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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, Fed chair Jerome Powell says interest rates may need to go higher than expected.
We look at the market implications with MorningStar's chief US market strategist, David Sekera. And in today's education segment, Bryan Rogers will shows how you can find trending stocks using the WebBroker platform. Here's how you can get in touch with us. Email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest today, let's get you an update on the markets.
Jerome Powell, as we said there, and we will dive a little deeper, is giving two days of testimony on Capitol Hill. The preparedstatement basically, yeah, maybe this fight against inflation it may need to go a bit longer with higher rates.
There was a swift reaction in the markets.
191 points to the downside for the TSX, down almost a full percent right now.
Noticing weakness in gold and this might be a two-pronged story here not only the fact that the US bucket get stronger and you see some weakness in the commodities but also some concern heading into today about China's demand as some of these names under pressure, including Hudbay Minerals, down to the tune of almost 5%.
Trying to look for some bright spots in the market today, not a lot of stuff firmly in the green on the TSX Composite Index.
Park Lawn Corp is one of them, they came out with their latest results, revenues of 9%. This is the funeral cemetery business.
The stock is a very modest 1 1/3%.
South of the border, the S&P 500 is definitely feeling the effect of Powell's comments. Your down 45 points, a little more than a full percent.
Let's take a look at the tech heavy NASDAQ, how is it holding up against the broader market? A little better but still in the hole to the tune of 8/10 of a percent. And Exxon, noticed a pullback in the price of American benchmark crew today. It is weighing on the space.
But again, not too dramatic, hundred and 12 bucks per share for Exxon, down a little bit more than 1%. And that's your market update.
The US Federal Reserve is signalling its battle with inflation isn't over. Fed chair Jerome Powell says interest rates may need to go higher-than-expected to cool the economy and tame inflation.
So what does this mean for US equities?
Let's get some perspective now. David Sekera, chief US market strategist at morning Star research joins us. Great to have you here.
>> Good to see you.
>> Is a great day for you to be here talking about US equities because he got Jerome Powell and those prepared comments, you're never sure what you're going to get but there were some stern warnings in there. How are you reading it all?
>> To be honest, I'm not really surprised.
I think if you look at some of the past commentary he's made in public, he's been quite hawkish on inflation for a while, so I think this is almost the market just kind of catching up to hearing what he has been saying the last couple of times he's been out there.
>> Really, if you are catching up to what he's been saying, in the end, the big part of this is: where does the Fed end up at terminal rate? How high do they need to raise interest rates and how long do they need to hold them therefore?
We're starting to get a better correlational agreement between market pricing with the Fed is actually been saying about where they need to end up.
>> What we are looking for is to more rate hikes before the Fed pauses and to me I think one of the bigger risks right now isn't necessarily inflation.
>> They had been laser focused on inflation. How much of a possibility is it that there is a policy error? they have got me thinking about this around the clock.
>> I don't think you're going to see a policy error but I think it's something that would be a big risk. Right now, we do expect that the US economy, it's running hotter than what people expected.
The Fed is seeing a more resilient economy than what they were expecting.
But we do think that there will be a slowdown. We think this tightening monetary policy will impact the economy later this year.
Now originally, we expected the slowdown, a stagnation, would be in the second and third quarter. We have now pushed that back and expect to see that slowdown on the third and fourth quarter of this year.
>>with all the hawkish speech, is not surprising given the tone Powell has taken for some time, he did say that monetary policy works with a lag.
the things they have done even recently will not be felt in the economy for a while.
We are being aggressive right now.
Where we end up, maybe it becomes a moving target?
>> Absolutely. It does work with a lagand nobody knows how long that is going to be.
With the housing industry, there is a lot of backlog for new construction so we are still seeing the place of the system. We look at leading economic indicators like permits, we are starting to see those come down.
I would expect to see housing get softer and softer over the course of the year and when you look at the other leading economic indicators as well, those are still in a downward trend in those will still play out of the next couple months.
>> And when it comes to the equity markets, we are only in March.
The early innings of March. But it's been a pretty bumpy ride between the big gains of January which took everyone by surprise, so the pullback in February, it's been a bumpy ride.
Where do we think these markets are headed further out? Are we still headed for choppy water?
>> We do see a rough road here for the next several months.
As indicated, coming into the year, we thought markets were very oversold and undervalued, so I wasn't surprised to see the big run up in January, especially when we got a lot of selling pressure at the end of last year as people were trying to take advantage of after taxes. In February we saw little bit of the giveback from that. At this point, we still think that the US market is 10 to 12% undervalued.
I do think we are going to see some more volatility over the next couple of months now that we are past earnings season.
The market is going to be looking at inflationary and… We get to the market move up when they are looking better and we get to the market move down when they are worse than expected.
But I do think in the second half of the year, we are looking for leading economic indicators to start turning up.
I think that's really going to be with the signal will be for the market to make that next sustainable upward move towards where we see intrinsic value.
>> That's interesting because of course as much as investors, we are fed watchers, we are also waters of the data points.
Now we know that the Fed is watching as well.
What do you think the key ones are?
Inflation is obviously a huge one. What else should an investor be looking at in terms of not getting ahead of it but understanding where their heads around what they're looking at?
>> They are going to be very data dependent. Chair Powell has been focusing on. This Friday, we have the payrolls number coming out. I think consensus is about 200,000 right now.
We did see a big surprise to the upside in January that really no one was expecting at all.
So I think people will be really focused on that this Friday. And if it comes in lower-than-expected, it will take some pressure off the bed. But if we get another high print, I think that the Fed will continue to be hawkish.
>> Is that part of the head scratching that's going on as well? I imagine maybe the central banks including here in Canada, the fact that they got so aggressive on interest rate hikes in so short a period of time, you really made a substantial move higher.
And yet the job market has been so resilient. Is that something they are having a hard time squaring right now?
>> Definitely.
When you look at policy in the United States, the Fed has been the fastest and most increase in interest rates almost going back to the 1980s, so I think again it is very difficult trying to understand how much of a legate there is between when you first start tightening monetary policy and when it really starts playing into the system.
Of course, that we had the pandemic that plays into all of this, still seeing how the economy has been recovering.
Even three years after that first started.
I think that's why we still see a lot of dislocations in the marketplace as well as dislocations in the economy.
>> As investors, can we hope for a day, I'm not going to make you choose the date exactly, but can we hope for a day that we don't have to be such aggressive watchers of monetary policy? Obviously, it's been so much in the last little while and for good reason but to be get to a part in the market where we don't have to worry about them so intently?
>> I do think we get to a point where things start to normalize a lot more.
That's probably going to be more the middle of this year. So when you think about interest rates over the past couple of years, just how far interest rates went down during the pandemic to all-time lows, down in the US we start thinking about the tens and 30 is now coming back up to around 4% to for the 10 year. So again, getting back to more of a historical normal kind of level.
It also just thinking about what's been going on with the equity markets, how far and how fast they fell at the beginning of the pandemic, then we just had the huge amounts of monetary policy out there as well as policy by the United States government in order to really try and work things out as much as they could at the beginning of the pandemic. Of course, I do think the Fed probably it kept monetary policy too easy for too long, so now some of the problems that we have now is probably trying to fix what happened back then.
>> Fascinating stuff and a great start to the show. We are going to get your questions about US stocks for David Sekera just a moment's time.
A reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
let's get you updated on some of the top stories in the world of business and take a look at how some of the markets are trading.
We have more rumblings about layoffs in the tech sector. Reportsthat Facebook parent company Meta Platforms will announce further job because this week.
Last November, Meta announced a cost-cutting plan to saw 13% of its workforce.
Here at home we have Corus Entertainment cutting its dividend in half, says the money will be redirected to paying down debt. The media company has been hit by weakness in a TV advertising business.
