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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 show, MorningStar's chief US market strategist David Sekera will join us with his view on the big takeaways from earnings season so far.
MoneyTalk's Anthony Okolie is going to take us through some of the latest data on the health of the Canadian real estate market. And in today's WebBroker education segment, Caitlin Cormier will show us a potential way to diversify your portfolio using the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets.
we will start here at home with the TSX Composite Index.
Up a very modest 13 points or six ticks, continuing to see the price of crude oil under pressure.
American benchmark crude now below, well below, 68 bucks and change right now for a barrel of WTI, it's been quite a pullback in the last couple of sessions so that is definitely pressuringsome of those energy names but we do have some green on the screen. What is happening? We have earnings ramping up. Equinox Gold, it was a bead for them. Equinox up almost 9% right now.
Aritzia has been a success story throughout the pandemic and seem to hold some of that momentum coming out of the pandemic. Although it had a strong quarter, the guidance seems to be disappointing the street today for this is a substantial pullback. The stock has done well in recent months. At 3396, you are down right now almost 21% on the day.
South of the border, S&P 500, there might be something happening in two hours timeto catch the attention of investors and that would be the US Federal Reserve's rate decision.
We are going to have full coverage for you throughout the afternoon and you can go to MoneyTalk go to see some of the work that Anthony Okolie is going to do on this one and right now as we wait, at 4125, you got the S&P 500 up a very modest six point. The NASDAQ, let's check in on that one as well. Pretty much in line with the broader market had the fed, but we do continue to get earnings. CVS Health came out. It was a beat but they are lowering their profit outlook on acquisition costs.
This stock on derivative pressure. Nothing too dramatic. At 7056, you are down about 3%. And that's your market update.
There are no shortage of catalysts in the markets this week as we continue to get earnings releases from some of the biggest companies on Wall Street. We do have concerns about the health of the US regional banks and of course we have central business decisions to way.
Joining us there with his views David Sekera, chief US market strategist at morning Star research.
David, great to have you back on the show. We got so much to talk about, let's talk about earnings season.
We are in the thick of it. What have we been seeing so far?
>> Really, my big comment to start off with would be companies really provide a relatively conservative or guided down in the beginning of the year in anticipation of an economic slowdown and of course I didn't happening. Earnings overall are going to be pretty easy to meet or beat at this point.
So when I kind of look at the beginning of earnings season, it started off with the big banks, they are generally in line were better-than-expected and their guidanceis also better-than-expected. The real take away there for me is the increase in loan loss reserves, but they will increase those loan loss reserves to slightly higher than historical averages.
So what that tells me is that the big banks are preparing for a modest or mild recession, but they are not looking for a spike in defaulter bankruptcies.
Taking a look then at the big tech, also for the most part better-than-expected.
They did give some softer guidance but the guidance was better than a lot of people had feared.
I think the take away from the big tech is the economy still continues to soften but it is not softening at an accelerated rate.
This week, I'm shifting my attention to what I called the real economy stocks, the industrial companies.
I talked to our industrial analyst yesterday and I like his take away. He quoted me, you know, reality is actually better than perception.
And he broke these into two different cycles. So again, there is the long business cycle stocks and what he's saying is therefore the type of companies that have long lead times like aeronautics and automation, those are still holding up pretty well.
But what he did notices he is starting to see weakness in the short business cycle stocks, those that are the quick turnaround between a manufacturing and sales. So I think that is indicative of the economy starting to stagnate or even soften.
>> If we do get this recession that we have been talking about for so long, and that is being commented on by executives during earnings, it is going to be pretty well telegraphed one.
Have the markets sort of fully priced in this fact that we keep saying recession, recession, recession?
>> Well, from our point of view, we actually think that US stocks as a group are generally undervalued.
We cover over 700 stocks that trade on the US exchanges and we will compare the intrinsic values determined by our analytical team on those stocks compared to where they are in the marketplace brutal while we do think that stocks are generally undervalued, I think we have a relatively rough road ahead for the next couple of quarters, so we do think the economy in the second quarter is going to be stagnant.
We are looking for a zero GDP print for the second quarter, a slight contraction, probably just under a 1% contraction in the third and then a very slow recovery starting in the fourth quarter. So that of course will put pressure on earnings for the next couple of quarters.
And I do think you could see some negative market tightens him in. If you look at the S&P 500, we are still pretty close to the top of the trading rate we have been in pretty much since last fall, and I think that in order to break through that ceiling, it's not going to be until later this year.
I think the markets are going to be looking for leading economic indicators to not only really turnaround and bottom out but start moving back upwards again.
> The big story in the markets of the law several weeks of course has been the turmoil that we are seeing in US regional banks. A lot of discussion as to whether this is it very specific, idiosyncratic to these banks or whether we have another issue on our hands. How should we view with the regional banks right now?
>> Our take on the regional banks is that they are stressed but not broken. And when I look at our coverage of the regional banks, First Republic, we lowered our fair value on that stock down to 3 Dollars in March and then down to zero after their earnings.
But from a fundamental point of view, net interest income margins, they are being compressed but we are incorporating that into our valuation models.
In fact, we do forecast earnings probably already peaked in the fourth quarter of last year and we think they are going to decline sequentially over the course of the rest of this year and probably not bottom out until the fourth quarter or maybe even the beginning of next year before they begin a slow recovery.
But overall for long-term investors, we do think these banks will continue to earn their cost of capital or more. So yes, there may be some other bank failures out there, but of the regional banks recover, we are just not seeing it.
And I think the market to some degree is overreacting to the short-term pressures and in many cases, probably imposed a lot of the stock sound too far. Having said that, if we do still see this negative sentiment in the markets, equity prices on those regional to push down further, that may actually require the Fed to step in with some sort of new program to try to help alleviate the pressure.
>> Of course, when you talk about First Republic there, the shares are being delisted.
In terms of what you saw coming on that, it's not really a concern anymore ask for the fact that its assets got snapped up by J.P. Morgan.
> Yeah, exactly. I believe officially was put into receivership by FCIC. J.P. Morgan then bought the assets and also took the deposits with them. So the depositors there, they will be made whole at the end of the day.
>> When it comes to the big macro concerns, we talked about earnings and regional banking stress, of course we still have the central banks. In this country, we are on a conditional pause and have been for quite some time.
People trying to figure out whether the world holds arguably most influential central bank is going to do the same.
How do we see the path forward for the Fed?
>> Everyone is expecting the Fed to be one and done at this point. I think the Fed is going to pause after this hike but really it's going to be a matter of how long can they keep rates higher for longer until the economy softens.
Inflation comes down of the course of this year and argue and we expect the economy to soften, probably bottoming out in the third quarter.
We think the combination will give the Fed the ability to start cutting rates.
Reading the first rate cut will be December of this year. Now I think it's going to be watching the press conference after the meeting it. Chair Powell is really going to have to walk a tightrope. He needs to continue to keep taking that strong stance about fighting inflation, but he also has to intimate to the market that the Fed recognizes that they can't over tighten policy or keep it too tight for too long to the point that it could cause a deep or prolonged recession. I think the hard part today's he's going to get a lot of questions about the regional banks.
But unfortunately, I don't think is going to have anything to say that's going to be new or substantial about the regional.
>> An interesting afternoon.
Interesting times.
We will get your questions about US stocks for David Sekera in just a moment time.
