPO market. Pitch book, MorningStar subsidiary that covers the private equity space has noted that there are a lot of IPOs that are ready and waiting in the wings. I think there are at least 20 of them out there that they violated that if the window does open, these are going to be ready to go in real quick order.
>> Interesting one to watch indeed.
Another audience question. We have been getting this question recently. It's intriguing. What does it mean for the markets if the Fed didn't even cut once this year?
>> I think that's really just going to depend on why the Fed doesn't cut rates and there are only two scenarios where I can see is not getting rate cuts this year.
The first would be if inflation remains high because the economy is holding up better than expected. If that's the case, earnings growth is going to be relatively strong.
I don't think that that would be a negative for the equity market in that case.
The other scenario would be if inflation remains high because we have ongoing supply constraints and if the economy is weak because of those constraints, that could be stagflationary and that would be a very negative signal for the stock market.
I think we could see valuations get hit pretty hard and quickly if that were the case.
>> I want to ask you about your teams work on this. Everyone who has sat in the guest chair on the show what we have been getting this question on a regular basis has said, this is not our base case, they are willing to entertain the question about the base case is cuts.
>> Power base case is that the Fed starts to cut.
We were looking at it earlier in the year and we have pushed it back to the May or June meeting and we are looking for the Fed to cut every single meeting thereafter through the end of the year, a total of 150 basis points and cuts.
>> Let's go to another audience question.
We talked about value at the top of the show. Someone is curious about small caps and how they are looking in this environment.
>> Small caps have lagged for quite a while and that's probably one of the areas in the market where we see the most value for investors today, but a lot of market sentiment that has been very negative over the past couple of years. When I think about it, a lot of the concerns that have been out there are probably past us at this point. 2022, everybody talked about small caps being the most acceptable in a recessionary environment. I think most people right now are looking for a relatively soft landing in the economy. In 2023, small caps are under pressure because we had rising interest rates.
Shorter maturity profiles would be more sensitive to their earnings being pushed back if they had to start paying higher interest rates. At this point, we think interest rates have topped out and we should be getting a downward trajectory across the yield curve over the course of this year.
So I do think that things are building well, thinking about that soft landing, interest rates coming down, should all bode well for valuations in that small cap space.
>> Is that the biggest threat to the small-cap thesis, that we don't get the soft landing? That appears to be on the radar. Things appear to be working towards a soft landing.
>> I think probably the biggest question on investors minds today is going to be artificial intelligence and how small-cap companies might compete or might not be able to compete in a world where AI starts becoming more and more dominant, so that will probably be the biggest question in my mind for the small-cap space.
>> Okay.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions for David Sekera on US equities and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's go to our educational segment of the day.
Technical analysis is one method investors can use to examine a potential investment and in today's education segment, Hiren Amin, senior client education instructor with TD Direct Investing is going to walk you through how to use one of those technical tools: Bollinger Bands.
>> Hello, fellow investors. Welcome to today's education hit. Today, we are going to be focusing on technical analysis. We are going to be opening our technical analysis toolbox and getting a new tool to add to it. We are going to look at Bollinger Bands, technical indicator developed by its namesake, John Ballinger, and it's used to measure a market volatility and identify overbought and oversold condition. Basically, this little tool tells us when the market is quiet or when the market gets loud. Bollinger Bands help determine whether prices are high or low on a relative basis. In fact, there are a number of different uses for Bollinger Bands, it is a trend following indicator and it can help identify breakouts.
Let's look at the strategies it can be used with. When we go into a broker, I've got the triple cues loaded up, the ETF that follows the NASDAQ index and tracks it. We are going to use this as our example for today.
Let's pull up the charts and I will show you how to get the setup done. I've got a candlestick chart. To add a Bollinger Bands, it is an upper indicator. It is going to be found under this category.
It's at the top right over here. Let's go ahead and select this. Once you add the Bollinger Bands, what you will notice is that it has bands, of course. Now we can adjust some of the settings on it. Let's click over here to adjust it.
Typically, it's down on a 20 day moving average or a 20 day moving average.
What you can see on this band, what we are looking at is we are looking at a middle band which is our simple moving average, the 20 day, and then we got an upper band and the lower band over here.
Let's move into a higher timeframe, we will go out to one year and visually you will be able to see it better.
Now we mentioned that it measures volatility which is essentially the price variance of a stock over time.
Now, when traders are looking at this and we are thinking to ourselves, standard deviation, I'm freaking out, I don't know standard deviation, fear not. Standard deviation simply is that 95% of the prices that have occurred are going to be contained within these two bands, so it's a measure of telling us the range at which a stock price will typically stay within.
By that same token, if you have one standard deviation, it just means 60% of the time, the prices that have occurred are within those bands. Right now, the default is to standard deviation. Two common strategies that traders use Bollinger Bands with is the first one we will talk about is the Bollinger Bands.
The Bollinger Bands is based on the mean reversion theory that simply means that prices will revert or go back towards the mean.
In this case we are talking about this green line, the simple moving average.
Markets are range bound, meeting that they are staying with influx, they are not really moving much. When you see markets are range bound, Bollinger Bands means that when it bounces off the upper band, condition or oversold.
. . When it goes to the upper band, it's overbought and it's you to bounce back towards its mean and similarly to the lower band it's oversold and it's going to, we are going to see new buyer step in and push it back in towards the mean a simple moving average.
That's what a Bollinger Bands is. The last thing we'll talk about is the Ballinger squeeze.
The Bollinger squeeze is when prices are trending, you will see this contraction were the bands narrowing together, the bands are expanding out and that causes an increase in volatility.
Usually when this happens we are seeing these big sort of squeezing and expansions happen and the prices break out of those bands, that indicates to a traitor that the prices are going to continue in that direction and the trader would use that as a strategy as a signal. These are some ways you can use Bollinger Bands once you are set up. Traders, go ahead and add it to your charts and look at how they interact with the different bands there.