Corus recently cut jobs at its global TV division. You can do the stock is down about 3% on the tail of this news. But obviously, it's down substantially from where it was just last summer.
Shares of BlackBerry are under pressure today that as the Waterloo-based tech company warns its cybersecurity revenue is going to come in lower-than-expected for its most recent fiscal quarter and year.
CEO John Chen says several deals are excited to close in the quarter were delayed. The stock right now down to the tune of a little bit more than 13%. A quick check in on Bay Street and Wall Street. We will start her at home with the TSX Composite Index as investors listen to Jerome Powell and adjust what he has to say, it's being felt in a number of asset classes, commodities, they have a significant waiting in Toronto.
188 points to the downside for the TSX, all civil percent.
And the S&P 500, what is up to you right now?
We will call it 44 point deficit, little bit more than a full percent of the broader read at the US market.
We are back now David Sekera, chief US market strategist with Morningstar Research. We are taking your questions about US stocks, so let's get to them.
The first one here David, what is your view of the energy sector? Is it overvalued or undervalued?
Energy was very interesting last year.
What's going on there?
>> It's one of the sectors that is really active like a pendulum.
It was the most undervalued sector coming into 2022 by our numbers and we did see a huge run up in the energy last year.
I believe it was up over 60%. But that pendulum, in our view, it's one too far.
So coming into the year it was the most overvalued sector. We have seen pretty good retrenchment in the past six weeks.
We still think it's overvalued, trading at about a 5% premium to our intrinsic values.
Really through the past couple of years, I think a lot of that has to do with the market sentiment for oil prices.
So our US energy team have held their oil price forecasts steady. So I think the market is still now getting used to it may be oil prices in the 72 upper $70 barrel range but we do think the oil prices have further to fall and we maintain our $55 target for West Texas intermediate over the course of the economic cycle.
>> It's interesting when you talk about the underlying commodity because it's one of the reasons the stocks are going to move.
West Texas intermediate today didn't react well to what Jerome Powell had to say, is down by about 3%. But it's been a very choppy trait for crude oil. We are getting back to some sense of normalcy maybe later this year when it comes to the overall market.
is there a point where the energy trade starts to settle as well?
>> As long-term investors, we try not to get too wrapped up in that day-to-day movement, and the underlying commodity price.
Where we think we really add the most value for investors is doing that longer term supply and demand analysis. That's only look at the price of oil, we really think about it over an entire economic cycle as opposed to necessarily trying to pick a point in time and forecast with that prices. So when we think about that full economic cycle, when we look at the supply demand characteristics, thinking about how electric vehicles over the course of the next decade will impact oil, we really do think that oil prices still have further to fall to get down to that $55 price.
>> Okay. Let's take another question now, this one is about, it stock specific. What is the future of Tesla?
there are no shortage of headlines are in Tesla. What's the outlook for Tesla?
That's that's actually another great example of how we think the market can sometimes act like a pendulum. Tesla year or year and 1/2 ago was one of the more overvalued stocks under our coverage. It certainly got hit hard last year, swung to the downside and became one of the ones that we thought was actually significantly undervalued. It had a nice bump up here over the past couple of weeks. It's currently trading at a range that we think is at fair value for our long-term view for the company. But I would say that in the EV sector, altogether, we actually think electric vehicles, whether they are going to be battery or hybrid, will and of accounting for two thirds of all new auto production globally, in 2023. We saw big run ahead for all automakers and commodities that are needed to support the buildout of the EV space.
>> Having that much of the market in 2030 sounds like a long time away but it's really not that far off.
It's awfully ambitious, it's not just a Tesla story. On the other side of that, Tesla seems to grow the headlines around EVs.did they have to worry about the fact that they are not the only people at their building electric vehicles and there are a lot of offers?
>> It's certainly a very competitive space. It's one of those areas where you really have to understand kind of what those long-term and durable competitive advantages are going to be.
So yes, Tesla's one way that investors can invest in the market. But I've actually found a lot of the other ways to invest in that market are really the suppliers and some of the commodities that are going to be needed in order to supply the entire space, so whether it's Tesla and some of those other automakers, they are all gonna need the same items, whether it's the auto parts, Borg Warner is one that we think is a great portfolio for the EV space, we think lithium is going to be undersupplied based on the amount of demand that we expect over the next decade, lithium's America is one company I point to there.
But that also some of the specialty chemical companies, I think those are interesting right now. What we have found is that it takes anywhere from 2 1/2 to 3 times as much specialty chemicals through the manufacturing process to make an EV as compared to an auto with an internal combustion engine.
>> That's a big Sen shovel's argument, right? A lot of what you're talking about, you have to bet on the company that's going to do this part of it or you been on the companies that are feeding the entire space no matter what.
It's interesting that when you talk about that kind of stuff to do if you're taking a picks and shovels approach, are you all that concerned about whether it's Tesla, GM or Ford?
>> I am more interested in the people providing the parts that these companies are gonna need over time. That's also where we see much more of theeconomic theory coming into play, where these companies certainly have different aspects that they can build that economic mode and generate returns on invested capital greater than their weighted average cost of capital over the long term.
>> Let's take another question now, plenty coming in for David.
They want to know if there are any stocks in the semiconductor space that you like.
We can talk about the space and what's been interesting and challenging in the space.
> Semiconductors is interesting because again, we have all the shortages at the beginning of last year.
So a lot of the semiconductor manufacturers had a difficult time with that and it's causing some of the inflationary pressures that we have seen.
Now when I think about the semi space and where stocks have moved over the last couple of weeks, there are two that I would point to there.
The one that I think is one of the most undervalued is AMD, but another one that actually gets back to what we are talking about earlier with the play on electric vehicles would be NXP. That's one where we think that they have a very good platform set for semi's that will supply EV growth over time.
>> Intel, we didn't talk about Intel yet.
This is been an interesting one in the sense that there has been a certain market dominance over the years from Intel and it's been a pretty tough time for them of the past several years.
What you think is happening with Intel and what did they need to do to turn things around?
>> Intel is a very difficult story and is very idiosyncratic with the type of semi chips that they manufacture and some of the additional a new competition that's actually really kind of edge them out in some of that space. So I think Intel really needs to get back to focusing on their research and develop in. I think there is some catch-up that they need to spend their to get back up to where they need to be. I think we saw that with their dividend cut a couple of weeks ago that they really need to focus their cash flow efforts. Having said that, we do think that stock has probably moved too far to the downside at this point and is worth a look for investors.
>> The thing about onshoring two, when I think about semiconductors, America's trying to secure domestic production. How much of a longer-term stories? Because I understand you can't to say, we will start building up microchips in this room.
It's a lengthy process.
>> It is, it will take a number of years to build out those fabs here in the United States but with the infrastructure act providing a lot of incentives, we certainly expect that to happen.
This almost goes back to her pick and axe synergy earlier when an incident necessarily looking at individual semi conductor companies themselves, over the next couple years, you can look at a lot of the suppliers to produce the equipment you need to be able to build those semi's and those that are most leveraged to US company should do well.
>> Interesting set.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for David Sekera on US stocks in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com.
now let's get our educational segment of the day.
If you are interested in which stocks are catching the eye of analysts, WebBroker has tools that can help. Joining us now is Bryan Rogers, Senior client education structure with TD Direct Investing.
always great to see you. Let's talk about how we use this platform to try to figure with the analysts are up to.
>> Thanks, Greg.
I know you talked about the Analyst Centre before. For those that haven't seen it before, the Analyst Centre is a great tool provided by a company called to bring.
They consolidate analyst rating so you don't have to go and look at who are all the individual analysts.
They put them all together for you. You can use it to see the most recent readings for analysts but you can also see certain trends in there as well.
If we do jump over to WebBroker, I want to show you where you could find this initially. So we are going to go into the Analyst Centre at the very top under research. So to get there, you can click on research and then go to the Analyst Centre under markets.