A reminder course 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.
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 Starbucks in the spotlight today, that after the coffee chain declined to lift its earnings guidance after a much better-than-expected sales growth in the most recent quarter. China was a source of strength for Starbucks in those three monthsbut the company is saying sales growth there will moderate in the second half of the year. You can see the stock down now a pretty substantial 9%.
Cineplex telling us that box office revenue continues to climb closer to pre-pandemic levels.
the theatre chain says April receipts came in just 4% shy levels before COVID 19 hit in 2020. Films such as John Wick: Chapter 4 and The Super Mario Bros. Movie proved to be big draws. In a note to clients, TD Cowen said the Hollywood writers strike should not have a near-term impact on Cineplex, given movie scripts are often written years in advance.
we have Loblaw or raising its dividend payout to shareholders by 10%, that after delivering an in-line earnings for the most recent quarter.
The Canadian grocery giant is sticking with its forecast of low double-digit earnings-per-share growth for this year.
Slightly lower-than-expected food sales in the previous quarter were partially offset by strong drug sales for that period.
Right now you got Loblaw down 2.8%. A quick check in on the main benchmark indices. We will start here at home on Bay Street with the TSX Composite Index.
Head of the Fed, we are up a modest 14 points. Still seeing pressure in the price of crude today and the energy names but the market is modestly in positive territory.
South of the border, the S&P 500. What does it look like ahead of the Fed? A pretty modest seven points up, little shy of 1/5 of a percent.
We are back now with David Sekera from Morningstar Research, take your questions about US stocks. Plenty coming in for you, David. Let's get to one.
Intel.
He believed that it could catch up to Nvidia and/or AMD?
>> Sorry, I was coughing earlier and had to mute.
Intel, I think it's going to be under pressure for the next year or two. As you mentioned, they have kind of fallen behind in their production process as well as the technology in their semiconductors and I think that has open the door to AMD, which has really done a very good job and I think they are going to be in a really good position from business sampling for the next couple of years. I think Intel is going to have to keep their spendingrelatively elevated in R&D to catch up.
Our analytical team thinks that's going to take at least a year if not two before that happens. Taking a look at the semiconductor space, if we are looking for opportunities there, I would take a look at NXP. NXP makes specialty semiconductors.
while there has been a glut of commodity oriented semiconductors out there, we are still seeing relatively high demand for those specialty semis and I do think NXP over the longer term is going to be well-positioned for those autonomous vehicles and for electric vehicles. So that is one that I do think is interesting.
You mentioned Nvidia. Again, I'd be very cautious of that one. That's a stock that has ramped up, fallen, ramp back up again.
Again, they will be well-positioned for artificial intelligence over the long term but I would be cautious of that one today.
>> It was adjusted to me recently that some of these chipmakers, because obviously from a layman's perspective, he made a semiconductor, you need semiconductors power AI, it should benefit the industry as a whole but it was suggested to me that some companies have a better offering when it comes to their chips and AI applications.
Are there some who will do better than others in the future?
>> Yeah, I think that's a big reason why we saw such a huge run up in Nvidia this year is because I think that is one where people are expecting their chips really to be well-positioned. Away from Nvidia, some of the ways to play AI is going to be not necessarily just in the chipmakers themselves but the people that supply the chipmakers. So one company that we've been watching is ASM L. So they actually make the equipment that's used in order to make semiconductors and I know our analytical team thinks they have a pretty good product lineup that will be able to supply those equipment for the AI chipmakers.
>> Let's take another question now, this one about Tesla.
We hear a lot about electric vehicles from all of the automakers now you and your hearing a lot more about self driving vehicles. What are you thinking here?
>> Tesla, one of the things I think is interesting about them versus it via other automakers is they manage their own sales channel.
They see changes in demandright away they can quickly react and make price cuts when they need to and that's what we saw in the first quarter.
Short-term, margins will be compressed following those price cuts but over the long term, our investment thesis is really unchanged.
We still expect that as Tesla grows, it will get better fixed cost leverage and should remain a leader within the EV space.
We think that will lead to improved margins over the longer term. But again, one of the better ways to play this long-term structural shift is not necessarily just the auto guys themselves but some of those suppliers.
Lithium, we expect that lithium is going to be undersupplied over the next decade and that will keep lithium prices well above their marginal cost of production. Auto parts companies, some of those that are well-positioned with the right products in order to make cars electrified will do well. And then lastly, a lot of specialty chemical companies are often overlooked by investors. It takes anywhere from 2 to 3 times the amount of specialty chemicals to make an electric vehicle as opposed to an internal combustion engine. So there should be some pretty good tailwinds behind those chemical companies over the next decade.
>> Okay, so it's a pretty interesting space to take a look at.
As you look out from the centre of the automakers, more interesting names to research. Book a trip of a name like Tesla in particular? Everyone wants to be in the space.
>> It's a tough one with Tesla. That stock is hugely volatile and a large part of that is because so much of the value of that company is really what you expect they are going to be doing not this year, not next year but five years from now, 10 years from now.
And so when we think about the number of cars they will produce over the next decade and what our market shares are, they are unable to meet those marketshare percentages, I think that there certainly could be some downside risk and that over time.
>> Here is one that's looking back to the conventional question. The internal combustion engines and other uses we have for oil and gas. With your outlook for the oil and gas sector?
>> Sure. In the short term, we do expect oil prices will remain relatively high. We have seen a bit of a pullback year but OPEC is doing their best to keep prices high with their production cuts and, of course, that should boost earnings and cash flows for the next couple of quarters. But generally when we look at the sector, I think a lot of these companies are fairly to fully valued. Over the long term, our energy team has maintained their long-term price forecast, so we believe kind of where the supply and demand over the long-term and the marginal cost of oil production need is going to be $55 a barrel for West Texas.
So investors looking for opportunities in this sector, some of the areas that we do think there are still some undervalued plays are going to be more in the pipelines and the oil services companies.
>> So you said 55?
55 for West Texas. At 55.
>> Substantially lower than we are now. I find it interesting when we take a look at a lot of the Canadian energy names, they have been more focused on share buybacks, special dividends and dividend hikes than they have been in investing in the legacy business.
Is this telling us something longer-term about how we should be doing this sector?
>> I don't necessarily know if that's really what it's telling us in the long term. I note that here in the US, a lot of the oil companies have been very focused on shareholder returns and a lot of that is just due to over the past, a lot of these companies when oil prices were moving up, they tried to grow too far, too fast and then when oil prices came back down, a lot of those companies became very distressed, so a lot of it is really just the shareholders of these companies are really keeping management's feet to the fire, making sure that the growth that they do make sense for the long-term and where they have excess cash flow to be able to use that for the share buybacks and the dividends to reward shareholders.
>> As always, make sure you do your own research before making any investment decisions.
we will get back your questions for David Sekera on US stocks in just a moment's time.
Our minor, course, you get in touch with us at any 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.
Having a diversified portfolio is one method to navigate tough periods in the markets and WebBroker has tools which can help.
Caitlin Cormier, client education instructor with TD Direct Investing has more.
>> When it comes to the basics of portfolio building, there are three main categories that investors need to be familiar with. We have cash, fixed income and equity. But the next building block that we need to add to that formula is diversification.
So this is achieved by investors choosing different investments in different countries, industry is and with different market capitalizations.