>> Great stuff there is always from Hiren Amin, senior 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.
Now before you 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.
This one just coming in in the past couple of moments for David.
The viewer says, I'd love to hear his opinion on gold miners.
>> That certainly in the headlines with gold as it has been recently. A number of the gold miners in our view are undervalued and I see a lot of very attractive dynamics in that sector today.
Specifically, when we look at our models and we come up with our fundamental valuations for gold, we actually price in a decline in the gold price over the next two years down I think into the mid-$1800 per ounce range and then we have a decline even further over the long term down to seven or $800 and change. With gold prices as high as they are today, if they stay this higher go higher, I think there's a lot of upside leverage in these names.
Worst case scenario, if gold prices to fall down toward our base case, we still think these names are undervalued. I think the big concern here will be what happens with energy prices over time.
The gold miners are very sensitive to energy prices based on mining so if energy prices go up, even if the price of gold is Rosalie Hall, that could squeeze their margins.
>> With gold hitting record highs, I take a look at some of the miners and they move on a daily basis but can be pretty volatile.
Is the market waiting for further proof?
>> It's always hard to tell what the market is looking for. In the short term, I think gold is an area where people either love it or hate it and over the course of my career at MorningStar, this is one of the few times that I think we've even seen that much value in the gold miners, so it might take a while for the market to catch up to the dynamics here at this point.
>> Another question from the audience, this one about defence. What is your outlook for the defence industry?
>> Unfortunately, I think the outlook is pretty strong here in the short term and that's really just from an ongoing geopolitical conflict that we have, but I know the real focus of our equity analyst team right now is watching what's going on in Washington, DC. We are entering the budget season right now. I think the first draft of the budget only has a 1% increase for the defence budget there. My guess is that it probably ends up being higher than that once he gets through Congress but if it is only a 1% increase, that will have an idiosyncratic impact on those stocks that we cover. Specifically, you will have to try to figure out which programs get dialled back, which are able to get their funding. I know that with CF 35 program, there have been a number of delays there is that there are concerns about funding for the program and what might happen with that going forward.
But generally when I look at the names across the sector, there may be a couple of opportunities but nothing really standing out to me today.
>> It sounds like the kind of industry where you gotta do your homework in the sense that some people might have a thesis saying there is no shortage of geo-political risk, I want to be a defence, but as you say, you have to start thinking about government allocations and what it means for parts of the defence industry.
>> Exactly. Like I said, it's unfortunate that it's a short-term strong outlook but I think when you think about stocks and you think about the long-term intrinsic value of the company, you really need to think more about the medium term and the long term and in that case, it's really going to depend on what happens with the US budget for the next couple of years.
>> This next question is an intriguing one. It even when markets are at all-time highs, people are wondering where we are going to go next. Are you expecting a correction soon?
>> As long-term investors, we try not to time the market.
For most people, it's more about time in the market then timing the market to have successful outcomes over the long term. We focus on investing where we see a good margin of safety from intrinsic valuation, looks to sell those stocks or get out of those stocks where valuations have gotten ahead of themselves. Having said that, I think it's more with the market where it is today with growth stocks, technology stocks really getting into overvalued levels, I think it's going to be more a matter of sector and stock rotation over the course of this year, the point where they are getting to be overvalued and overextended and then reallocating those profits into those areas that have a leg to and remain undervalued.
>> Money is finding different places to go to work in the market.
>> One of our other areas where we put out research recently that showed when you look at the amount of people, people call it cash at the sidelines, you compare that to the total asset value of the markets outstanding, it's within kind of a normalized percentage of what it has been over time, so we actually don't see a lot of quote unquote cash on the sidelines ready to come back into the market.
>> Very interesting and a good piece of Intel there as well. Another question here. Company specific. Somebody wants to get your view on McDonald's after their latest poor earnings results.
Is this reflective of the fast food industries? Do you foresee weaker valuations for these companies like Yum!
Brands this year? What could drive growth in this industry?
>> Our equity analyst team for fast food in general is expecting 2024 to still be a pretty tough year and specifically lower income consumers are still under a lot of pressure from inflation so even though inflation is moderating, it's not moderating enough really to help them out and I think we've also noted Steve that those type of customers are becoming even more value conscious than they have been in the past. So when we are thinking about the fast food industry, we think that the best position companies for the next year or two are really the largest, think McDonald's, Starbucks, and the reason is they have the strongest loyalty programs, they have apps where people are able to order online, mobile ordering, that's been a big theme that we have seen. They also still have the most financial wherewithal to be able to build out new locations and the money to invest in new technology and reinvest in their restaurants. As far as what is going to drive growth here, I think what we would need to see would be increases in real wages among the low income workers or at least an increase in the number of average hours worked.
>> We are going to get back your questions for David Sekera on US stocks and just moments 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?
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.
Canadian households were wealthier in the fourth quarter. That rally in financial markets outweighed the continued cooling in our housing market.
Anthony Okolie has been digging into a new TD economics breakdown of all the key factors at play in the household balance sheet. What are we seeing?
>> As you mentioned, Canadian household wealth recoup to last quarter's losses and more. We saw household wealth rose by 1.8% quarter over quarter in the last three months of 2023 to just over 16 trillion.
That household net worth was bolstered by strong financial markets as bonds and equities rallied after losing ground in the prior quarter.
Those gains of financial assets were partially offset by the drop in value in the residential real estate market.
According to stats Canada, the value of household residential real estate fell nearly 2% in the fourth quarter, that's the second consecutive decrease. Now, the Canadian housing market facing definite headwinds in 2023, real estate values were down an annual basis. The BOC's rate hike cycle put upward pressure on borrowing costs. Despite that, values were 1.8% higher for the year.
Meanwhile, the price of credit market borrowing during the fourth quarter seasonally adjusted continue to rise, reaching nearly $30 billion as more Canadians sought consumer credit. Aside from consumer credit, other credit market debt fell including mortgages in the fourth quarter.