You can find it in other areas as well, like if you're researching for stock on its own, but if you are going in general as a starting point and you're not sure which stocks were looking for, you go in here and you can see most recent is where defaults.
It will default to most recent analyst waiting.
It will give you a big long list. But what I want to highlight today is that, many people miss this, if you go to trending stocks as well. So click on trending, this will default initially to the most rated stocks.
You can see there are some pretty popular ones you would expect to see in terms of trading volume and things like that, like Meta and Amazon and salesforce.
And then you can filter it down even further. This is showing for the last 90 days. It'll show you for the overall consensus rating in the last 90 days, might be a buyer a strong buy. It will show you an average target price, percentage of upside and things like that.
And then you can click on the link for the stock to go into more detail. We will show you that a little bit later. What I want to identify as well is if you are wanting to see what the best rated analyst ratings on a trend basis on the last little while you can do that.
You can click on the best rated setting.
You can go to the worst rated if you're looking to be more contrary and and do some short positions or something like that.
You can look at the market going down. And then you can change the timeframe. You can look at the country. It will look at just the United States. And you can also go by the stock type, this is more based on size, like a large market Or a makeup market. Then you will drill down here by sector. You can look at the financial sector something like that. So depending on how much you filter, you may not get a ton of results if your filter is pretty specific. But the broader you make it, the more you are going to get within that section.
>> Alright, you give us a little tease there when you were going through it, Bryan, about next steps.
You find the stock that piques your interest, where you go from there?
>> Yeah, that's a great question, Greg.
I know it's always a huge step as well, now what do I do?
And we reiterate that every time as well.
Don't use this just on its own. These are Analyst Centre rating the stock that you want to make your own decisions and do your own homework.
There are a lot of places with a WebBroker that you can do that.
If we jump over to the platform again, what I want to show you is that if I click one of the stocks, I'm gonna do the filter, take some of these other filters off, let's say we will go to the best rated for the last 90 days and if we end up getting to I will go to most rated here as well.
I think I might have something checked off a couple of times so this is a lot coming up there.
Let me do something else.
If we go into research and we get to a stop, we should be able to just click one in there, choose a stock. I can't apple appear at the moment.
If we chose Apple, for example, you can now go into tons of different areas like the fundamentals. We will click on that right now but I'd say for research you can look at the fundamentals of the stock.
That's their income statement, balance sheet.
You have news and charts. And then you also have an analyst Habre here.
That's what I want to highlight, analyst firm to pranks as well, it will show you with the price target is for all of those analysts together on average. You can see the number by ratings, so it's a strong buy, 21/35 analysts have rated it a strong buy. If you scroll down you can see more information about the analysts reading each stock.
On top of these other things, fundamentals, earnings, you can go into the reports and you can read a lot of additional information from say Argus or MorningStar reports and that's where I find you do get a lot of great information. You mentioned an economic mode earlier in the session, you can find out what that is and how to use it. It's one of those things where you're not only going to get some great reading but you are going to learn some extra stuff too.
you should learn something everyday.
>> Great Italian at the end there. Things that.
>> Alright, thanks Greg. Bryan Rogers, 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.
before we get back to your questions about US stocks for David Sekera, a reminder about hiking 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.
We are back with David Sekera from Morningstar Research, taking your questions about US stocks, so let's get back to them.
Your guest mentioned he prefers looking at fair value rather than the P/E ratio.
Can you explain that more?
P/E ratio, people will look at to see if the market is expensive. That's not part of your analysis.
>> It's not.
P/E ratio is a very blunt instrument and I don't think they necessarily provide the right way to think about what the value of the stock is.
When we think about what is the intrinsic value of the company, we are asking is the present value of the cash flow stream for the future that it will generate over its lifetime? To determine that, we have a model to come up with what we think the intrinsic value of a company is worth.
So as far as P/E ratios go, sometimes they can be good like a relative value analysis. If you're looking at two similar companies with similar growth prospects, that can be helpful. But if I'm trying to look at stocks and look at the company over the course of an entire lifecycle and how to be able to measure the value of that versus other stocks in the same sector and across different sectors, I think that an analysis using a discounted cash flow model really provide you a much better view.
>> How much better view in your opinion of a single stock. What about the marketing?
Because you will hear people say I think the S&P 500 is pretty rich or low at this PE.how do you take that discipline and put it into a broader market indices?
>> We take a different view. We cover 700 stocks the trade on US exchanges.
That gives us a really good view towards the broad market valuation.
Some other strategist start with that top-down approach. They will estimate using a model or some sort of algorithm what they think the board value of the S&P 500 will be based on a board multiple on some sort of a earnings one year out.
What I actually do is we calculate the intrinsic value of each of those companies and compare that to words trading in the marketplace and put a comp' together.
So when I'm thinking about the US market, we are pricing it where we think each one of those stocks should be trading. So if we are looking at trading price to fair value of .88, that means that is trading at a 12% discount to that composite.
That takes into consideration those companies that we think are overvalued, trading about their intrinsic value is also based companies are we think are undervalued.
>> Interesting stuff. Let's get to another question.
Does your guest expect a recession to happen? If so, when?
That would be nice, can you give us an exact date so I can put it on my social calendar?
>> Our base case is still no recession.
Our US economics team is looking for that soft landing.
Having said that, economy has been more resilient in the first quarter and we expect to see a slowdown in the third and fourth quarter looking for relatively stagnant economic growth in those two quarters and then to the market and well actually for the economy in the beginning of next year to re-accelerate to the upside and of course what that means for the markets is that we do think that the ones leading economic indicators turned around hopefully this summer even the fall will be the signal for the markets to be able to start moving back up to where we do see the long-term value.
>> If we take that thinking back to what the Fed is up to, what is going to continue to do and where it might end up wanting to cut, I think central banks have fully recognized that we are in restricted territory now.
We are not in the place, the sweet spot run we are neither trying to tamp down or choose the economy, we've gone into restrictive territory.
What is the green light to start coming back from restrictive territory? If the economy starts picking up again, how delicate is that dance?
>> We have a much more favourable view on inflation than the rest of the market place.
We expect it will continue to moderate over the course of this year.
Our US economics team is looking at in December, we think personal consumption indicators, which is really what the Fed watches most for inflation, will actually get all the way down to a 2% year-over-year rate.
So when we think about inflation coming down over the course of the year but then expecting that softness in the third and fourth quarter, we do think that actually will then provide the Fed the room that would need to start turning around and easing monetary policy at the end of this year.
> Interesting set. We touch on this briefly. We have a guest, a viewer wants our guests to talk specifically about lithium stocks in relation to the EV market.
>> Lithium is an interesting play and it's one of the ones that I think is most interestingin the mining sector today. So what are a team did is they put together a model to come up with how much supply they think the lithium mining sector can produce over the next decade.
So they took not only the amount of lithium being produced today but all these different projects and how long it takes for these products to get up and running and how much lithium will be able to produce and compare that's the amount of demand that we think the EV market is going to be needing in order to get to that two thirds Outlook by 2030, that two thirds of all new autos at that point would be electrified whether it's a hybrid or battery electric vehicle. We think lithium is going to be undersupplied over the next decade so we do think that is going to keep prices relatively high, certainly above the marginal cost for the lithium produces today.
We think that entire sector is undervalued.
>> You know, there's a lot of auto companies excited about electric vehicles.
They are all the space, competing.
Tesla this week cutting prices again.
You're pretty optimistic outlooktwo.
What could disrupt that? What could turn us away from the Elector vacation of vehicles and soften our outlook for it?
>> I think some of the supply constraints we see for lithium could bring it to a point where if lithium price hymns are too high, it would be uneconomical to make those batteries because it would just get higher with the market will consider at that point to the probably is the biggest risk in our view.