The idea is that by choosing investments that react differently to each other within the market, you can achieve the best potential return with the lowest level of risk. But how can this diversification be achieved without hours of research and individual investment picking?
As well as continuous monitoring of your portfolio? An ETF might be an option investors could consider in order to achieve this.
So to find ETF's, we are going to jump into WebBroker and take a peek at our ETF screener. All right, so we are going to start under research.
We are going to click on under tools and go to screeners.
Like I said, we are going to look at options under ETFs today because that is an option for us to achieve that diversification under an ETF. So let's go ahead and click custom screen. We are going to choose our own particular criteria for this process today.
So what I'm going to start out by choosing is ongoing to choose fund type. I want to click add criteria and as I scroll down, I see there are a few different options here.
Select we talked about a few minutes ago, we have the fixed income portion which would be that bond portion, and then we have equity.
so those are kind of the two biggest pieces that we will be looking to kind of have within this portfolio.
So let's start out by choosing an international equity portion.
so I'm going to click international equity and we can see that there are a lot of matches for international equity for ETFs.
Will include mutual funds and look at ETFs.
We still have 639 which is probably too many for us to sort through. I'm gonna put an index just to tell whether these are index funds or not. And when you choose it, I'm going to just have it there. And then I'm going to go under dividends and choose a distribution frequency.
sso maybe we are looking to have regular distributions paid out monthly so let's go ahead and include that and then finally, let's go back to management expense ratio, so essentially the cost of this particular fund and maybe we are looking to keep it on the lower end side so let's choose lowest and below average. Now we only have 25 results and this is much more manageable.
These are examples of things to use to filter down results but of course you can choose anything that is important and appropriate for your choices.
Okay, so what we have here is a listing of the results.
We've got the country, fund type, whether it's an index fund or not, the distribution frequency and the MER. We can rearrange any of these as we so choose. For example, if I just want to see whether it's an index fund or not, I can go ahead and click index and it will rearrange these particular results in that way.
I can also choose MER if I want to see the lowest MER to the highest MER and essentially with these results do is they give me an option to kind of go through and pick individual international ETFs, do a bit of further research and see if that particular ETF might meet that international portion of my portfolio to help me achieve diversification.
So that is one way for investors to kind of take some of the stress out of diversification, finding a fund that might meet that particular portion of diversification for them and our screener tool that can help you in the way. Thanks so much.
>> Thank you, Caitlin Cormier, client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now, before we get back to your questions about US stocks for David Sekera, a reminder of how you can get in touch this. 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, taking her question about US stocks.
Plenty coming into let's keep rolling through them here, David. They want to know how big a risk is office real estate right now?
>> Well, like all real estate, it is going to be very idiosyncratic.
there are a lot of concerns, we have our own concerns as well.
For example, if you have long-term leases in place, high-quality tenants, it's not going to be a problem.
But the biggest concern is really going to be in the urban areas, not so much in the suburban or outlying areas, and I'm just looking at things like the castle returned to work index. It seems like return to office is kind of stuck here at like a 50% occupancy rate, so I do think that as leases start coming up, they are going to have to get renegotiated and probably get renegotiated lower.
Really the biggest risk in that sector is going to be people that play in the structured finance market, bond market.
Any single name, CMTS, security deals, where we are releasing a lot of the pain right now.
>> That's interesting. I didn't know there was a back to work index, I have to check that out. I can only do my own observations, taking the train five days a week into the city. It's empty on Mondays and Fridays for the most part.
What would that mean in terms of I guess if someone is talking about office real estate, they really have to have a thesis going forward that the sticks, that people don't return to the office en masse like they used to.
Is it the hardest part of try to figure out the path forward?
>> It is. And like I said, trying to understand at a 50% occupancy level, how long will it take to release some of that empty space back out? And it's not just the offices, it's also going to be a lot of the retail locations in the urban areas where we are starting to see not enough for traffic coming to those stores and seeing some closures within the cities.
So I think it's going to take a good amount of time for that for traffic to completely normalize.
I do think they're going to be some pain to take in the short term.
>> I want to ask you about other parts of the real estate market. Office is very, when you talk about commercial coming of offices and the malls. Is there more of a return story with the malls?
>> That's an area we've been comfortable with for a while and specifically the high-end, the class a malls.
We have seen consumer behaviour normalizing, foot traffic increasing in all of these different areas which certainly helps them out.
But with the malls, there are a couple of other more fundamental things going on as well.
One, a lot of them have changed up portfolios of the retailers that they have.
So they are able to increase foot traffic by having those retailers that coordinate with one another.
They have also become a lot more experiential. So again, having offerings that can't be replicated online. So when you think about restaurants, even exercise facilities, restaurants, theatres, those are bringing people back as well. So a couple of other companies that we think are interesting there. So for investors that might have an interest, Simon Property group would probably be the biggest class a model REIT in the United States.
>> That's something to take a look at. Everyone is encouraged to do their own research before they make any investment decisions.
Okay, here's a big issue that's going to be waiting on us for a while now, US debt level. You have of you are asking, with US debt levels leading to a possible default, what sectors and types of investment vehicles could investors use to take advantage of this short-term volatility?
what do you make of this debt ceiling kerfuffle, I guess we could call it?
>> It is not really the debt level but a political problem. The United States has… Increased the amount of debt that is allowed to be issued. We are going to be running up against that shortly.
but if the US were to default, which, again, we think it's highly unlikely, I don't think anyone really knows exactly what would happen. My biggest concern would actually be the funding markets.
When you think about repose and a lot of liquidity vehicles, they use US treasuries as collateral and I'm sure that almost all of these vehicles are going to have covenants in there that you can't have defaulted securities to use as collateral.
So what happens with all of those if that were to happen? I think it's almost anyone's guess at this point. We just know that is going to be really bad if it does happen. So for people that have an interest ahead of US economics, our DC policy analyst publish an article in January walking through what they think could happen over the next couple of months. In my view, I think going to be a lot of sound and fury signifying nothing. I think it's going to be a lot of politicians out there trying to score political points but, at the end of the day, I'm pretty confident the United States government is not going to have a payment or interest default on their security.
>> For people watching the show right now, course, you are watching on the WebBroker plot from, we do have a lot of Morningstar Research that you can check out if you go to the research lab and take a look through it all. We are going to get back your questions for David Sekera on US stocks in just 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.
the recovery in Canada's housing market gaining some momentum in April, home prices in big cities steadily increasing.
Our Anthony Okolie has been digging into all the numbers and taking a look at what TD Economics has to say federal.
>> Thanks.
As you mentioned, we are seeing some positive trends in home prices. As you mentioned, some of the big cities, we will start here in the greater Toronto area, average prices for a home, that excludes high-value properties, was absolutely more than 2% last month according to the Toronto Regional Real Estate Board. That just over $1.1 million for a home.
Now, it was 1/3 consecutive month of home price increases. Meanwhile, sales in the GTA surged 27% in April as more homebuyers continue to come off the sidelines following the past interest rate increases.
Now, while we are seeing a pickup in demand, the supply of new listings continues to be below average. In fact, here in Toronto, new listings in Toronto were up about 6 1/2% but that's well below the 10 year average. And the shortage of listings may be the result of several factors, including one concern that homeowners may not be able to find another property, plus we are seeing higher mortgage rates.
Also there are concerns that the homes won't trigger the big offers or bidding wars that we saw back in 2021 and early year 2022.