In addition to that, income outpaced the week growth and debt and that's primarily due to slowing mortgage borrowing in the fourth quarter and that led to a drop in the debt to income ratio to 179%. In other words, there is $8.79 a and in credit market debt for every one dollar of household disposable income. Finally, the debt service ratio, that the total household debt payment relative to personal disposable income. It rose slightly to 15% from the third quarter.
Now, while Canadian household wealth was higher, TD economics does note that there was some disparity among households that remained and that was really supported by January's uptake in consumer insolvencies was basically suggested that some families are unable to meet their financial obligations, particularly in the fourth quarter.
When you adjust for inflation and population growth, TD economics notes that real wealth per capita was actually .1% lower in the fourth quarter and down nearly 2% relative to 2022.
>> We have some interesting forces at play there. We know that we are living in a high interest rate environment because the central banks have been trying to battle inflation. He put that all together, what is the forecast going forward for household wealth and household debt?
>> TD Economics expects another quarter of growth in household net worth and they point to a couple of factors.
Number one, home prices. Home prices have recovered over the past three months.
Secondly, financial assets, especially stocks, they have been climbing higher particularly in the US. We just on February the but the NASDAQ and the S&P 500 index and both launched their best February in nearly a decade and so that is leading to less pessimism about the economy in the US. It's also giving way to more upbeat earnings outlooks as well.
Assuming March doesn't break this trend, TD Economics expects the fourth, the first quarter of 2024 to deliver another quarter of wealth gains marginally supporting consumer spending going forward.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a PlatForm designed for active traders available through TD Direct Investing.
Let's jump into the heat map, it gives us a view of the market movers.
We are screening by Price and volume.
Kinross Gold up more than 4%.
Take up more than 6%. First Quantum ran into problems late last year with its copper operations. Copper is on the move today. First Quantum is up almost 10%.
Some of the big telecom companies in this country including DCE, Rogers and Telus all down to the tune of about 1% but you are getting a bid into the crude energy names like Cenovus and CNQ with crude oil on the rise. South of the border, I want to check in on the S&P 100.
It has been a week session on Wall Street.
You have a holdback fairly substantial, choppy run in the past couple of sessions for the big chipmakers who have had such a strong rally in the past 12 months on the premise of artificial intelligence, but today we are getting some downside action.
Nvidia down more than 3%, AMD down more than 4%, and Intel down about 4%.
Another standout on the screen is Tesla, some concerns on Wall Street. The stock has had a rough go so far this year.
People are saying you really can't call it a Magnificent Seven anymore. It probably doesn't belong in that group.
For Tesla, it's about cutting prices for sales, trying to stoke sales but demand for EVs seems pretty cool these days.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back with David Sekera from Morningstar Research.
Next question here for you. I almost wanted to start talking about this when you're talking about fast food but it's its own question. Can we get your take on companies making weight-loss drugs?
>> That's actually just a near their area in the market where we think generally the stocks have run up too far, too fast. When I dig into the fundamentals here, what's really most interesting to me is when I look at our numbers for the number of prescriptions that were forecasting, it's actually higher than a lot of the consensus numbers out there. So I think what's happening is the market is applying too high of a growth rate for too long.
Right now, when I look at the dynamics of the weight-loss drugs, there's only a couple out there on the market and pretty much those that are selling this pharmaceuticals can sell them out whenever they want. People are buying them.
But looking forward, I think that there is going to be more coming to market and prices will eventually subside.
>> Is there one of those areas with defence contractors, you need to do your homework, what health plans are willing to pay for?
Was a lot of pharmaceuticals, whatever state is willing to you will pick up what part of the tab impact success.
>> Not only that, you have a lot of individuals paying out-of-pocket for this one.
A lot of different dynamics that are going on but for the long term, as more of these products are coming to market, I think I will end up eroding the pricing that we are seeing for the ones that are out there today.
>> Interesting stuff.
This one now about artificial intelligence. Someone wants to know, other ways to play AI if they've missed out on the Nvidia run?
>> Generally, any stock that we cover that's directly tied to AI has already searched higher for the most part. They are fully valued if not overvalued at this point so I think if you want to try and play AI, you need to think about it and come up with a second derivative play, something that's not necessarily obvious to a lot of other investors out there.
When I think about it, kind of how AI is going to develop over the next couple of years, I think a lot of the small-cap and mid-cap companies just don't have the in-house expertise to be able to build and train their own models.
So one of the areas that I think is interesting is looking at the different consultants out there looking to see which consultants have that expertise that people can hire, cognizant technologies is a company that we've identified that we think could be a good second derivative play on AI and a lot of the data centres, data vendors, I think those will be good second derivative plays as well just because you need such huge amounts of data and networking to be able to train those AI models.
>> What would be a risk here for cognizant or some of those data centres? That we sour on AI?
We got so excited about it.
>> It's such a huge growth area and there is so much money that's going into it's a day and so many other people that are getting involved in it. There could be a lot of expertise that's coming out there.
We are seeing a lot of growth in that datacentre so there could be maybe too much supply that comes online for the amount of demand that we see in the next couple of years.
>> Not that we sour but that we get too excited. That could be an interesting dynamic as well.
Another question here. A lot of big issues. Your view on the US regionals given what's happened with New York City Bancorp?
>> First of all, we do not cover New York City Bancorp but we did take a quick look at the issues they've been having over the past two months.
While there are problems in some of the US regional banks, think commercial real estate specifically, they noted that the severity of potential losses here was idiosyncratic to New York Community Bank, a very high amount of CRE exposure compared to total capital as well as high total exposure focused in New York City apartments and offices. Getting away from New York Community Bank, we see a lot of value in the regional banks and when we break down their balance sheets, commercial real estate is only a part of their load exposure and even within that exposure, offices are only a small percentage of that. And even then, if you end up having valuation decreases on those exposures, you typically have some equity and subordinated debt has to be wiped out before banks are taking losses.