Plus when you think that some of the other rare earth minerals out there, again, we need to see a lot more supply coming out in those markets to be able to manufacture the EV vehicles.
So it could not necessarily be a demand problem, it could be much more of a supply problem.
>> Fascinating stuff. We are going to get back to questions for David Sekera on US stocks in a moment's 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 and US labour markets burst out of the gate to start 2023, despite the series of central bank rate hikesinflation and the economy.
Our Anthony Okolie joins us now to look into this Friday when you're going to get more jobs report. What are we thinking?
>> Thanks.
As you mentioned, January was a blowout month for both US and Canadian jobs with both labour markets adding really strong jobs.
We will start with the Canadian jobs market. The added better-than-expected hundred and 15000 New Positions in January.
This chart shows, employment upward trend since December. It exceeds the pre-pandemic level setback in February 2020. The majority of those gains came from full-time jobs in the private sector alongside people working more hours.
My next chart, we take a look at the unemployment rate here in Canada, it stayed steady at 5%, just above the record low 4.9% that we setback in June and July and well below the 5.7% to be had in February 2020 before the pandemic.
Looking ahead to Friday's February job supports, TD Securities expects Canada to lose 10000 Jobs in February while the unemployment rate edges slightly higher to 5.1%. TD Securities is also looking for wage growth the firm to 5.2% year-over-year versus 4.5% in the previous month. The Bank of Canada is not going to get a look at the jobs report before their upcoming meeting on interest rate.
That's tomorrow, as for the BOC's rate decision, they look for the central bank to keep rates unchanged at 4 1/2%.
Turning south of the border, TD Securities is looking for the US to add a still above trend 230000 Jobs in February, normalizing after January's unsustainable 517,000 job gain.
They are also looking for the unemployment rate in the US to stay steady at 3.4%.
Looking ahead, they do see the unemployment rate rising to 4% by the end of the year as more people are drawn back into the labour force. TD Securities also things that hiring will ease gradually, resulting in a slowdown of payroll growth from the second quarter onwards.
Finally, the slowdown in jobs will also slow consumption spending in the United States. It's going to reduce excess savings as the effects of the continued Fed hiking cycle to at least 5 1/4% of Fed funds rate works its way through the US economy.
>> TD Securities is thinking that if you see a softening labour market that slows down the consumer, in the world's largest consumer economy, what does that tell us about the recession risk?
>> TD Securities no longer expects a US recession to begin in the third quarter of this year.
Now they do expect a combination of easing inflation along with the Fed keeping rates higher for longer will lead to a contraction of payroll starting in 2024.
Now the job losses and economics assume that will drive the unemployment rate down to 4% this year and they see it raising to as much as 5.5% by the end of 2024. As a result, TD Securities expects the US recession to begin in the first quarter of 2024.
>> Interesting stuff.
Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Let's check in on the market. We will start with the TSX Composite Index. Jerome Powell is a big show of the day for investors on both sides of the border.
Talking about the fact that interest rates may need to go highertwo it tame inflation and will be economy.
For good measure, if we need to go back to a bigger rate hikes then quarter points at a time, they will do that as well. No guarantees. They will do what's needed to tame inflation.
The market reacted off the release of those comments.
Down hundred 55 points on the TSX Composite Index, three quarters of a percent. You did see oil prices pull back.
Commodity is very sensitive to the US back.
Teck Resources and the mining space, let's see some of the reaction. Down almost 3% on the same.
Can form, I noticed the forest rename showing some modest strength earlier the session. Let's check in on Canfor.
It's hanging onto its gains at 2354 per share. South of the border, let's check in on the S&P 500. You're down about 33 points right now, turning much near the lows of the session. A bit off bad. 83 basis points to the downside. The tech heavy NASDAQ, how's it going against the broader market? A little bit better, down 76 points right now, we will call that exactly what it is, two thirds of the percent.
Taking a look at Wall Street banks, how are they faring in this environment where Jerome Powell is talking about perhaps higher than anticipated rates to tame inflation? We've got Bank of America right now at 33 bucks and change, down a little bit more than 2%.
We are back now with David Sekera, chief US market strategist with Morningstar Research. We are taking your questions about US equities. I hear someone wants to know do you see any opportunities in the small caps?
>> When we take a look at the market fair value, we break it down into a MorningStar style box. In the box, we break it down by large, mid and small and we also break down by value, core and growth stocks.
So when I look at large and mid-cap, they are trading close in line with the broad market view that we think the market is 10 to 12% undervalued. It those small caps are even more undervalued.
We see value for investors that are able to take on additional risk and something that's going to be more volatile.
The other area I would highlight she was that when we break it down between value, core and growth and the core stocks are those that have some attributes of values and growth that don't necessarily fit in one of those categories, and actually points to a Bärbel portfolio of being overweight value, overweight growth and then underweight those core stocks as we can core stocks are trading at at much closer to fair value where is the value stocks in the growth stocks are trading at about 15 to 16% undervalued respectively.
>> Mentioned the risks they are the smaller Names. I think of the small caps as being sensitive to the economic cycle.
Is not part of the risk of trying to figure where we are headed in the economy?
>> It is. And again, gets back to why at MorningStar we really focus on investing for the long term. We really try to make sure we understand the you have the right risk tolerance to be able to take volatility in the short term.
So again, that small caps space, we have seen a lot of volatility there, we expect to see volatility there going forward.
>> Let's take another question now. Plenty coming in. What sector do you see having the most volatility this year? That's an interesting one.
>> It also gets back to what we're talking about earlier with the energy sector.
Again, energy has certainly been very volatile, up over 60%. Last year trading six or 7% this year.
We do think energy is overvalued so that is one where I do still have concerns about her coming down further.
>> We had a questionnaire coming down to you and you were talking about it during one of the breaks about sectors to avoid.
Someone asks, any sectors to avoid?
They're worried about technology after the year they had last year.
What's your thoughts on tech here?
>> Check is still undervalued but it's not as undervalued as what it was earlier this year. It did have the big run up that was on January.
But we do still think that it's trading at about 11% discount to fair value.
When I kind of look at some of our other sectors out there besides energy, there aren't any really that I would necessarily recommend as underweight but I do think offensives are still pretty fully valued and on a relative value basis are probably more expensive than what we see in the rest the marketplace.
So more of those cyclical sectors is where we see more value for investors going forward.
>> We will squeeze in one more question.
What you're look for the communications companies?
>> This is the most undervalued sector by far in our view. Trading at a more 30% discount our fair value. With communications coming after member that that sectors heavily weighted towards Alphabet, parent of Google, Meta, parent of Facebook.
Those are two companies that I think have a differentiating view from the rest of the market place. We think both of those companies are undervalued and in fact Alphabet did take I think about a 9% selloff here recently once they came out with their version of AI. I think the market is pretty disappointed in that product compared to some of the other AI platforms out there.
But not just Alphabet and Meta, we do think that entire sectors undervalued.
We see a lot of opportunities, even some of those more traditional names that we see there.
When I take a look at some of our Canadian coverage, we do see a lot of value in word traditional commute occasion, Bell Canada, Telus, we think those are undervalued.
>> Interesting stuff. A pleasure to have you here.
A pleasure to have you here in person.
Meet the next time will be in person.
Either way, you are always welcome.
> Thank you.
>> Our things to David Sekera, chief US market strategist with Morningstar Research. Stay tuned. Tomorrow is Bank of Canada day. Andrew Kelvin is going to be on the program, chief Canada strategist Ted TD Securities.
We are going to break down what we are hearing from Tiff Macklem. They said they are on pause but we will find out for sure tomorrow.
That seems to be the consensus call though, that they will hold the pause. We will know for sure tomorrow after 10 AM Eastern time.
You can get a head start with your questions. Email moneytalklive@td.
com.
That's all the time we have for 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, Fed chair Jerome Powell says interest rates may need to go higher than expected.