Now, we are seeing a similar situation in other big cities like Vancouver and Calgary and the greater Vancouver area, we are seeing a great pickup in demand, but that is far outpacing the number of properties available for sale. In April, new listings remained below the 10 year average.
In Calgary, same thing.
April sales tumbled 21% year-over-year while new listings were down more than 30% during the same period.
TD Economics is forecasting the quarterly sales, they are actually seeing quarterly as sales through 2023, both stronger growth forecasted in the second half of this year. Canadian average home prices have some modest downsideand they expect the housing market prices to bottom in the second half, sorry, the second quarter, rather, of this year.
Now, when you look across regions across Canada, Ontario and BC are set to report the strongest quarterly sales growth this year. But they say that this should be taken as a sign of strength.
2023 is likely to be the softest sales years since the early 2000's in both provinces.
Now when it comes to home prices, quarterly price growth is expected to prevail mostly in Ontario and BC.
Meanwhile, prices are expected to hold better in Québec and the Prairie provinces like Saskatchewan, and they expect these patterns to hold up in 2024 because of the better affordability in the prairies. Greg?
>> Interesting sort of outlook therefrom TD Economics on housing. What is the biggest risk or some of the risks to that outlook?
> Yeah, one of the big risks is potential rule changes by the banking regulators to tighten the rules around lending conditions as well as stress testing.
Some of the risks include the potential for more financial market volatility and instability as well as weaker economic growth. Now, if that happens, we could see greater than expected job losses which, of course, would her demand for homes and that would cause potentially some forced selling in the housing market.
Now, not all the risks are to the downside.
We could see sales catching up faster than expected which could provide a lift to average home prices this year. Greg?
>> Interesting stuff as always. Everyone is already's interest in real estate in this country.
Thanks.
MoneyTalk Anthony Okolie.
And then of course, half an hour after that, you can hear from Jerome Powell perhaps with the even more key today in terms of what we are interested in hearing from the Fed about the path forward.
The markets are modestly in positive territory. The TSX Composite Index up and 23 point, about 1/10 of a percent.
the decline in American benchmark crude is affecting our energy names.
Dotson of us now at 2053 per share, down about 2 1/2%.
Barrick Goldwith their latest quarterly report, it's holding steady and 2718, it up a little shy of a full percent.
Let's take a look at the S&P 500 and what are the Americans doing ahead of the Fed? 8 1/2 points to the upside, about 1/5 of a percent.
The tech heavy NASDAQ pretty much in line with the broader market the last time you checked. Let's check on her right now.
Maybe you'll get that 1/3 of a percent of the upside to be generous. And Starbucks, we are hearing a lot about companies coming out and saying they had a… We had someone earlier right in saying what is going on with AMD stocks today?
Let's check in on it.
It's down about 8 1/2%, 8219. It is in the semi space.
At first blush, it seems that investors are reacting to not only the earnings for the quarter past but about what's coming forward in terms of Advanced Micro Devices and it seems that in terms of their forecast it's a bit lacklustre for the markets taste. It got Advanced Micro Devices down about 8 1/2% we are back now David Sekera from Morningstar Research, taking her question about US stocks. We've got plenty coming in, so let's get back to them.
Our markets had to go higher or lower to the rest of 2023? One of these crystal ball questions.
>> well, we think that right now the US stock market is undervalued, trading in an 8 to 9% discount to a composite of the fair value of stock that we cover the trade in the US, but having said that, I don't necessarily expect to seethem really rally in the short term. I think there's actually going to be a rough road ahead over the next couple of quarters. We are looking for the economy to stagnate here in the second quarter, contract a little bit in the third and then make a slow recovery in the fourth quarter. So I think that will put pressure on earnings and earnings growth for at least the foreseeable future here. I do think that could drive some negative market sentiment over the course of the summer.
So what I'm really looking for our leading economic indicators to bottom out and start turning around. I think that's what the market is going to be looking forward to really start moving back up, kind of breakthrough the near-term ceiling that we had in the market thus far. I would just note that I don't necessarily expect those leading economic indicators to really start turning around and moving up until maybe late summer at the earliest or maybe even until the fall.
>> Alright, before we let you go, I went around back to the top of the conversation. We are less than 90 minutes away from the Fed. Tell us again, what are you expecting or listening for?
>> Well, a couple of different things.
Again, we are looking for them to raise rates one last time. I think that chair Powell needs to intimates of the markets that this is going to be the last one for a while a hand again, I think while he is going to have to talk to the market and let the market know that yes, we are very serious about fighting inflation, I think he also has to make sure that he lets the market know that we are also concerned about not fighting inflation so much that it's really going to end up taking its toll too much on the economy, really trying to guide towards that soft landing.
And I am curious to see what he has to say about the regional banks and I hope I'm going to be pleasantly surprised that he got some good, positive commentary there. But it's going to be remained to be seen here.
> David, it was good to have you on the program. Really appreciate your time and will talk soon. Our thanks to David Sekera, chief US market strategist with morning for research. As always, make sure you do your own research before making any investment decisions. and of course, we are awaiting the Fed, less than 90 minutes time. Anthony Okolie is going to be a busy man this afternoon.
Let's talk about what we are expecting.
We just talked about David Sekera and what we are listening for but what are the markets exciting out of the Fed today?
>>as David mentioned, I think the markets are expecting another 25 basis point rate hike by the Fed. This would be the 10th consecutive increase by the Fed over the past year and you will take the terminal rates from 5 to 5 1/4%. Last week, the Fed's favourite gauge of inflation, the PCE Index, did show a pickup in momentum of core inflation, specifically core services.
When you exclude housing inflation, it still shows no sign of slowing towards a level in line with the Fed's 2% target rate so I expect some discussion by the chairman about how the inflation fight is going, with the outlook is there and also to talk about the recent banking crisis, what's going on thereand what their outlook is there as well.
So I think pretty much it's a 25 basis point expectation of a hike and we will have wait and see what the feds says about the environment.
>> At 2 PM Eastern time, we get the statement, then we wait half an hour for Jerome Powell to show up and give us another statement but then he starts to take questions. This is working get really interesting in terms of what is going to be asked of Jerome Powell, how much he is going to want to say about the path forward, giving indications to investors, the rate of the path going forward, and then you are going to have a conversation with Hafiz Noordin this afternoon with what we should make of it all.
>> That's right, we will have immediate response. I will be interviewing Hafiz Noordin right after the decision so look out for that on MoneyTalk go.com.
>> Alright. We are all going to have our eyes glued to that one.
We don't like to use the term all eyes but I think when it comes to the fed decision in times like this, if you are an investor, this is the place you're going to be looking this afternoon.
>> Exactly, this is the big one.
>> On a programming note, we are going to have that reaction as we were saying with Hafiz Noordin. Anthony is going to have the conversation.
You can check in on the website later this afternoon, MoneyTalk go, to see what they had to say about it all.
And then, on Thursday, tomorrow show, Ben Gossack is going to be with us, portfolio manager at TD Asset Management, taking your questions about global stocks and you will probably have something to say about the Fed this afternoon and a lot more about what we are seeing the markets.
He always brings his charts with him.
I don't think tomorrow will be any different.
And reminder, course, you head start on your questions for Ben.