We think that a lot of the US banks, especially those regional banks, are undervalued because the market is placing so much risk on those banks today.
>> We are out of time for questions.
Before Let It Go, a final thought on what we need to be mindful of?
Markets have run up to record highs based on AI and the excitement around technology. What are you watching in the market this year?
>> I think for the second half of the year, a lot of rotation is going to occur.
I think people are going to look at some of the stocks that again there has been great momentum and stories behind them, they are very somatic, but just getting to be overextended at this point, start looking around and the rest of those markets, for things that have underperformed or unloved and undervalued, take profits, not necessarily going to sell everything all at once, skill or do some of those positions and start putting that money to work in other areas.
>> Interesting developments ahead for the year. We will be talking more in the year ahead. Thanks.
>> My pleasure.
>> Our thanks to David Sekera, US mortgage artist with morning star research. Always be sure to do your own research before making your own investment decisions. Stay tuned for tomorrow show. Jennifer Nowski, VP, Dir. and portfolio manager with TD Asset Management will be our guest take your questions about commodity stocks.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time we have for today.
Thanks for watching. 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 the potential opportunity in the markets beyond the Magnificent Seven. Morningstar Research is David Sekera joins us.
MoneyTalk's Anthony Okolie is going to have a look at the health of Canada's household balance sheets.
And in today's WebBroker education segment, Hiren Amin is going to shows how to use one technical analysis tool you're on the platform.
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 we get to all that and our guest of the day, let's get you an update on the markets.
We will start her at home with the TSX Composite Index. There is a firming and the price of gold and in oil today, copper among some of the commodities on the rise as well. 173 points to the upside for the TSX Composite Index, above 22,004 gain of just shy of 1%. Among most actively traded names are Capstone Copper. You've got Capstone up to the tune of almost 8%.
Also Athabasca oil, we are looking at US supply levels, some hits on US refineries, sorry, refineries hit by Ukrainian jewels.
Oils higher and so is Athabasca. At $5.16 per share, it's up about 2%.
South of the border, let's check in on the S&P 500. We are modestly in negative territory.
Nothing too dramatic, down 1/10 of a percent or about five points.
The tech heavy NASDAQ, a little more weakness.
A pullback in the tech shares. You are down 110 points, a little more than half a percent.
And has low, there's been some negative sentiment building around the name, not only among investors as you can see from the stock charts since the beginning of the air but also Wall Street analysts questioning growth heading through the next year. They have been slashing prices aggressively to capture market share, there have also been a lot of headlines and commentary lately on automakers not quite as bullish on EVs as they were before. Interesting time for the EV space.
It has let us down a little more than 3%.
And that's your market update.
With big tech leading the way to new highs for equity markets, some investors may be looking for opportunities beyond the Magnificent Seven. Joining us now to discuss the potential opportunity in value stocks is David Sekera, chief US market strategist at Morningstar Research. Great to have you back on the program.
>> Great to see you again.
>> Let's talk about this. Obviously, we have seen these markets make impressive gains over the past year, through the beginning of this year.
People want to talk about market breadth but we look at those big tech names, is there potential opportunity outside of that space?
>> Yes, we think so. The market overall is trading a few percent above our fair value, not yet what we consider to be overvalued territory but it is starting to feel a little stretched to us at this point. When we break our numbers down, we note that value is the area that still remains undervalued for investors today.
When I think about what's happened with the market over the past 16 months, a year ago, growth was undervalued. Tech was one of the more undervalued sectors according to our evaluations, but at this point, these have all grown up so much, so far, so fast.
A lot of them are now trading well into overvalued territory.
Value stocks have lagged.
Looking forward, in order to outperform, I think investors will have to start bucking the trend of what has worked for the past year, start scaling out of some of these that are overvalued, overextended, lacking profits. I think you need to start looking for some more contrary in place. The areas we have been digging into most recently are those that have underperformed the market over the past year, those that are unloved, those with the worst market sentiment, and those we still see being undervalued today.
>> I think we can break those down according to the work that you been doing, David, into three buckets. Let's start with the utility space.
>> Utilities are highly correlated with interest rates. A lot of investors have been using utilities as a fixed income substitute when rates were so low a few years ago.
We sell the tenure go above 4%, it has recovered a bit. Utility space has recovered a bit.
Fundamentally, we still think utilities Outlook is really as strong as it's ever been.
Our utility analyst team has noted they have seen along the runway of growth here, the transfer into renewable energy, a lot of government spending and investment into infrastructure, updating the grade, fundamentally we think things are looking positive here.
When I talk to our US economic scheme, they expect interest rates are going to decline across the entire curve in the second half of this year, so I think between good, positive fundamentals and a tailwind from declining interest rate, that should portend well for that sector looking forward.
>> That's the bullish case. What could get in the way of the utility's thesis?
>> Interest rates, if we do see interest rates continue to keep moving up from here, that is going to pressure the utility space a lot more than what we expect. Of course, it is budget season in Washington DC, if we were to see the budget get changed such that they start pulling some money out of the investment that they plan on spending in the utility space, specifically in the grade and infrastructure, that would pressure our thesis there as well.
>> Another area I know you been looking into in terms of value is the energy space. What's happening there?
>> The energy space overall is still trading at a pretty good discount from our fair value.
I like energy for a couple of different reasons. First, fundamentally, when I look at our evaluations, I would note that we use the two-year forward strip price, the market implied price for the next two years for oil, and our model and then we project oil prices will start declining towards our $55 a barrel at midcycle price.
Once you get past year to, we start looking for lower prices but even based on those lower prices, our models are still telling us that the stocks are undervalued today plus it also gives your portfolio a good, natural hedge. If we are wrong in inflation stays higher for longer, that certainly would help out that case.
I also think it's a good portfolio had four geopolitical risk. I think the downside here is if demand falls off faster than what we expect, and we do expect demand will continue to climb for the next couple of years, level off towards the end of this decade before it starts to decline or if we do see a lot more drilling in the US or we start seeing a lot more supply coming onto the market, that could push oil prices down faster than what we currently expect.