We look at the market implications with MorningStar's chief US market strategist, David Sekera. And in today's education segment, Bryan Rogers will shows how you can find trending stocks using the WebBroker platform. Here's how you can get in touch with us. Email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest today, let's get you an update on the markets.
Jerome Powell, as we said there, and we will dive a little deeper, is giving two days of testimony on Capitol Hill. The preparedstatement basically, yeah, maybe this fight against inflation it may need to go a bit longer with higher rates.
There was a swift reaction in the markets.
191 points to the downside for the TSX, down almost a full percent right now.
Noticing weakness in gold and this might be a two-pronged story here not only the fact that the US bucket get stronger and you see some weakness in the commodities but also some concern heading into today about China's demand as some of these names under pressure, including Hudbay Minerals, down to the tune of almost 5%.
Trying to look for some bright spots in the market today, not a lot of stuff firmly in the green on the TSX Composite Index.
Park Lawn Corp is one of them, they came out with their latest results, revenues of 9%. This is the funeral cemetery business.
The stock is a very modest 1 1/3%.
South of the border, the S&P 500 is definitely feeling the effect of Powell's comments. Your down 45 points, a little more than a full percent.
Let's take a look at the tech heavy NASDAQ, how is it holding up against the broader market? A little better but still in the hole to the tune of 8/10 of a percent. And Exxon, noticed a pullback in the price of American benchmark crew today. It is weighing on the space.
But again, not too dramatic, hundred and 12 bucks per share for Exxon, down a little bit more than 1%. And that's your market update.
The US Federal Reserve is signalling its battle with inflation isn't over. Fed chair Jerome Powell says interest rates may need to go higher-than-expected to cool the economy and tame inflation.
So what does this mean for US equities?
Let's get some perspective now. David Sekera, chief US market strategist at morning Star research joins us. Great to have you here.
>> Good to see you.
>> Is a great day for you to be here talking about US equities because he got Jerome Powell and those prepared comments, you're never sure what you're going to get but there were some stern warnings in there. How are you reading it all?
>> To be honest, I'm not really surprised.
I think if you look at some of the past commentary he's made in public, he's been quite hawkish on inflation for a while, so I think this is almost the market just kind of catching up to hearing what he has been saying the last couple of times he's been out there.
>> Really, if you are catching up to what he's been saying, in the end, the big part of this is: where does the Fed end up at terminal rate? How high do they need to raise interest rates and how long do they need to hold them therefore?
We're starting to get a better correlational agreement between market pricing with the Fed is actually been saying about where they need to end up.
>> What we are looking for is to more rate hikes before the Fed pauses and to me I think one of the bigger risks right now isn't necessarily inflation.
>> They had been laser focused on inflation. How much of a possibility is it that there is a policy error? they have got me thinking about this around the clock.
>> I don't think you're going to see a policy error but I think it's something that would be a big risk. Right now, we do expect that the US economy, it's running hotter than what people expected.
The Fed is seeing a more resilient economy than what they were expecting.
But we do think that there will be a slowdown. We think this tightening monetary policy will impact the economy later this year.
Now originally, we expected the slowdown, a stagnation, would be in the second and third quarter. We have now pushed that back and expect to see that slowdown on the third and fourth quarter of this year.
>>with all the hawkish speech, is not surprising given the tone Powell has taken for some time, he did say that monetary policy works with a lag.
the things they have done even recently will not be felt in the economy for a while.
We are being aggressive right now.
Where we end up, maybe it becomes a moving target?
>> Absolutely. It does work with a lagand nobody knows how long that is going to be.
With the housing industry, there is a lot of backlog for new construction so we are still seeing the place of the system. We look at leading economic indicators like permits, we are starting to see those come down.
I would expect to see housing get softer and softer over the course of the year and when you look at the other leading economic indicators as well, those are still in a downward trend in those will still play out of the next couple months.
>> And when it comes to the equity markets, we are only in March.
The early innings of March. But it's been a pretty bumpy ride between the big gains of January which took everyone by surprise, so the pullback in February, it's been a bumpy ride.
Where do we think these markets are headed further out? Are we still headed for choppy water?
>> We do see a rough road here for the next several months.
As indicated, coming into the year, we thought markets were very oversold and undervalued, so I wasn't surprised to see the big run up in January, especially when we got a lot of selling pressure at the end of last year as people were trying to take advantage of after taxes. In February we saw little bit of the giveback from that. At this point, we still think that the US market is 10 to 12% undervalued.
I do think we are going to see some more volatility over the next couple of months now that we are past earnings season.
The market is going to be looking at inflationary and… We get to the market move up when they are looking better and we get to the market move down when they are worse than expected.
But I do think in the second half of the year, we are looking for leading economic indicators to start turning up.
I think that's really going to be with the signal will be for the market to make that next sustainable upward move towards where we see intrinsic value.
>> That's interesting because of course as much as investors, we are fed watchers, we are also waters of the data points.
Now we know that the Fed is watching as well.
What do you think the key ones are?
Inflation is obviously a huge one. What else should an investor be looking at in terms of not getting ahead of it but understanding where their heads around what they're looking at?
>> They are going to be very data dependent. Chair Powell has been focusing on. This Friday, we have the payrolls number coming out. I think consensus is about 200,000 right now.
We did see a big surprise to the upside in January that really no one was expecting at all.
So I think people will be really focused on that this Friday. And if it comes in lower-than-expected, it will take some pressure off the bed. But if we get another high print, I think that the Fed will continue to be hawkish.
>> Is that part of the head scratching that's going on as well? I imagine maybe the central banks including here in Canada, the fact that they got so aggressive on interest rate hikes in so short a period of time, you really made a substantial move higher.
And yet the job market has been so resilient. Is that something they are having a hard time squaring right now?
>> Definitely.
When you look at policy in the United States, the Fed has been the fastest and most increase in interest rates almost going back to the 1980s, so I think again it is very difficult trying to understand how much of a legate there is between when you first start tightening monetary policy and when it really starts playing into the system.
Of course, that we had the pandemic that plays into all of this, still seeing how the economy has been recovering.
Even three years after that first started.
I think that's why we still see a lot of dislocations in the marketplace as well as dislocations in the economy.
>> As investors, can we hope for a day, I'm not going to make you choose the date exactly, but can we hope for a day that we don't have to be such aggressive watchers of monetary policy? Obviously, it's been so much in the last little while and for good reason but to be get to a part in the market where we don't have to worry about them so intently?
>> I do think we get to a point where things start to normalize a lot more.
That's probably going to be more the middle of this year. So when you think about interest rates over the past couple of years, just how far interest rates went down during the pandemic to all-time lows, down in the US we start thinking about the tens and 30 is now coming back up to around 4% to for the 10 year. So again, getting back to more of a historical normal kind of level.
It also just thinking about what's been going on with the equity markets, how far and how fast they fell at the beginning of the pandemic, then we just had the huge amounts of monetary policy out there as well as policy by the United States government in order to really try and work things out as much as they could at the beginning of the pandemic. Of course, I do think the Fed probably it kept monetary policy too easy for too long, so now some of the problems that we have now is probably trying to fix what happened back then.
>> Fascinating stuff and a great start to the show. We are going to get your questions about US stocks for David Sekera just a moment's time.
A reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
let's get you updated on some of the top stories in the world of business and take a look at how some of the markets are trading.
We have more rumblings about layoffs in the tech sector. Reportsthat Facebook parent company Meta Platforms will announce further job because this week.
Last November, Meta announced a cost-cutting plan to saw 13% of its workforce.
Here at home we have Corus Entertainment cutting its dividend in half, says the money will be redirected to paying down debt. The media company has been hit by weakness in a TV advertising business.
Corus recently cut jobs at its global TV division. You can do the stock is down about 3% on the tail of this news. But obviously, it's down substantially from where it was just last summer.