Just email moneytalklive@td.com. That's all for the show 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 show, MorningStar's chief US market strategist David Sekera will join us with his view on the big takeaways from earnings season so far.
MoneyTalk's Anthony Okolie is going to take us through some of the latest data on the health of the Canadian real estate market. And in today's WebBroker education segment, Caitlin Cormier will show us a potential way to diversify your portfolio using the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets.
we will start here at home with the TSX Composite Index.
Up a very modest 13 points or six ticks, continuing to see the price of crude oil under pressure.
American benchmark crude now below, well below, 68 bucks and change right now for a barrel of WTI, it's been quite a pullback in the last couple of sessions so that is definitely pressuringsome of those energy names but we do have some green on the screen. What is happening? We have earnings ramping up. Equinox Gold, it was a bead for them. Equinox up almost 9% right now.
Aritzia has been a success story throughout the pandemic and seem to hold some of that momentum coming out of the pandemic. Although it had a strong quarter, the guidance seems to be disappointing the street today for this is a substantial pullback. The stock has done well in recent months. At 3396, you are down right now almost 21% on the day.
South of the border, S&P 500, there might be something happening in two hours timeto catch the attention of investors and that would be the US Federal Reserve's rate decision.
We are going to have full coverage for you throughout the afternoon and you can go to MoneyTalk go to see some of the work that Anthony Okolie is going to do on this one and right now as we wait, at 4125, you got the S&P 500 up a very modest six point. The NASDAQ, let's check in on that one as well. Pretty much in line with the broader market had the fed, but we do continue to get earnings. CVS Health came out. It was a beat but they are lowering their profit outlook on acquisition costs.
This stock on derivative pressure. Nothing too dramatic. At 7056, you are down about 3%. And that's your market update.
There are no shortage of catalysts in the markets this week as we continue to get earnings releases from some of the biggest companies on Wall Street. We do have concerns about the health of the US regional banks and of course we have central business decisions to way.
Joining us there with his views David Sekera, chief US market strategist at morning Star research.
David, great to have you back on the show. We got so much to talk about, let's talk about earnings season.
We are in the thick of it. What have we been seeing so far?
>> Really, my big comment to start off with would be companies really provide a relatively conservative or guided down in the beginning of the year in anticipation of an economic slowdown and of course I didn't happening. Earnings overall are going to be pretty easy to meet or beat at this point.
So when I kind of look at the beginning of earnings season, it started off with the big banks, they are generally in line were better-than-expected and their guidanceis also better-than-expected. The real take away there for me is the increase in loan loss reserves, but they will increase those loan loss reserves to slightly higher than historical averages.
So what that tells me is that the big banks are preparing for a modest or mild recession, but they are not looking for a spike in defaulter bankruptcies.
Taking a look then at the big tech, also for the most part better-than-expected.
They did give some softer guidance but the guidance was better than a lot of people had feared.
I think the take away from the big tech is the economy still continues to soften but it is not softening at an accelerated rate.
This week, I'm shifting my attention to what I called the real economy stocks, the industrial companies.
I talked to our industrial analyst yesterday and I like his take away. He quoted me, you know, reality is actually better than perception.
And he broke these into two different cycles. So again, there is the long business cycle stocks and what he's saying is therefore the type of companies that have long lead times like aeronautics and automation, those are still holding up pretty well.
But what he did notices he is starting to see weakness in the short business cycle stocks, those that are the quick turnaround between a manufacturing and sales. So I think that is indicative of the economy starting to stagnate or even soften.
>> If we do get this recession that we have been talking about for so long, and that is being commented on by executives during earnings, it is going to be pretty well telegraphed one.
Have the markets sort of fully priced in this fact that we keep saying recession, recession, recession?
>> Well, from our point of view, we actually think that US stocks as a group are generally undervalued.
We cover over 700 stocks that trade on the US exchanges and we will compare the intrinsic values determined by our analytical team on those stocks compared to where they are in the marketplace brutal while we do think that stocks are generally undervalued, I think we have a relatively rough road ahead for the next couple of quarters, so we do think the economy in the second quarter is going to be stagnant.
We are looking for a zero GDP print for the second quarter, a slight contraction, probably just under a 1% contraction in the third and then a very slow recovery starting in the fourth quarter. So that of course will put pressure on earnings for the next couple of quarters.
And I do think you could see some negative market tightens him in. If you look at the S&P 500, we are still pretty close to the top of the trading rate we have been in pretty much since last fall, and I think that in order to break through that ceiling, it's not going to be until later this year.
I think the markets are going to be looking for leading economic indicators to not only really turnaround and bottom out but start moving back upwards again.
> The big story in the markets of the law several weeks of course has been the turmoil that we are seeing in US regional banks. A lot of discussion as to whether this is it very specific, idiosyncratic to these banks or whether we have another issue on our hands. How should we view with the regional banks right now?
>> Our take on the regional banks is that they are stressed but not broken. And when I look at our coverage of the regional banks, First Republic, we lowered our fair value on that stock down to 3 Dollars in March and then down to zero after their earnings.
But from a fundamental point of view, net interest income margins, they are being compressed but we are incorporating that into our valuation models.
In fact, we do forecast earnings probably already peaked in the fourth quarter of last year and we think they are going to decline sequentially over the course of the rest of this year and probably not bottom out until the fourth quarter or maybe even the beginning of next year before they begin a slow recovery.
But overall for long-term investors, we do think these banks will continue to earn their cost of capital or more. So yes, there may be some other bank failures out there, but of the regional banks recover, we are just not seeing it.
And I think the market to some degree is overreacting to the short-term pressures and in many cases, probably imposed a lot of the stock sound too far. Having said that, if we do still see this negative sentiment in the markets, equity prices on those regional to push down further, that may actually require the Fed to step in with some sort of new program to try to help alleviate the pressure.
>> Of course, when you talk about First Republic there, the shares are being delisted.
In terms of what you saw coming on that, it's not really a concern anymore ask for the fact that its assets got snapped up by J.P. Morgan.
> Yeah, exactly. I believe officially was put into receivership by FCIC. J.P. Morgan then bought the assets and also took the deposits with them. So the depositors there, they will be made whole at the end of the day.
>> When it comes to the big macro concerns, we talked about earnings and regional banking stress, of course we still have the central banks. In this country, we are on a conditional pause and have been for quite some time.
People trying to figure out whether the world holds arguably most influential central bank is going to do the same.
How do we see the path forward for the Fed?
>> Everyone is expecting the Fed to be one and done at this point. I think the Fed is going to pause after this hike but really it's going to be a matter of how long can they keep rates higher for longer until the economy softens.
Inflation comes down of the course of this year and argue and we expect the economy to soften, probably bottoming out in the third quarter.
We think the combination will give the Fed the ability to start cutting rates.
Reading the first rate cut will be December of this year. Now I think it's going to be watching the press conference after the meeting it. Chair Powell is really going to have to walk a tightrope. He needs to continue to keep taking that strong stance about fighting inflation, but he also has to intimate to the market that the Fed recognizes that they can't over tighten policy or keep it too tight for too long to the point that it could cause a deep or prolonged recession. I think the hard part today's he's going to get a lot of questions about the regional banks.
But unfortunately, I don't think is going to have anything to say that's going to be new or substantial about the regional.
>> An interesting afternoon.
Interesting times.
We will get your questions about US stocks for David Sekera in just a moment time.
A reminder course 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.