>> Does that make it challenging when you are trying to build a thesis around energy, when you think about geopolitical conflict, the strength of China's economy, what their appetite is going to be for crude oil, there are so many moving pieces in this bucket.
>> That's why our energy team works hand-in-hand with our US economic scheme in order to put together that supply demand curve, where we expect oil prices to be, not just necessarily coming up in the short term but really throughout the entire economic cycle. That's how we get to that $55 per barrel at mid economic cycle price forecast for WTI and $60 a barrel for Brent.
>> Let's move to another area. We said there were three. Here's three. Real estate, clearly very sensitive to interest rate.
>> Real estate is the most hated area of the market today. I would steer away from urban office space. I'm concerned there could be a downward pressure their valuations.
The good news for investors is that the urban office space and valuations brought valuations down across the entire real estate landscape.
There are a number of areas that we find to be attractive for investor today.
Probably the two areas I would look at the Moe's would be healthcare, medical offices, life-sciences buildings, I think those are going to be good over the longer term and even things like class a retail malls, the high-end malls, we have seen foot traffic rebound, they have changed so small so they are more experiential and less reliant on retail traffic.
For people looking for growth in real estate, I would highlight data centres. I think there will be a long tailwind there for artificial intelligence.
As we talked about utilities, we expect interest rates to decline and that should be a positive tailwind for the real estate sector as well.
Of course, if interest rates stay here or increase from here, that certainly would pressure all of the real estate valuations and could bring them down further.
>> You mentioned artificial intelligence in terms of a real estate thesis. Let's talk AI and the stock that has clearly benefited from all this excitement in the past year, Nvidia. How does it look right now at these levels, fully valid?
>> I think it's going to hike to the upside at this point. When I look at Nvidia, and I look at our base case, I think the market is expecting too much growth for too long. When I look at our model, not only has the revenue for the company doubled over the course of this year, we are already expecting it to double again over the course of next year, an increase of 40 to 50% in 2020%, we are looking for topline 30% annual growth rate over the next five years, looking for margins that they have been stronger than they've ever been over the course of the five year. As well, but the market price is still much higher than what we see today so unless we are completely misreading the amount of growth in AI over time, that stock in our view has gone too much too high to the upside.
>> Fascinating stuff and a great start to the program. We are going to 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.
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.
We have shares of Dollar Tree in the spotlight today, the US based discount retailer says it will close almost 1000 of its Family Dollar stores. It's struggling with shifting consumer habits. Right now, the stock down almost 15%.
This does make sense at first blush. We know households are struggling with high prices and inflation, moving to discount retailers, but when they are at the discount retailers including Dollar Tree and their offerings, they are buying lower margin essentials in the face of soaring costs. That weighs on the bottom line for these natives, particularly the most recent quarter for Dollar Tree. It is also facing competition from e-commerce platforms as well.
Eli Lilly is partnering with Amazon pharmacy operations to deliver prescription medications. The arrangement will see prescriptions that are sent to LillyDirect Pharmacy solutions delivered by either Amazon or Truepill.
LillyDirect was launched last year amid surging demand for weight loss drugs. It's just slightly up on the session. Adidas is posting its first annual loss of more than three decades. The athletic apparel makers also warning of weak sales in North America this year as retailers work through high levels of inventory.
Adidas is still dealing with the effects of ending its relationship with controversial rapper Kanye West, which did see it suspend sales of the Yeezy sneaker line.
Let's check in on the markets.
Oil prices are from her today, commodities such as gold and copper are firmer today.
It is giving us a lift.
160 points to the upside on the TSX Composite Index. South of the border, a little bit of weakness in the market today.
Five points down on the S&P 500, 1/10 of a percent.
We are back with the David Sekera from Morningstar Research, taking your questions on US equities.
First one out of the gate, someone wants to get your opinion on this Reddit IPO.
>> Yeah, so I think our equity team has a lot of concerns here about this one. First of all, read it is a very small player in a much larger social media space. I think the company has less than $1 billion in revenue and I don't think they've even become profitable yet and when we look at their user base, I think our equity analyst team noticed that it was stagnant in 2021 and 2022 and it's only starting to ramp up as of late and I think the company has only recently started to focus on increasing their ad revenue so it might be a tough story to sell here in the short term, but more broadly looking at the conditions in the IPO space, I would note that thus far, the tech sector has really been propelled by the mega-cap tech stocks. There hasn't been much of an appetite for the smaller tech stocks.
When we think about the IPO market today, what we have seen, what has been successful has been the larger ones I don't see a lot of appetite for the smaller, more speculative startup stocks, especially in the tech space today.
>> When we talk about the IPO market, obviously it has not been on fire recently. Is that one of the reasons why so much attention is being paid to read it's offered, to see how the market reads it?
>> Yes, it is one of these ones if it does do well, it could open up a window for the rest of the IPO market. Pitch book, MorningStar subsidiary that covers the private equity space has noted that there are a lot of IPOs that are ready and waiting in the wings. I think there are at least 20 of them out there that they violated that if the window does open, these are going to be ready to go in real quick order.
>> Interesting one to watch indeed.
Another audience question. We have been getting this question recently. It's intriguing. What does it mean for the markets if the Fed didn't even cut once this year?
>> I think that's really just going to depend on why the Fed doesn't cut rates and there are only two scenarios where I can see is not getting rate cuts this year.
The first would be if inflation remains high because the economy is holding up better than expected. If that's the case, earnings growth is going to be relatively strong.
I don't think that that would be a negative for the equity market in that case.
The other scenario would be if inflation remains high because we have ongoing supply constraints and if the economy is weak because of those constraints, that could be stagflationary and that would be a very negative signal for the stock market.
I think we could see valuations get hit pretty hard and quickly if that were the case.
>> I want to ask you about your teams work on this. Everyone who has sat in the guest chair on the show what we have been getting this question on a regular basis has said, this is not our base case, they are willing to entertain the question about the base case is cuts.