Shares of BlackBerry are under pressure today that as the Waterloo-based tech company warns its cybersecurity revenue is going to come in lower-than-expected for its most recent fiscal quarter and year.
CEO John Chen says several deals are excited to close in the quarter were delayed. The stock right now down to the tune of a little bit more than 13%. A quick check in on Bay Street and Wall Street. We will start her at home with the TSX Composite Index as investors listen to Jerome Powell and adjust what he has to say, it's being felt in a number of asset classes, commodities, they have a significant waiting in Toronto.
188 points to the downside for the TSX, all civil percent.
And the S&P 500, what is up to you right now?
We will call it 44 point deficit, little bit more than a full percent of the broader read at the US market.
We are back now David Sekera, chief US market strategist with Morningstar Research. We are taking your questions about US stocks, so let's get to them.
The first one here David, what is your view of the energy sector? Is it overvalued or undervalued?
Energy was very interesting last year.
What's going on there?
>> It's one of the sectors that is really active like a pendulum.
It was the most undervalued sector coming into 2022 by our numbers and we did see a huge run up in the energy last year.
I believe it was up over 60%. But that pendulum, in our view, it's one too far.
So coming into the year it was the most overvalued sector. We have seen pretty good retrenchment in the past six weeks.
We still think it's overvalued, trading at about a 5% premium to our intrinsic values.
Really through the past couple of years, I think a lot of that has to do with the market sentiment for oil prices.
So our US energy team have held their oil price forecasts steady. So I think the market is still now getting used to it may be oil prices in the 72 upper $70 barrel range but we do think the oil prices have further to fall and we maintain our $55 target for West Texas intermediate over the course of the economic cycle.
>> It's interesting when you talk about the underlying commodity because it's one of the reasons the stocks are going to move.
West Texas intermediate today didn't react well to what Jerome Powell had to say, is down by about 3%. But it's been a very choppy trait for crude oil. We are getting back to some sense of normalcy maybe later this year when it comes to the overall market.
is there a point where the energy trade starts to settle as well?
>> As long-term investors, we try not to get too wrapped up in that day-to-day movement, and the underlying commodity price.
Where we think we really add the most value for investors is doing that longer term supply and demand analysis. That's only look at the price of oil, we really think about it over an entire economic cycle as opposed to necessarily trying to pick a point in time and forecast with that prices. So when we think about that full economic cycle, when we look at the supply demand characteristics, thinking about how electric vehicles over the course of the next decade will impact oil, we really do think that oil prices still have further to fall to get down to that $55 price.
>> Okay. Let's take another question now, this one is about, it stock specific. What is the future of Tesla?
there are no shortage of headlines are in Tesla. What's the outlook for Tesla?
That's that's actually another great example of how we think the market can sometimes act like a pendulum. Tesla year or year and 1/2 ago was one of the more overvalued stocks under our coverage. It certainly got hit hard last year, swung to the downside and became one of the ones that we thought was actually significantly undervalued. It had a nice bump up here over the past couple of weeks. It's currently trading at a range that we think is at fair value for our long-term view for the company. But I would say that in the EV sector, altogether, we actually think electric vehicles, whether they are going to be battery or hybrid, will and of accounting for two thirds of all new auto production globally, in 2023. We saw big run ahead for all automakers and commodities that are needed to support the buildout of the EV space.
>> Having that much of the market in 2030 sounds like a long time away but it's really not that far off.
It's awfully ambitious, it's not just a Tesla story. On the other side of that, Tesla seems to grow the headlines around EVs.did they have to worry about the fact that they are not the only people at their building electric vehicles and there are a lot of offers?
>> It's certainly a very competitive space. It's one of those areas where you really have to understand kind of what those long-term and durable competitive advantages are going to be.
So yes, Tesla's one way that investors can invest in the market. But I've actually found a lot of the other ways to invest in that market are really the suppliers and some of the commodities that are going to be needed in order to supply the entire space, so whether it's Tesla and some of those other automakers, they are all gonna need the same items, whether it's the auto parts, Borg Warner is one that we think is a great portfolio for the EV space, we think lithium is going to be undersupplied based on the amount of demand that we expect over the next decade, lithium's America is one company I point to there.
But that also some of the specialty chemical companies, I think those are interesting right now. What we have found is that it takes anywhere from 2 1/2 to 3 times as much specialty chemicals through the manufacturing process to make an EV as compared to an auto with an internal combustion engine.
>> That's a big Sen shovel's argument, right? A lot of what you're talking about, you have to bet on the company that's going to do this part of it or you been on the companies that are feeding the entire space no matter what.
It's interesting that when you talk about that kind of stuff to do if you're taking a picks and shovels approach, are you all that concerned about whether it's Tesla, GM or Ford?
>> I am more interested in the people providing the parts that these companies are gonna need over time. That's also where we see much more of theeconomic theory coming into play, where these companies certainly have different aspects that they can build that economic mode and generate returns on invested capital greater than their weighted average cost of capital over the long term.
>> Let's take another question now, plenty coming in for David.
They want to know if there are any stocks in the semiconductor space that you like.
We can talk about the space and what's been interesting and challenging in the space.
> Semiconductors is interesting because again, we have all the shortages at the beginning of last year.
So a lot of the semiconductor manufacturers had a difficult time with that and it's causing some of the inflationary pressures that we have seen.
Now when I think about the semi space and where stocks have moved over the last couple of weeks, there are two that I would point to there.
The one that I think is one of the most undervalued is AMD, but another one that actually gets back to what we are talking about earlier with the play on electric vehicles would be NXP. That's one where we think that they have a very good platform set for semi's that will supply EV growth over time.
>> Intel, we didn't talk about Intel yet.
This is been an interesting one in the sense that there has been a certain market dominance over the years from Intel and it's been a pretty tough time for them of the past several years.
What you think is happening with Intel and what did they need to do to turn things around?
>> Intel is a very difficult story and is very idiosyncratic with the type of semi chips that they manufacture and some of the additional a new competition that's actually really kind of edge them out in some of that space. So I think Intel really needs to get back to focusing on their research and develop in. I think there is some catch-up that they need to spend their to get back up to where they need to be. I think we saw that with their dividend cut a couple of weeks ago that they really need to focus their cash flow efforts. Having said that, we do think that stock has probably moved too far to the downside at this point and is worth a look for investors.
>> The thing about onshoring two, when I think about semiconductors, America's trying to secure domestic production. How much of a longer-term stories? Because I understand you can't to say, we will start building up microchips in this room.
It's a lengthy process.
>> It is, it will take a number of years to build out those fabs here in the United States but with the infrastructure act providing a lot of incentives, we certainly expect that to happen.
This almost goes back to her pick and axe synergy earlier when an incident necessarily looking at individual semi conductor companies themselves, over the next couple years, you can look at a lot of the suppliers to produce the equipment you need to be able to build those semi's and those that are most leveraged to US company should do well.
>> Interesting set.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for David Sekera on US stocks in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com.
now let's get our educational segment of the day.
If you are interested in which stocks are catching the eye of analysts, WebBroker has tools that can help. Joining us now is Bryan Rogers, Senior client education structure with TD Direct Investing.
always great to see you. Let's talk about how we use this platform to try to figure with the analysts are up to.
>> Thanks, Greg.
I know you talked about the Analyst Centre before. For those that haven't seen it before, the Analyst Centre is a great tool provided by a company called to bring.
They consolidate analyst rating so you don't have to go and look at who are all the individual analysts.
They put them all together for you. You can use it to see the most recent readings for analysts but you can also see certain trends in there as well.
If we do jump over to WebBroker, I want to show you where you could find this initially. So we are going to go into the Analyst Centre at the very top under research. So to get there, you can click on research and then go to the Analyst Centre under markets.
