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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether investors are too optimistic about the prospects for growth and why now may be a good time to consider alternative strategies.
TD Asset Management's Emin Baghramyan joins us. MoneyTalk's Anthony Okolie is going to have a look at a new TD Securities report on the outlook for the lumber sector. And in today's WebBroker education segment, Caitlin Cormier shows us how you can customize your view on the WebBroker platform. So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before you get our guest of the day, let's get you an update on the markets. We'll start here at home with the TSX Composite Index.
We are down 70 points, about 1/3 of a percent.
Nothing too dramatic. We have seen a drift in market sentiment. Yesterday after the close of earnings, Nvidia was the big one and it delivered on the promise of AI. The market more broadly in the states got a lift off of all that but it seems like some of the tech names are just sort of drifting out. We will start here at home with our big tech name. Shopify has been on a nice run for the last couple of sessions, giving a bit back today.
At 75 bucks and change, it's not about 2 1/4%. Noticed earlier that BCE which has been under pressure for the past month or so, perhaps more so going back to me, adding a bit of a bid today. At 5565, it's up about 1/2%. Now south of the border, those Nvidia earnings did lift the broader market in the earlier going, but as I said, we have been drifting. Right now, that broader read of the American market, the S&P 500,down about 36 points, almost a full percent. The tech heavy NASDAQ is also giving up some points.
It's been a nice rallied the last couple of days ahead of Nvidia but it's turned the corner. Hundred and 70 points to the downside, 1 1/4%.
The next big market catalyst could very well be what Jerome Powell has to tell us tomorrow morning from Jackson Hole.
Perhaps a little caution ahead of that.
And guess jeans, let's check in on them.
Apparently some retailers feeling the pressure of inflation, consumers not spending on discretionary items, but Abercrombie and Fitch has earned its way through this environment and so HouseGuest. The market is liking what they are seeing.
20 bucks and Jane, were up almost 26% on the name. And that's market update.
Markets have been increasingly pricing in a soft landing scenario for the economy, but our guest today says that still means there's going to be a landing of some sortand investors may be too optimistic about the prospects for growth. Joining us now to discuss is Emin Baghramyan, lead of quantitative Portfolio management at TD Asset Management. It great to see you again, great to have you back on the show.
>> Next, Greg. Thanks for having me.
>> So if our theory is, we are going to put it to the test here in our conversation, that investors are a little too optimistic about economic growth for a soft landing, what are we looking at to give us that sense?
>> Well, amidst to the current optimistic outlook regarding the global economy, we at TD Asset Management's quantitive team and take a bit more of a measured perspective on the local economic growth.
While it is true that economic conditions, they proved to be more resilient than many believe, especially considering the amount of monetary tightening we have seen over the past few years, however, we are seeing that there are a few emerging signs that people need to consider when they are making judgements about global economic growth going forward.
The first sign is that while indeed, the interest rate sensitivity of the economy has been greatly reduced and that's because over the past decade, people, companies, local governments took advantage of low interest rates that we have seen over the past decade and kind of locked into these long-term low interest rates. However, there's not really much evidence that there is no sensitivity at all, and we think that the brunt of the negative impacts of the monetary tightening is yet to come.
So there is some kind of time lag that has increased but the negative impacts of the monetary tightening is going to come.
and we look at the sources of economic growth recently, we can see that manufacturing is in recession.
if we look at all the manufacturing PMI's from the US to Canada to Japan to China to Europe, they are in deeply contractionary territory.
And the main source of economic growth has been consumer spending on services. And we think that the service sector has been benefiting still from the legged impacts of the reopening post-pandemic because when we think about this, governments have greatly underwritten the consumer incomes during the pandemic.
The unemployment rate did not shoot up, people were supported by zero interest rates that banks provide around the world.
Plus an enormous amount of physical spending and the payroll production loans and things like that. Soincomes were steady and people had nowhere to spend their money and the brunt of the spending went into goods and renovations and that kind of created this boom in goods spending. However, in the past year or so, when people have the chance to direct their marginal dollars into things that have been missed out and they couldn't spend on things due to social distancing, such as travel and entertainment, restaurants, dining out and things like that, consumer spending has been really, really strong in that area.
However, if we look at the forward-looking indicators, for example, restaurant, hotel bookings that are already showing signs that we are in the final innings of that source of economic growth as well.
So we will leave that services sector will also slow down. And it's not only that.
If we continue looking at the leading indicators such as credit growth, for example, if we take the Senior loan Ofc.
survey, which measures the bank's willingness to lend to consumers, to corporations, we are seeing that there's deep contraction where the lending standards are being tightened sharply and that usually slows down credit growth, and we know that if there is not enough credit in advanced economies, usually economic growth feels the brunt.
>> So we have a few indicators there. It's pretty interesting, perhaps you will see those legs take part in the economy.
When we take a look at the market performance, up until this month, it's been pretty strong.
But you say there are some risks around the so called Magnificent Seven. Take me to the Magnificent Seven.