>> Power base case is that the Fed starts to cut.
We were looking at it earlier in the year and we have pushed it back to the May or June meeting and we are looking for the Fed to cut every single meeting thereafter through the end of the year, a total of 150 basis points and cuts.
>> Let's go to another audience question.
We talked about value at the top of the show. Someone is curious about small caps and how they are looking in this environment.
>> Small caps have lagged for quite a while and that's probably one of the areas in the market where we see the most value for investors today, but a lot of market sentiment that has been very negative over the past couple of years. When I think about it, a lot of the concerns that have been out there are probably past us at this point. 2022, everybody talked about small caps being the most acceptable in a recessionary environment. I think most people right now are looking for a relatively soft landing in the economy. In 2023, small caps are under pressure because we had rising interest rates.
Shorter maturity profiles would be more sensitive to their earnings being pushed back if they had to start paying higher interest rates. At this point, we think interest rates have topped out and we should be getting a downward trajectory across the yield curve over the course of this year.
So I do think that things are building well, thinking about that soft landing, interest rates coming down, should all bode well for valuations in that small cap space.
>> Is that the biggest threat to the small-cap thesis, that we don't get the soft landing? That appears to be on the radar. Things appear to be working towards a soft landing.
>> I think probably the biggest question on investors minds today is going to be artificial intelligence and how small-cap companies might compete or might not be able to compete in a world where AI starts becoming more and more dominant, so that will probably be the biggest question in my mind for the small-cap space.
>> Okay.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions for David Sekera on US equities and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's go to our educational segment of the day.
Technical analysis is one method investors can use to examine a potential investment and in today's education segment, Hiren Amin, senior client education instructor with TD Direct Investing is going to walk you through how to use one of those technical tools: Bollinger Bands.
>> Hello, fellow investors. Welcome to today's education hit. Today, we are going to be focusing on technical analysis. We are going to be opening our technical analysis toolbox and getting a new tool to add to it. We are going to look at Bollinger Bands, technical indicator developed by its namesake, John Ballinger, and it's used to measure a market volatility and identify overbought and oversold condition. Basically, this little tool tells us when the market is quiet or when the market gets loud. Bollinger Bands help determine whether prices are high or low on a relative basis. In fact, there are a number of different uses for Bollinger Bands, it is a trend following indicator and it can help identify breakouts.
Let's look at the strategies it can be used with. When we go into a broker, I've got the triple cues loaded up, the ETF that follows the NASDAQ index and tracks it. We are going to use this as our example for today.
Let's pull up the charts and I will show you how to get the setup done. I've got a candlestick chart. To add a Bollinger Bands, it is an upper indicator. It is going to be found under this category.
It's at the top right over here. Let's go ahead and select this. Once you add the Bollinger Bands, what you will notice is that it has bands, of course. Now we can adjust some of the settings on it. Let's click over here to adjust it.
Typically, it's down on a 20 day moving average or a 20 day moving average.
What you can see on this band, what we are looking at is we are looking at a middle band which is our simple moving average, the 20 day, and then we got an upper band and the lower band over here.
Let's move into a higher timeframe, we will go out to one year and visually you will be able to see it better.
Now we mentioned that it measures volatility which is essentially the price variance of a stock over time.
Now, when traders are looking at this and we are thinking to ourselves, standard deviation, I'm freaking out, I don't know standard deviation, fear not. Standard deviation simply is that 95% of the prices that have occurred are going to be contained within these two bands, so it's a measure of telling us the range at which a stock price will typically stay within.
By that same token, if you have one standard deviation, it just means 60% of the time, the prices that have occurred are within those bands. Right now, the default is to standard deviation. Two common strategies that traders use Bollinger Bands with is the first one we will talk about is the Bollinger Bands.
The Bollinger Bands is based on the mean reversion theory that simply means that prices will revert or go back towards the mean.
In this case we are talking about this green line, the simple moving average.
Markets are range bound, meeting that they are staying with influx, they are not really moving much. When you see markets are range bound, Bollinger Bands means that when it bounces off the upper band, condition or oversold.
. . When it goes to the upper band, it's overbought and it's you to bounce back towards its mean and similarly to the lower band it's oversold and it's going to, we are going to see new buyer step in and push it back in towards the mean a simple moving average.
That's what a Bollinger Bands is. The last thing we'll talk about is the Ballinger squeeze.
The Bollinger squeeze is when prices are trending, you will see this contraction were the bands narrowing together, the bands are expanding out and that causes an increase in volatility.
Usually when this happens we are seeing these big sort of squeezing and expansions happen and the prices break out of those bands, that indicates to a traitor that the prices are going to continue in that direction and the trader would use that as a strategy as a signal. These are some ways you can use Bollinger Bands once you are set up. Traders, go ahead and add it to your charts and look at how they interact with the different bands there.
>> Great stuff there is always from Hiren Amin, senior 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.
Now before you 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.
This one just coming in in the past couple of moments for David.
The viewer says, I'd love to hear his opinion on gold miners.
>> That certainly in the headlines with gold as it has been recently. A number of the gold miners in our view are undervalued and I see a lot of very attractive dynamics in that sector today.
Specifically, when we look at our models and we come up with our fundamental valuations for gold, we actually price in a decline in the gold price over the next two years down I think into the mid-$1800 per ounce range and then we have a decline even further over the long term down to seven or $800 and change. With gold prices as high as they are today, if they stay this higher go higher, I think there's a lot of upside leverage in these names.
Worst case scenario, if gold prices to fall down toward our base case, we still think these names are undervalued. I think the big concern here will be what happens with energy prices over time.
The gold miners are very sensitive to energy prices based on mining so if energy prices go up, even if the price of gold is Rosalie Hall, that could squeeze their margins.
>> With gold hitting record highs, I take a look at some of the miners and they move on a daily basis but can be pretty volatile.
Is the market waiting for further proof?