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 Starbucks in the spotlight today, that after the coffee chain declined to lift its earnings guidance after a much better-than-expected sales growth in the most recent quarter. China was a source of strength for Starbucks in those three monthsbut the company is saying sales growth there will moderate in the second half of the year. You can see the stock down now a pretty substantial 9%.
Cineplex telling us that box office revenue continues to climb closer to pre-pandemic levels.
the theatre chain says April receipts came in just 4% shy levels before COVID 19 hit in 2020. Films such as John Wick: Chapter 4 and The Super Mario Bros. Movie proved to be big draws. In a note to clients, TD Cowen said the Hollywood writers strike should not have a near-term impact on Cineplex, given movie scripts are often written years in advance.
we have Loblaw or raising its dividend payout to shareholders by 10%, that after delivering an in-line earnings for the most recent quarter.
The Canadian grocery giant is sticking with its forecast of low double-digit earnings-per-share growth for this year.
Slightly lower-than-expected food sales in the previous quarter were partially offset by strong drug sales for that period.
Right now you got Loblaw down 2.8%. A quick check in on the main benchmark indices. We will start here at home on Bay Street with the TSX Composite Index.
Head of the Fed, we are up a modest 14 points. Still seeing pressure in the price of crude today and the energy names but the market is modestly in positive territory.
South of the border, the S&P 500. What does it look like ahead of the Fed? A pretty modest seven points up, little shy of 1/5 of a percent.
We are back now with David Sekera from Morningstar Research, take your questions about US stocks. Plenty coming in for you, David. Let's get to one.
Intel.
He believed that it could catch up to Nvidia and/or AMD?
>> Sorry, I was coughing earlier and had to mute.
Intel, I think it's going to be under pressure for the next year or two. As you mentioned, they have kind of fallen behind in their production process as well as the technology in their semiconductors and I think that has open the door to AMD, which has really done a very good job and I think they are going to be in a really good position from business sampling for the next couple of years. I think Intel is going to have to keep their spendingrelatively elevated in R&D to catch up.
Our analytical team thinks that's going to take at least a year if not two before that happens. Taking a look at the semiconductor space, if we are looking for opportunities there, I would take a look at NXP. NXP makes specialty semiconductors.
while there has been a glut of commodity oriented semiconductors out there, we are still seeing relatively high demand for those specialty semis and I do think NXP over the longer term is going to be well-positioned for those autonomous vehicles and for electric vehicles. So that is one that I do think is interesting.
You mentioned Nvidia. Again, I'd be very cautious of that one. That's a stock that has ramped up, fallen, ramp back up again.
Again, they will be well-positioned for artificial intelligence over the long term but I would be cautious of that one today.
>> It was adjusted to me recently that some of these chipmakers, because obviously from a layman's perspective, he made a semiconductor, you need semiconductors power AI, it should benefit the industry as a whole but it was suggested to me that some companies have a better offering when it comes to their chips and AI applications.
Are there some who will do better than others in the future?
>> Yeah, I think that's a big reason why we saw such a huge run up in Nvidia this year is because I think that is one where people are expecting their chips really to be well-positioned. Away from Nvidia, some of the ways to play AI is going to be not necessarily just in the chipmakers themselves but the people that supply the chipmakers. So one company that we've been watching is ASM L. So they actually make the equipment that's used in order to make semiconductors and I know our analytical team thinks they have a pretty good product lineup that will be able to supply those equipment for the AI chipmakers.
>> Let's take another question now, this one about Tesla.
We hear a lot about electric vehicles from all of the automakers now you and your hearing a lot more about self driving vehicles. What are you thinking here?
>> Tesla, one of the things I think is interesting about them versus it via other automakers is they manage their own sales channel.
They see changes in demandright away they can quickly react and make price cuts when they need to and that's what we saw in the first quarter.
Short-term, margins will be compressed following those price cuts but over the long term, our investment thesis is really unchanged.
We still expect that as Tesla grows, it will get better fixed cost leverage and should remain a leader within the EV space.
We think that will lead to improved margins over the longer term. But again, one of the better ways to play this long-term structural shift is not necessarily just the auto guys themselves but some of those suppliers.
Lithium, we expect that lithium is going to be undersupplied over the next decade and that will keep lithium prices well above their marginal cost of production. Auto parts companies, some of those that are well-positioned with the right products in order to make cars electrified will do well. And then lastly, a lot of specialty chemical companies are often overlooked by investors. It takes anywhere from 2 to 3 times the amount of specialty chemicals to make an electric vehicle as opposed to an internal combustion engine. So there should be some pretty good tailwinds behind those chemical companies over the next decade.
>> Okay, so it's a pretty interesting space to take a look at.
As you look out from the centre of the automakers, more interesting names to research. Book a trip of a name like Tesla in particular? Everyone wants to be in the space.
>> It's a tough one with Tesla. That stock is hugely volatile and a large part of that is because so much of the value of that company is really what you expect they are going to be doing not this year, not next year but five years from now, 10 years from now.
And so when we think about the number of cars they will produce over the next decade and what our market shares are, they are unable to meet those marketshare percentages, I think that there certainly could be some downside risk and that over time.
>> Here is one that's looking back to the conventional question. The internal combustion engines and other uses we have for oil and gas. With your outlook for the oil and gas sector?
>> Sure. In the short term, we do expect oil prices will remain relatively high. We have seen a bit of a pullback year but OPEC is doing their best to keep prices high with their production cuts and, of course, that should boost earnings and cash flows for the next couple of quarters. But generally when we look at the sector, I think a lot of these companies are fairly to fully valued. Over the long term, our energy team has maintained their long-term price forecast, so we believe kind of where the supply and demand over the long-term and the marginal cost of oil production need is going to be $55 a barrel for West Texas.
So investors looking for opportunities in this sector, some of the areas that we do think there are still some undervalued plays are going to be more in the pipelines and the oil services companies.
>> So you said 55?
55 for West Texas. At 55.
>> Substantially lower than we are now. I find it interesting when we take a look at a lot of the Canadian energy names, they have been more focused on share buybacks, special dividends and dividend hikes than they have been in investing in the legacy business.
Is this telling us something longer-term about how we should be doing this sector?
>> I don't necessarily know if that's really what it's telling us in the long term. I note that here in the US, a lot of the oil companies have been very focused on shareholder returns and a lot of that is just due to over the past, a lot of these companies when oil prices were moving up, they tried to grow too far, too fast and then when oil prices came back down, a lot of those companies became very distressed, so a lot of it is really just the shareholders of these companies are really keeping management's feet to the fire, making sure that the growth that they do make sense for the long-term and where they have excess cash flow to be able to use that for the share buybacks and the dividends to reward shareholders.
>> As always, make sure you do your own research before making any investment decisions.
we will get back your questions for David Sekera on US stocks in just a moment's time.
Our minor, course, you get in touch with us at any 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.
Having a diversified portfolio is one method to navigate tough periods in the markets and WebBroker has tools which can help.
Caitlin Cormier, client education instructor with TD Direct Investing has more.
>> When it comes to the basics of portfolio building, there are three main categories that investors need to be familiar with. We have cash, fixed income and equity. But the next building block that we need to add to that formula is diversification.
So this is achieved by investors choosing different investments in different countries, industry is and with different market capitalizations.