You can find it in other areas as well, like if you're researching for stock on its own, but if you are going in general as a starting point and you're not sure which stocks were looking for, you go in here and you can see most recent is where defaults.
It will default to most recent analyst waiting.
It will give you a big long list. But what I want to highlight today is that, many people miss this, if you go to trending stocks as well. So click on trending, this will default initially to the most rated stocks.
You can see there are some pretty popular ones you would expect to see in terms of trading volume and things like that, like Meta and Amazon and salesforce.
And then you can filter it down even further. This is showing for the last 90 days. It'll show you for the overall consensus rating in the last 90 days, might be a buyer a strong buy. It will show you an average target price, percentage of upside and things like that.
And then you can click on the link for the stock to go into more detail. We will show you that a little bit later. What I want to identify as well is if you are wanting to see what the best rated analyst ratings on a trend basis on the last little while you can do that.
You can click on the best rated setting.
You can go to the worst rated if you're looking to be more contrary and and do some short positions or something like that.
You can look at the market going down. And then you can change the timeframe. You can look at the country. It will look at just the United States. And you can also go by the stock type, this is more based on size, like a large market Or a makeup market. Then you will drill down here by sector. You can look at the financial sector something like that. So depending on how much you filter, you may not get a ton of results if your filter is pretty specific. But the broader you make it, the more you are going to get within that section.
>> Alright, you give us a little tease there when you were going through it, Bryan, about next steps.
You find the stock that piques your interest, where you go from there?
>> Yeah, that's a great question, Greg.
I know it's always a huge step as well, now what do I do?
And we reiterate that every time as well.
Don't use this just on its own. These are Analyst Centre rating the stock that you want to make your own decisions and do your own homework.
There are a lot of places with a WebBroker that you can do that.
If we jump over to the platform again, what I want to show you is that if I click one of the stocks, I'm gonna do the filter, take some of these other filters off, let's say we will go to the best rated for the last 90 days and if we end up getting to I will go to most rated here as well.
I think I might have something checked off a couple of times so this is a lot coming up there.
Let me do something else.
If we go into research and we get to a stop, we should be able to just click one in there, choose a stock. I can't apple appear at the moment.
If we chose Apple, for example, you can now go into tons of different areas like the fundamentals. We will click on that right now but I'd say for research you can look at the fundamentals of the stock.
That's their income statement, balance sheet.
You have news and charts. And then you also have an analyst Habre here.
That's what I want to highlight, analyst firm to pranks as well, it will show you with the price target is for all of those analysts together on average. You can see the number by ratings, so it's a strong buy, 21/35 analysts have rated it a strong buy. If you scroll down you can see more information about the analysts reading each stock.
On top of these other things, fundamentals, earnings, you can go into the reports and you can read a lot of additional information from say Argus or MorningStar reports and that's where I find you do get a lot of great information. You mentioned an economic mode earlier in the session, you can find out what that is and how to use it. It's one of those things where you're not only going to get some great reading but you are going to learn some extra stuff too.
you should learn something everyday.
>> Great Italian at the end there. Things that.
>> Alright, thanks Greg. Bryan Rogers, 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.
before we get back to your questions about US stocks for David Sekera, a reminder about hiking 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.
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We are back with David Sekera from Morningstar Research, taking your questions about US stocks, so let's get back to them.
Your guest mentioned he prefers looking at fair value rather than the P/E ratio.
Can you explain that more?
P/E ratio, people will look at to see if the market is expensive. That's not part of your analysis.
>> It's not.
P/E ratio is a very blunt instrument and I don't think they necessarily provide the right way to think about what the value of the stock is.
When we think about what is the intrinsic value of the company, we are asking is the present value of the cash flow stream for the future that it will generate over its lifetime? To determine that, we have a model to come up with what we think the intrinsic value of a company is worth.
So as far as P/E ratios go, sometimes they can be good like a relative value analysis. If you're looking at two similar companies with similar growth prospects, that can be helpful. But if I'm trying to look at stocks and look at the company over the course of an entire lifecycle and how to be able to measure the value of that versus other stocks in the same sector and across different sectors, I think that an analysis using a discounted cash flow model really provide you a much better view.
>> How much better view in your opinion of a single stock. What about the marketing?
Because you will hear people say I think the S&P 500 is pretty rich or low at this PE.how do you take that discipline and put it into a broader market indices?
>> We take a different view. We cover 700 stocks the trade on US exchanges.
That gives us a really good view towards the broad market valuation.
Some other strategist start with that top-down approach. They will estimate using a model or some sort of algorithm what they think the board value of the S&P 500 will be based on a board multiple on some sort of a earnings one year out.
What I actually do is we calculate the intrinsic value of each of those companies and compare that to words trading in the marketplace and put a comp' together.
So when I'm thinking about the US market, we are pricing it where we think each one of those stocks should be trading. So if we are looking at trading price to fair value of .88, that means that is trading at a 12% discount to that composite.
That takes into consideration those companies that we think are overvalued, trading about their intrinsic value is also based companies are we think are undervalued.
>> Interesting stuff. Let's get to another question.
Does your guest expect a recession to happen? If so, when?
That would be nice, can you give us an exact date so I can put it on my social calendar?
>> Our base case is still no recession.
Our US economics team is looking for that soft landing.
Having said that, economy has been more resilient in the first quarter and we expect to see a slowdown in the third and fourth quarter looking for relatively stagnant economic growth in those two quarters and then to the market and well actually for the economy in the beginning of next year to re-accelerate to the upside and of course what that means for the markets is that we do think that the ones leading economic indicators turned around hopefully this summer even the fall will be the signal for the markets to be able to start moving back up to where we do see the long-term value.
>> If we take that thinking back to what the Fed is up to, what is going to continue to do and where it might end up wanting to cut, I think central banks have fully recognized that we are in restricted territory now.
We are not in the place, the sweet spot run we are neither trying to tamp down or choose the economy, we've gone into restrictive territory.
What is the green light to start coming back from restrictive territory? If the economy starts picking up again, how delicate is that dance?
>> We have a much more favourable view on inflation than the rest of the market place.
We expect it will continue to moderate over the course of this year.
Our US economics team is looking at in December, we think personal consumption indicators, which is really what the Fed watches most for inflation, will actually get all the way down to a 2% year-over-year rate.
So when we think about inflation coming down over the course of the year but then expecting that softness in the third and fourth quarter, we do think that actually will then provide the Fed the room that would need to start turning around and easing monetary policy at the end of this year.
> Interesting set. We touch on this briefly. We have a guest, a viewer wants our guests to talk specifically about lithium stocks in relation to the EV market.
>> Lithium is an interesting play and it's one of the ones that I think is most interestingin the mining sector today. So what are a team did is they put together a model to come up with how much supply they think the lithium mining sector can produce over the next decade.
So they took not only the amount of lithium being produced today but all these different projects and how long it takes for these products to get up and running and how much lithium will be able to produce and compare that's the amount of demand that we think the EV market is going to be needing in order to get to that two thirds Outlook by 2030, that two thirds of all new autos at that point would be electrified whether it's a hybrid or battery electric vehicle. We think lithium is going to be undersupplied over the next decade so we do think that is going to keep prices relatively high, certainly above the marginal cost for the lithium produces today.
We think that entire sector is undervalued.
>> You know, there's a lot of auto companies excited about electric vehicles.
They are all the space, competing.
Tesla this week cutting prices again.
You're pretty optimistic outlooktwo.
What could disrupt that? What could turn us away from the Elector vacation of vehicles and soften our outlook for it?
>> I think some of the supply constraints we see for lithium could bring it to a point where if lithium price hymns are too high, it would be uneconomical to make those batteries because it would just get higher with the market will consider at that point to the probably is the biggest risk in our view.