>> It's always hard to tell what the market is looking for. In the short term, I think gold is an area where people either love it or hate it and over the course of my career at MorningStar, this is one of the few times that I think we've even seen that much value in the gold miners, so it might take a while for the market to catch up to the dynamics here at this point.
>> Another question from the audience, this one about defence. What is your outlook for the defence industry?
>> Unfortunately, I think the outlook is pretty strong here in the short term and that's really just from an ongoing geopolitical conflict that we have, but I know the real focus of our equity analyst team right now is watching what's going on in Washington, DC. We are entering the budget season right now. I think the first draft of the budget only has a 1% increase for the defence budget there. My guess is that it probably ends up being higher than that once he gets through Congress but if it is only a 1% increase, that will have an idiosyncratic impact on those stocks that we cover. Specifically, you will have to try to figure out which programs get dialled back, which are able to get their funding. I know that with CF 35 program, there have been a number of delays there is that there are concerns about funding for the program and what might happen with that going forward.
But generally when I look at the names across the sector, there may be a couple of opportunities but nothing really standing out to me today.
>> It sounds like the kind of industry where you gotta do your homework in the sense that some people might have a thesis saying there is no shortage of geo-political risk, I want to be a defence, but as you say, you have to start thinking about government allocations and what it means for parts of the defence industry.
>> Exactly. Like I said, it's unfortunate that it's a short-term strong outlook but I think when you think about stocks and you think about the long-term intrinsic value of the company, you really need to think more about the medium term and the long term and in that case, it's really going to depend on what happens with the US budget for the next couple of years.
>> This next question is an intriguing one. It even when markets are at all-time highs, people are wondering where we are going to go next. Are you expecting a correction soon?
>> As long-term investors, we try not to time the market.
For most people, it's more about time in the market then timing the market to have successful outcomes over the long term. We focus on investing where we see a good margin of safety from intrinsic valuation, looks to sell those stocks or get out of those stocks where valuations have gotten ahead of themselves. Having said that, I think it's more with the market where it is today with growth stocks, technology stocks really getting into overvalued levels, I think it's going to be more a matter of sector and stock rotation over the course of this year, the point where they are getting to be overvalued and overextended and then reallocating those profits into those areas that have a leg to and remain undervalued.
>> Money is finding different places to go to work in the market.
>> One of our other areas where we put out research recently that showed when you look at the amount of people, people call it cash at the sidelines, you compare that to the total asset value of the markets outstanding, it's within kind of a normalized percentage of what it has been over time, so we actually don't see a lot of quote unquote cash on the sidelines ready to come back into the market.
>> Very interesting and a good piece of Intel there as well. Another question here. Company specific. Somebody wants to get your view on McDonald's after their latest poor earnings results.
Is this reflective of the fast food industries? Do you foresee weaker valuations for these companies like Yum!
Brands this year? What could drive growth in this industry?
>> Our equity analyst team for fast food in general is expecting 2024 to still be a pretty tough year and specifically lower income consumers are still under a lot of pressure from inflation so even though inflation is moderating, it's not moderating enough really to help them out and I think we've also noted Steve that those type of customers are becoming even more value conscious than they have been in the past. So when we are thinking about the fast food industry, we think that the best position companies for the next year or two are really the largest, think McDonald's, Starbucks, and the reason is they have the strongest loyalty programs, they have apps where people are able to order online, mobile ordering, that's been a big theme that we have seen. They also still have the most financial wherewithal to be able to build out new locations and the money to invest in new technology and reinvest in their restaurants. As far as what is going to drive growth here, I think what we would need to see would be increases in real wages among the low income workers or at least an increase in the number of average hours worked.
>> We are going to get back your questions for David Sekera on US stocks and just moments 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?
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.
Canadian households were wealthier in the fourth quarter. That rally in financial markets outweighed the continued cooling in our housing market.
Anthony Okolie has been digging into a new TD economics breakdown of all the key factors at play in the household balance sheet. What are we seeing?
>> As you mentioned, Canadian household wealth recoup to last quarter's losses and more. We saw household wealth rose by 1.8% quarter over quarter in the last three months of 2023 to just over 16 trillion.
That household net worth was bolstered by strong financial markets as bonds and equities rallied after losing ground in the prior quarter.
Those gains of financial assets were partially offset by the drop in value in the residential real estate market.
According to stats Canada, the value of household residential real estate fell nearly 2% in the fourth quarter, that's the second consecutive decrease. Now, the Canadian housing market facing definite headwinds in 2023, real estate values were down an annual basis. The BOC's rate hike cycle put upward pressure on borrowing costs. Despite that, values were 1.8% higher for the year.
Meanwhile, the price of credit market borrowing during the fourth quarter seasonally adjusted continue to rise, reaching nearly $30 billion as more Canadians sought consumer credit. Aside from consumer credit, other credit market debt fell including mortgages in the fourth quarter.
In addition to that, income outpaced the week growth and debt and that's primarily due to slowing mortgage borrowing in the fourth quarter and that led to a drop in the debt to income ratio to 179%. In other words, there is $8.79 a and in credit market debt for every one dollar of household disposable income. Finally, the debt service ratio, that the total household debt payment relative to personal disposable income. It rose slightly to 15% from the third quarter.
Now, while Canadian household wealth was higher, TD economics does note that there was some disparity among households that remained and that was really supported by January's uptake in consumer insolvencies was basically suggested that some families are unable to meet their financial obligations, particularly in the fourth quarter.
When you adjust for inflation and population growth, TD economics notes that real wealth per capita was actually .1% lower in the fourth quarter and down nearly 2% relative to 2022.
>> We have some interesting forces at play there. We know that we are living in a high interest rate environment because the central banks have been trying to battle inflation. He put that all together, what is the forecast going forward for household wealth and household debt?
>> TD Economics expects another quarter of growth in household net worth and they point to a couple of factors.
Number one, home prices. Home prices have recovered over the past three months.