The idea is that by choosing investments that react differently to each other within the market, you can achieve the best potential return with the lowest level of risk. But how can this diversification be achieved without hours of research and individual investment picking?
As well as continuous monitoring of your portfolio? An ETF might be an option investors could consider in order to achieve this.
So to find ETF's, we are going to jump into WebBroker and take a peek at our ETF screener. All right, so we are going to start under research.
We are going to click on under tools and go to screeners.
Like I said, we are going to look at options under ETFs today because that is an option for us to achieve that diversification under an ETF. So let's go ahead and click custom screen. We are going to choose our own particular criteria for this process today.
So what I'm going to start out by choosing is ongoing to choose fund type. I want to click add criteria and as I scroll down, I see there are a few different options here.
Select we talked about a few minutes ago, we have the fixed income portion which would be that bond portion, and then we have equity.
so those are kind of the two biggest pieces that we will be looking to kind of have within this portfolio.
So let's start out by choosing an international equity portion.
so I'm going to click international equity and we can see that there are a lot of matches for international equity for ETFs.
Will include mutual funds and look at ETFs.
We still have 639 which is probably too many for us to sort through. I'm gonna put an index just to tell whether these are index funds or not. And when you choose it, I'm going to just have it there. And then I'm going to go under dividends and choose a distribution frequency.
sso maybe we are looking to have regular distributions paid out monthly so let's go ahead and include that and then finally, let's go back to management expense ratio, so essentially the cost of this particular fund and maybe we are looking to keep it on the lower end side so let's choose lowest and below average. Now we only have 25 results and this is much more manageable.
These are examples of things to use to filter down results but of course you can choose anything that is important and appropriate for your choices.
Okay, so what we have here is a listing of the results.
We've got the country, fund type, whether it's an index fund or not, the distribution frequency and the MER. We can rearrange any of these as we so choose. For example, if I just want to see whether it's an index fund or not, I can go ahead and click index and it will rearrange these particular results in that way.
I can also choose MER if I want to see the lowest MER to the highest MER and essentially with these results do is they give me an option to kind of go through and pick individual international ETFs, do a bit of further research and see if that particular ETF might meet that international portion of my portfolio to help me achieve diversification.
So that is one way for investors to kind of take some of the stress out of diversification, finding a fund that might meet that particular portion of diversification for them and our screener tool that can help you in the way. Thanks so much.
>> Thank you, Caitlin Cormier, client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now, before we get back to your questions about US stocks for David Sekera, a reminder of how you can get in touch this. 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, taking her question about US stocks.
Plenty coming into let's keep rolling through them here, David. They want to know how big a risk is office real estate right now?
>> Well, like all real estate, it is going to be very idiosyncratic.
there are a lot of concerns, we have our own concerns as well.
For example, if you have long-term leases in place, high-quality tenants, it's not going to be a problem.
But the biggest concern is really going to be in the urban areas, not so much in the suburban or outlying areas, and I'm just looking at things like the castle returned to work index. It seems like return to office is kind of stuck here at like a 50% occupancy rate, so I do think that as leases start coming up, they are going to have to get renegotiated and probably get renegotiated lower.
Really the biggest risk in that sector is going to be people that play in the structured finance market, bond market.
Any single name, CMTS, security deals, where we are releasing a lot of the pain right now.
>> That's interesting. I didn't know there was a back to work index, I have to check that out. I can only do my own observations, taking the train five days a week into the city. It's empty on Mondays and Fridays for the most part.
What would that mean in terms of I guess if someone is talking about office real estate, they really have to have a thesis going forward that the sticks, that people don't return to the office en masse like they used to.
Is it the hardest part of try to figure out the path forward?
>> It is. And like I said, trying to understand at a 50% occupancy level, how long will it take to release some of that empty space back out? And it's not just the offices, it's also going to be a lot of the retail locations in the urban areas where we are starting to see not enough for traffic coming to those stores and seeing some closures within the cities.
So I think it's going to take a good amount of time for that for traffic to completely normalize.
I do think they're going to be some pain to take in the short term.
>> I want to ask you about other parts of the real estate market. Office is very, when you talk about commercial coming of offices and the malls. Is there more of a return story with the malls?
>> That's an area we've been comfortable with for a while and specifically the high-end, the class a malls.
We have seen consumer behaviour normalizing, foot traffic increasing in all of these different areas which certainly helps them out.
But with the malls, there are a couple of other more fundamental things going on as well.
One, a lot of them have changed up portfolios of the retailers that they have.
So they are able to increase foot traffic by having those retailers that coordinate with one another.
They have also become a lot more experiential. So again, having offerings that can't be replicated online. So when you think about restaurants, even exercise facilities, restaurants, theatres, those are bringing people back as well. So a couple of other companies that we think are interesting there. So for investors that might have an interest, Simon Property group would probably be the biggest class a model REIT in the United States.
>> That's something to take a look at. Everyone is encouraged to do their own research before they make any investment decisions.
Okay, here's a big issue that's going to be waiting on us for a while now, US debt level. You have of you are asking, with US debt levels leading to a possible default, what sectors and types of investment vehicles could investors use to take advantage of this short-term volatility?
what do you make of this debt ceiling kerfuffle, I guess we could call it?
>> It is not really the debt level but a political problem. The United States has… Increased the amount of debt that is allowed to be issued. We are going to be running up against that shortly.
but if the US were to default, which, again, we think it's highly unlikely, I don't think anyone really knows exactly what would happen. My biggest concern would actually be the funding markets.
When you think about repose and a lot of liquidity vehicles, they use US treasuries as collateral and I'm sure that almost all of these vehicles are going to have covenants in there that you can't have defaulted securities to use as collateral.
So what happens with all of those if that were to happen? I think it's almost anyone's guess at this point. We just know that is going to be really bad if it does happen. So for people that have an interest ahead of US economics, our DC policy analyst publish an article in January walking through what they think could happen over the next couple of months. In my view, I think going to be a lot of sound and fury signifying nothing. I think it's going to be a lot of politicians out there trying to score political points but, at the end of the day, I'm pretty confident the United States government is not going to have a payment or interest default on their security.
>> For people watching the show right now, course, you are watching on the WebBroker plot from, we do have a lot of Morningstar Research that you can check out if you go to the research lab and take a look through it all. We are going to get back your questions for David Sekera on US stocks in just 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.
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the recovery in Canada's housing market gaining some momentum in April, home prices in big cities steadily increasing.
Our Anthony Okolie has been digging into all the numbers and taking a look at what TD Economics has to say federal.
>> Thanks.
As you mentioned, we are seeing some positive trends in home prices. As you mentioned, some of the big cities, we will start here in the greater Toronto area, average prices for a home, that excludes high-value properties, was absolutely more than 2% last month according to the Toronto Regional Real Estate Board. That just over $1.1 million for a home.
Now, it was 1/3 consecutive month of home price increases. Meanwhile, sales in the GTA surged 27% in April as more homebuyers continue to come off the sidelines following the past interest rate increases.
Now, while we are seeing a pickup in demand, the supply of new listings continues to be below average. In fact, here in Toronto, new listings in Toronto were up about 6 1/2% but that's well below the 10 year average. And the shortage of listings may be the result of several factors, including one concern that homeowners may not be able to find another property, plus we are seeing higher mortgage rates.
Also there are concerns that the homes won't trigger the big offers or bidding wars that we saw back in 2021 and early year 2022.