>> Yes, indeed. If we look at the performance of let's say a very broad basket such as the S&P 500, it looks like it's a positive message that general sentiment is reminding participants that economic growth is okay. However, we look below the surface, we can see that the majority of those gains did not come… It wasn't widely participated rally. We have to first remember that these double-digit gains in the S&P 500 and almost 35% rally so far that we have seen in the NASDAQ is coming on the back of the very similarly deep correction that we saw over the past year. The SNP declined 25% last year and the NASDAQ was down more than 30% last year as well.
But if we look at what is actually increased, it's these so-called tech companies.
And the chart that we currently see, these are a few companies, the so called Magnificent Seven, are responsible for the majority of the gains that we saw in the benchmarks. For example, if we take the very broad average that has equal weighted, and we look at the performance of that, we can see it's basically flat so far and it's running at -10% year to date, 10% annualized returns over the past two years. Which tells us that the average stock or median stock has not really participated so far in this rally.
And that's not a very good sign for the coming health of economic growth going forward. Sowhat that didn't go, and made the benchmarks quite vulnerable to the developments of the so-called Magnificent Seven.
What if something happens? What if the investors are overly optimistic as we have seen throughout history many times, investors get very optimistic about something, very positive, such as currently AR is the driving force where people feel extremely positive on these companies outlooks. However, what if it doesn't pan out as rosy as many expect?
And we see this D concentration of the benchmarks I basically cause big risk for people who tend to invest in the broad benchmarks, such as the S&P 500 or NASDAQ.
That is why we add TD Asset Management quantitative team think that it's a very good time actually to look awaymay be from traditional cap-weighted benchmarks and look for alternative strategies.
>> What would some of those alternative strategies be in an environment like this?
>> In this environment, it would be strategies such as that favour for example low volatility strategies that tend to invest in companies that tend to be more defensive and less benchmark oriented.
They are a lot more diversified and company names, sectors and regionally.
Another interesting strategy is investing in dividend paying stocks and multifactor strategies.
>> Okay, we are going to get deeper into all of that during the show. A great start to the program. We will get to your questions for Emin Baghramyan the in quantitative strategies and just moments time.
Low volatility investing, dividend strategies and other things. A reminder that you in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Nvidia touched all-time highs right out of the gate this morning. The chip maker delivered a strong earnings beat for the quarter. The AI boom is driving demand for Nvidia's chips.
Quarterly sales came in stronger than affected at 13 1/2 billion dollars, that's just for three months.
Nvidia is also providing investors with a pretty robust sales outlook for the current quarter. The stock was doing a bit better earlier in the session. It's still in positive territory at 480 bucks per share, off about 2%, but the broader market lift off from these Nvidia earnings seems to be tapering off a little bit.
Let's take a look at Boeing. It's facing another delay in delivering it 737 Max Jets to customers. The aircraft maker is pointing to a quality problem, some bulkheads supplied by Spirit Aerosystems.
Billing says the issue will impact deliveries in the near term but it hasn't determined whether they will fall short on delivering 400 of those deaths throughout the rest of the year. The stock is down 3 1/2% right now.
Rising costs and shifting consumer habits are pressuring sales at Dollar Tree. The discount retailer says inflation weary households are buying more consumables, such as snacks and cookies, but when it comes to their business, the margins on those items are much smaller than the discretionary items that people are shying away from. They are also seeing labour costs among rising costs hitting Dollar Tree. The market not reacting favourably to the news. The stock is down about 10 1/2%.
A quick check in on the markets.
We will start here at home on Bay Street with the TSX Composite Index.
We are down 54 points right now, about 1/4 of a percent. Nothing too dramatic.
South of the border, the Nvidia bump that we were getting earlier in the trade seems to be dissipating. Maybe investors are now thinking, what are we going to get from Jackson Hole, Jerome Powell, pro morning?
What's he going to tell us about the state of the economy in the future direction of interest rates?
It could be weighing on the market. Down 30 points, a little shy of three quarters of a percent.
We are back now with Emin Baghramyan, taking your questions about quantitative strategies.
Let's get to them. Here's the first one for us.
What is your view on low volatility in this current market?
>> Thank you for the question. Low volatility stocks, we have to remember, I already mentioned that the majority of the gains are coming from the few very large mega-cap tech stocks and they tend to be a highly volatile stocks and they are usually not very widely represented in low volatility strategies.
therefore the performance year-to-date has been great for the strategies. We have to remember that this year,it has been performing strongly over the last year when the market saw sharp drawdowns which is the bread and butter of the strategies which helps investors navigate choppy markets. If investors are looking forward to remain exposed to equities and continue to generate and realize the equity risk premium, they should look in this kind of strategies and the outlook remains positive, especially if the outlook that I hand out about the weakening or softening economic growth indeed takes place, defensive strategies such as low volatility strategy, should do well in such an environment.