Secondly, financial assets, especially stocks, they have been climbing higher particularly in the US. We just on February the but the NASDAQ and the S&P 500 index and both launched their best February in nearly a decade and so that is leading to less pessimism about the economy in the US. It's also giving way to more upbeat earnings outlooks as well.
Assuming March doesn't break this trend, TD Economics expects the fourth, the first quarter of 2024 to deliver another quarter of wealth gains marginally supporting consumer spending going forward.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a PlatForm designed for active traders available through TD Direct Investing.
Let's jump into the heat map, it gives us a view of the market movers.
We are screening by Price and volume.
Kinross Gold up more than 4%.
Take up more than 6%. First Quantum ran into problems late last year with its copper operations. Copper is on the move today. First Quantum is up almost 10%.
Some of the big telecom companies in this country including DCE, Rogers and Telus all down to the tune of about 1% but you are getting a bid into the crude energy names like Cenovus and CNQ with crude oil on the rise. South of the border, I want to check in on the S&P 100.
It has been a week session on Wall Street.
You have a holdback fairly substantial, choppy run in the past couple of sessions for the big chipmakers who have had such a strong rally in the past 12 months on the premise of artificial intelligence, but today we are getting some downside action.
Nvidia down more than 3%, AMD down more than 4%, and Intel down about 4%.
Another standout on the screen is Tesla, some concerns on Wall Street. The stock has had a rough go so far this year.
People are saying you really can't call it a Magnificent Seven anymore. It probably doesn't belong in that group.
For Tesla, it's about cutting prices for sales, trying to stoke sales but demand for EVs seems pretty cool these days.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back with David Sekera from Morningstar Research.
Next question here for you. I almost wanted to start talking about this when you're talking about fast food but it's its own question. Can we get your take on companies making weight-loss drugs?
>> That's actually just a near their area in the market where we think generally the stocks have run up too far, too fast. When I dig into the fundamentals here, what's really most interesting to me is when I look at our numbers for the number of prescriptions that were forecasting, it's actually higher than a lot of the consensus numbers out there. So I think what's happening is the market is applying too high of a growth rate for too long.
Right now, when I look at the dynamics of the weight-loss drugs, there's only a couple out there on the market and pretty much those that are selling this pharmaceuticals can sell them out whenever they want. People are buying them.
But looking forward, I think that there is going to be more coming to market and prices will eventually subside.
>> Is there one of those areas with defence contractors, you need to do your homework, what health plans are willing to pay for?
Was a lot of pharmaceuticals, whatever state is willing to you will pick up what part of the tab impact success.
>> Not only that, you have a lot of individuals paying out-of-pocket for this one.
A lot of different dynamics that are going on but for the long term, as more of these products are coming to market, I think I will end up eroding the pricing that we are seeing for the ones that are out there today.
>> Interesting stuff.
This one now about artificial intelligence. Someone wants to know, other ways to play AI if they've missed out on the Nvidia run?
>> Generally, any stock that we cover that's directly tied to AI has already searched higher for the most part. They are fully valued if not overvalued at this point so I think if you want to try and play AI, you need to think about it and come up with a second derivative play, something that's not necessarily obvious to a lot of other investors out there.
When I think about it, kind of how AI is going to develop over the next couple of years, I think a lot of the small-cap and mid-cap companies just don't have the in-house expertise to be able to build and train their own models.
So one of the areas that I think is interesting is looking at the different consultants out there looking to see which consultants have that expertise that people can hire, cognizant technologies is a company that we've identified that we think could be a good second derivative play on AI and a lot of the data centres, data vendors, I think those will be good second derivative plays as well just because you need such huge amounts of data and networking to be able to train those AI models.
>> What would be a risk here for cognizant or some of those data centres? That we sour on AI?
We got so excited about it.
>> It's such a huge growth area and there is so much money that's going into it's a day and so many other people that are getting involved in it. There could be a lot of expertise that's coming out there.
We are seeing a lot of growth in that datacentre so there could be maybe too much supply that comes online for the amount of demand that we see in the next couple of years.
>> Not that we sour but that we get too excited. That could be an interesting dynamic as well.
Another question here. A lot of big issues. Your view on the US regionals given what's happened with New York City Bancorp?
>> First of all, we do not cover New York City Bancorp but we did take a quick look at the issues they've been having over the past two months.
While there are problems in some of the US regional banks, think commercial real estate specifically, they noted that the severity of potential losses here was idiosyncratic to New York Community Bank, a very high amount of CRE exposure compared to total capital as well as high total exposure focused in New York City apartments and offices. Getting away from New York Community Bank, we see a lot of value in the regional banks and when we break down their balance sheets, commercial real estate is only a part of their load exposure and even within that exposure, offices are only a small percentage of that. And even then, if you end up having valuation decreases on those exposures, you typically have some equity and subordinated debt has to be wiped out before banks are taking losses.
We think that a lot of the US banks, especially those regional banks, are undervalued because the market is placing so much risk on those banks today.
>> We are out of time for questions.
Before Let It Go, a final thought on what we need to be mindful of?
Markets have run up to record highs based on AI and the excitement around technology. What are you watching in the market this year?
>> I think for the second half of the year, a lot of rotation is going to occur.
I think people are going to look at some of the stocks that again there has been great momentum and stories behind them, they are very somatic, but just getting to be overextended at this point, start looking around and the rest of those markets, for things that have underperformed or unloved and undervalued, take profits, not necessarily going to sell everything all at once, skill or do some of those positions and start putting that money to work in other areas.
>> Interesting developments ahead for the year. We will be talking more in the year ahead. Thanks.
>> My pleasure.
>> Our thanks to David Sekera, US mortgage artist with morning star research. Always be sure to do your own research before making your own investment decisions. Stay tuned for tomorrow show. Jennifer Nowski, VP, Dir. and portfolio manager with TD Asset Management will be our guest take your questions about commodity stocks.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time we have for today.
Thanks for watching. We will see you tomorrow.
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