Now, we are seeing a similar situation in other big cities like Vancouver and Calgary and the greater Vancouver area, we are seeing a great pickup in demand, but that is far outpacing the number of properties available for sale. In April, new listings remained below the 10 year average.
In Calgary, same thing.
April sales tumbled 21% year-over-year while new listings were down more than 30% during the same period.
TD Economics is forecasting the quarterly sales, they are actually seeing quarterly as sales through 2023, both stronger growth forecasted in the second half of this year. Canadian average home prices have some modest downsideand they expect the housing market prices to bottom in the second half, sorry, the second quarter, rather, of this year.
Now, when you look across regions across Canada, Ontario and BC are set to report the strongest quarterly sales growth this year. But they say that this should be taken as a sign of strength.
2023 is likely to be the softest sales years since the early 2000's in both provinces.
Now when it comes to home prices, quarterly price growth is expected to prevail mostly in Ontario and BC.
Meanwhile, prices are expected to hold better in Québec and the Prairie provinces like Saskatchewan, and they expect these patterns to hold up in 2024 because of the better affordability in the prairies. Greg?
>> Interesting sort of outlook therefrom TD Economics on housing. What is the biggest risk or some of the risks to that outlook?
> Yeah, one of the big risks is potential rule changes by the banking regulators to tighten the rules around lending conditions as well as stress testing.
Some of the risks include the potential for more financial market volatility and instability as well as weaker economic growth. Now, if that happens, we could see greater than expected job losses which, of course, would her demand for homes and that would cause potentially some forced selling in the housing market.
Now, not all the risks are to the downside.
We could see sales catching up faster than expected which could provide a lift to average home prices this year. Greg?
>> Interesting stuff as always. Everyone is already's interest in real estate in this country.
Thanks.
MoneyTalk Anthony Okolie.
And then of course, half an hour after that, you can hear from Jerome Powell perhaps with the even more key today in terms of what we are interested in hearing from the Fed about the path forward.
The markets are modestly in positive territory. The TSX Composite Index up and 23 point, about 1/10 of a percent.
the decline in American benchmark crude is affecting our energy names.
Dotson of us now at 2053 per share, down about 2 1/2%.
Barrick Goldwith their latest quarterly report, it's holding steady and 2718, it up a little shy of a full percent.
Let's take a look at the S&P 500 and what are the Americans doing ahead of the Fed? 8 1/2 points to the upside, about 1/5 of a percent.
The tech heavy NASDAQ pretty much in line with the broader market the last time you checked. Let's check on her right now.
Maybe you'll get that 1/3 of a percent of the upside to be generous. And Starbucks, we are hearing a lot about companies coming out and saying they had a… We had someone earlier right in saying what is going on with AMD stocks today?
Let's check in on it.
It's down about 8 1/2%, 8219. It is in the semi space.
At first blush, it seems that investors are reacting to not only the earnings for the quarter past but about what's coming forward in terms of Advanced Micro Devices and it seems that in terms of their forecast it's a bit lacklustre for the markets taste. It got Advanced Micro Devices down about 8 1/2% we are back now David Sekera from Morningstar Research, taking her question about US stocks. We've got plenty coming in, so let's get back to them.
Our markets had to go higher or lower to the rest of 2023? One of these crystal ball questions.
>> well, we think that right now the US stock market is undervalued, trading in an 8 to 9% discount to a composite of the fair value of stock that we cover the trade in the US, but having said that, I don't necessarily expect to seethem really rally in the short term. I think there's actually going to be a rough road ahead over the next couple of quarters. We are looking for the economy to stagnate here in the second quarter, contract a little bit in the third and then make a slow recovery in the fourth quarter. So I think that will put pressure on earnings and earnings growth for at least the foreseeable future here. I do think that could drive some negative market sentiment over the course of the summer.
So what I'm really looking for our leading economic indicators to bottom out and start turning around. I think that's what the market is going to be looking forward to really start moving back up, kind of breakthrough the near-term ceiling that we had in the market thus far. I would just note that I don't necessarily expect those leading economic indicators to really start turning around and moving up until maybe late summer at the earliest or maybe even until the fall.
>> Alright, before we let you go, I went around back to the top of the conversation. We are less than 90 minutes away from the Fed. Tell us again, what are you expecting or listening for?
>> Well, a couple of different things.
Again, we are looking for them to raise rates one last time. I think that chair Powell needs to intimates of the markets that this is going to be the last one for a while a hand again, I think while he is going to have to talk to the market and let the market know that yes, we are very serious about fighting inflation, I think he also has to make sure that he lets the market know that we are also concerned about not fighting inflation so much that it's really going to end up taking its toll too much on the economy, really trying to guide towards that soft landing.
And I am curious to see what he has to say about the regional banks and I hope I'm going to be pleasantly surprised that he got some good, positive commentary there. But it's going to be remained to be seen here.
> David, it was good to have you on the program. Really appreciate your time and will talk soon. Our thanks to David Sekera, chief US market strategist with morning for research. As always, make sure you do your own research before making any investment decisions. and of course, we are awaiting the Fed, less than 90 minutes time. Anthony Okolie is going to be a busy man this afternoon.
Let's talk about what we are expecting.
We just talked about David Sekera and what we are listening for but what are the markets exciting out of the Fed today?
>>as David mentioned, I think the markets are expecting another 25 basis point rate hike by the Fed. This would be the 10th consecutive increase by the Fed over the past year and you will take the terminal rates from 5 to 5 1/4%. Last week, the Fed's favourite gauge of inflation, the PCE Index, did show a pickup in momentum of core inflation, specifically core services.
When you exclude housing inflation, it still shows no sign of slowing towards a level in line with the Fed's 2% target rate so I expect some discussion by the chairman about how the inflation fight is going, with the outlook is there and also to talk about the recent banking crisis, what's going on thereand what their outlook is there as well.
So I think pretty much it's a 25 basis point expectation of a hike and we will have wait and see what the feds says about the environment.
>> At 2 PM Eastern time, we get the statement, then we wait half an hour for Jerome Powell to show up and give us another statement but then he starts to take questions. This is working get really interesting in terms of what is going to be asked of Jerome Powell, how much he is going to want to say about the path forward, giving indications to investors, the rate of the path going forward, and then you are going to have a conversation with Hafiz Noordin this afternoon with what we should make of it all.
>> That's right, we will have immediate response. I will be interviewing Hafiz Noordin right after the decision so look out for that on MoneyTalk go.com.
>> Alright. We are all going to have our eyes glued to that one.
We don't like to use the term all eyes but I think when it comes to the fed decision in times like this, if you are an investor, this is the place you're going to be looking this afternoon.
>> Exactly, this is the big one.
>> On a programming note, we are going to have that reaction as we were saying with Hafiz Noordin. Anthony is going to have the conversation.
You can check in on the website later this afternoon, MoneyTalk go, to see what they had to say about it all.
And then, on Thursday, tomorrow show, Ben Gossack is going to be with us, portfolio manager at TD Asset Management, taking your questions about global stocks and you will probably have something to say about the Fed this afternoon and a lot more about what we are seeing the markets.
He always brings his charts with him.
I don't think tomorrow will be any different.
And reminder, course, you head start on your questions for Ben.
Just email moneytalklive@td.com. That's all for the show today. Thanks for watching. We will see you tomorrow.
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