Plus when you think that some of the other rare earth minerals out there, again, we need to see a lot more supply coming out in those markets to be able to manufacture the EV vehicles.
So it could not necessarily be a demand problem, it could be much more of a supply problem.
>> Fascinating stuff. We are going to get back to questions for David Sekera on US stocks in a moment's 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.
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Canadian and US labour markets burst out of the gate to start 2023, despite the series of central bank rate hikesinflation and the economy.
Our Anthony Okolie joins us now to look into this Friday when you're going to get more jobs report. What are we thinking?
>> Thanks.
As you mentioned, January was a blowout month for both US and Canadian jobs with both labour markets adding really strong jobs.
We will start with the Canadian jobs market. The added better-than-expected hundred and 15000 New Positions in January.
This chart shows, employment upward trend since December. It exceeds the pre-pandemic level setback in February 2020. The majority of those gains came from full-time jobs in the private sector alongside people working more hours.
My next chart, we take a look at the unemployment rate here in Canada, it stayed steady at 5%, just above the record low 4.9% that we setback in June and July and well below the 5.7% to be had in February 2020 before the pandemic.
Looking ahead to Friday's February job supports, TD Securities expects Canada to lose 10000 Jobs in February while the unemployment rate edges slightly higher to 5.1%. TD Securities is also looking for wage growth the firm to 5.2% year-over-year versus 4.5% in the previous month. The Bank of Canada is not going to get a look at the jobs report before their upcoming meeting on interest rate.
That's tomorrow, as for the BOC's rate decision, they look for the central bank to keep rates unchanged at 4 1/2%.
Turning south of the border, TD Securities is looking for the US to add a still above trend 230000 Jobs in February, normalizing after January's unsustainable 517,000 job gain.
They are also looking for the unemployment rate in the US to stay steady at 3.4%.
Looking ahead, they do see the unemployment rate rising to 4% by the end of the year as more people are drawn back into the labour force. TD Securities also things that hiring will ease gradually, resulting in a slowdown of payroll growth from the second quarter onwards.
Finally, the slowdown in jobs will also slow consumption spending in the United States. It's going to reduce excess savings as the effects of the continued Fed hiking cycle to at least 5 1/4% of Fed funds rate works its way through the US economy.
>> TD Securities is thinking that if you see a softening labour market that slows down the consumer, in the world's largest consumer economy, what does that tell us about the recession risk?
>> TD Securities no longer expects a US recession to begin in the third quarter of this year.
Now they do expect a combination of easing inflation along with the Fed keeping rates higher for longer will lead to a contraction of payroll starting in 2024.
Now the job losses and economics assume that will drive the unemployment rate down to 4% this year and they see it raising to as much as 5.5% by the end of 2024. As a result, TD Securities expects the US recession to begin in the first quarter of 2024.
>> Interesting stuff.
Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Let's check in on the market. We will start with the TSX Composite Index. Jerome Powell is a big show of the day for investors on both sides of the border.
Talking about the fact that interest rates may need to go highertwo it tame inflation and will be economy.
For good measure, if we need to go back to a bigger rate hikes then quarter points at a time, they will do that as well. No guarantees. They will do what's needed to tame inflation.
The market reacted off the release of those comments.
Down hundred 55 points on the TSX Composite Index, three quarters of a percent. You did see oil prices pull back.
Commodity is very sensitive to the US back.
Teck Resources and the mining space, let's see some of the reaction. Down almost 3% on the same.
Can form, I noticed the forest rename showing some modest strength earlier the session. Let's check in on Canfor.
It's hanging onto its gains at 2354 per share. South of the border, let's check in on the S&P 500. You're down about 33 points right now, turning much near the lows of the session. A bit off bad. 83 basis points to the downside. The tech heavy NASDAQ, how's it going against the broader market? A little bit better, down 76 points right now, we will call that exactly what it is, two thirds of the percent.
Taking a look at Wall Street banks, how are they faring in this environment where Jerome Powell is talking about perhaps higher than anticipated rates to tame inflation? We've got Bank of America right now at 33 bucks and change, down a little bit more than 2%.
We are back now with David Sekera, chief US market strategist with Morningstar Research. We are taking your questions about US equities. I hear someone wants to know do you see any opportunities in the small caps?
>> When we take a look at the market fair value, we break it down into a MorningStar style box. In the box, we break it down by large, mid and small and we also break down by value, core and growth stocks.
So when I look at large and mid-cap, they are trading close in line with the broad market view that we think the market is 10 to 12% undervalued. It those small caps are even more undervalued.
We see value for investors that are able to take on additional risk and something that's going to be more volatile.
The other area I would highlight she was that when we break it down between value, core and growth and the core stocks are those that have some attributes of values and growth that don't necessarily fit in one of those categories, and actually points to a Bärbel portfolio of being overweight value, overweight growth and then underweight those core stocks as we can core stocks are trading at at much closer to fair value where is the value stocks in the growth stocks are trading at about 15 to 16% undervalued respectively.
>> Mentioned the risks they are the smaller Names. I think of the small caps as being sensitive to the economic cycle.
Is not part of the risk of trying to figure where we are headed in the economy?
>> It is. And again, gets back to why at MorningStar we really focus on investing for the long term. We really try to make sure we understand the you have the right risk tolerance to be able to take volatility in the short term.
So again, that small caps space, we have seen a lot of volatility there, we expect to see volatility there going forward.
>> Let's take another question now. Plenty coming in. What sector do you see having the most volatility this year? That's an interesting one.
>> It also gets back to what we're talking about earlier with the energy sector.
Again, energy has certainly been very volatile, up over 60%. Last year trading six or 7% this year.
We do think energy is overvalued so that is one where I do still have concerns about her coming down further.
>> We had a questionnaire coming down to you and you were talking about it during one of the breaks about sectors to avoid.
Someone asks, any sectors to avoid?
They're worried about technology after the year they had last year.
What's your thoughts on tech here?
>> Check is still undervalued but it's not as undervalued as what it was earlier this year. It did have the big run up that was on January.
But we do still think that it's trading at about 11% discount to fair value.
When I kind of look at some of our other sectors out there besides energy, there aren't any really that I would necessarily recommend as underweight but I do think offensives are still pretty fully valued and on a relative value basis are probably more expensive than what we see in the rest the marketplace.
So more of those cyclical sectors is where we see more value for investors going forward.
>> We will squeeze in one more question.
What you're look for the communications companies?
>> This is the most undervalued sector by far in our view. Trading at a more 30% discount our fair value. With communications coming after member that that sectors heavily weighted towards Alphabet, parent of Google, Meta, parent of Facebook.
Those are two companies that I think have a differentiating view from the rest of the market place. We think both of those companies are undervalued and in fact Alphabet did take I think about a 9% selloff here recently once they came out with their version of AI. I think the market is pretty disappointed in that product compared to some of the other AI platforms out there.
But not just Alphabet and Meta, we do think that entire sectors undervalued.
We see a lot of opportunities, even some of those more traditional names that we see there.
When I take a look at some of our Canadian coverage, we do see a lot of value in word traditional commute occasion, Bell Canada, Telus, we think those are undervalued.
>> Interesting stuff. A pleasure to have you here.
A pleasure to have you here in person.
Meet the next time will be in person.
Either way, you are always welcome.
> Thank you.
>> Our things to David Sekera, chief US market strategist with Morningstar Research. Stay tuned. Tomorrow is Bank of Canada day. Andrew Kelvin is going to be on the program, chief Canada strategist Ted TD Securities.
We are going to break down what we are hearing from Tiff Macklem. They said they are on pause but we will find out for sure tomorrow.
That seems to be the consensus call though, that they will hold the pause. We will know for sure tomorrow after 10 AM Eastern time.
You can get a head start with your questions. Email moneytalklive@td.
com.
That's all the time we have for the show today. Thanks for watching and we will see you tomorrow.
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