>> Is that the biggest risk to a strategy like this, that we do get the mystical soft landing or no landing whatsoever and everything just comes along?
> Of course, if we indeed see an acceleration of economic growth, for some magical reason inflation disappears and interest rates get slashed again, the companies that tend to be expensiveand tend to be more volatile,they would see another uptick. However, the low volatility strategies are more about long term where investors continue to remain exposed to equities and that's the most efficient way of generating this equity risk premium in the long run over the full business cycle where you have a couple of years of strong gains in strong downsides but the strategy is the main strengths.
It limits the downside, but spades and the upside, not as 100% because of the strategy but the power of compounding helps and plays a crucial role of allowing these type of strategies to generate higher risk-adjusted returns than traditional Rated benchmarks over the full business cycle.
> Very interesting stuff.
We've got another one here. They want to get your outlook for dividend stocks right now.
With bond yields driving higher all summer, I've been wondering about this myself.
>> Yeah, so they are now facing competition, strong competition, which they haven't seen for a long time, with money market funds that already provide quite a bit of high interest rates for people who aren't really ready to, do not take that risk and basically safely realize those kind of concerns.
So these type of strategies are facing competition, obviously. However, I would like to highlight a few points in favour of these strategies. First of all, the kind of benefit from tax advantage for many because part of the gains of dividend strategies, also from capital gains, even though they are high paying dividend stocks, some of the gains are not interest income, they come from capital gains, from the longer-term holding these companies for a long term. In the second point is this is more of a long-term strategy where in the long run they should continue to help investors to accumulate wealth and by being exposed to a bit more risk than money market funds, that will allow them many, many years to realize those type of wealth generation by strong and high dividend paying stocks and tend to be the more better at generating wealth.
>> I recently had a conversation with one of your colleagues, TD Asset Management's Michael O'Brien, and we showed that as bond yields go higher, these traditional steady Eddie dividend payers like the telecoms and utilities as a basket of stocks have been trending lower. Could we expect, when we finally get a signal from the Fed or other central banks, not only are they down but they could be in a position to start easing off on rates at some point, that that my turnaround?
>> Yes, there could be a very good trigger. If negative economic research showing up in the data and central banks feel that the aggregate demand that was excessively boosted in the pandemic now we are realizing post-factum that it is time now to a little bit back off and allow inflation to cool down, allow the interest rates to start coming down, that could be a potentially strong trigger for this, these dividend paying companies, the steady and safe companies, to actually perform and also we have to consider that they tend to be less economically sensitive, so their business model, their profit generation, is not really impacted much.
And from the ups and downs of the business cycle.
And if the economic cycle weakens and central banks start loosening a bid or at least kind of stop tightening policy, that can be a good sign for the relative performance gains for this type of companies in these type of sectors.
>> Next question, a nice follow-on to that, a viewer wants to know, can you get your guest to discuss how defensive sectors might perform going forward?
> Stock markets tend to be discounting mechanisms, investors look for signs of future strength to forecast what will be coming so they are not so much backward looking you and. And when economic markets go down, the cyclical components of the market, the more economically sensitive companies and their profits rely on the expanding of the business pie and their margins more rely on this kind of developments in the economic trends, they tend to drop more compared to sectors that tend to be less economically sensitive, lower beta,and in the market downturns they tend to outperform. In the opposite is true. When markets start rallying, defensive markets rally, but that's the environment that investors should be aware of.
Nothing is free.
>> Indeed.
Important things for investors to consider as we move through the economic cycle.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions for a Emin Baghramyan on quantitative strategies 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.
Well, there are ways you can customize WebBroker to better suit your needs.
Caitlin Cormier, client education instructor at TD Direct Investing has more.
>> There isn't a ton that can be customized within WebBroker.
However, there are some interesting settings that you can go ahead and change, including what your homepage is, what your default performance view, and some other different things. Let's go ahead and look in WebBroker and see what different settings can be customized. So first we are going to start in the top right-hand corner of the screen. You're going to click on your name and we are going to go under customized site.
Once we are here, we have the option to go under this tab and choose what we would like to see on our homepage.
The one we have here is our default but you could choose to see your holdings, your goal dashboard, there's lots of different options here including market overview.
The next option we have here is managing account preference. You can choose for your default account to be one particular county trade more often in. You can have an account that you are able to see kind of specifically every time you go to a specific page, or one that default as you are active trading account.
Default performance view is where you can choose between time -weighted return and personal rate of return. Essentially, time weighted talks about from one point in time to another.
Personal rate of return takes into consideration any deposits and withdrawals in the account as well. So if you look at this little? Here, you can actually watch a quick video on the differences between the two and make a decision about how you would like to see your performance. One of the really important ones we have here is session timeout. This tells you basically how long you can remain within WebBroker before it will actually log you out and you will have to re-enter your password.
I have mine set the maximum because I'm always on my computer and it also has a password law, but just make sure that if you are using kind of a family computer or something like that that you have the security in place if you are choosing a longer session timeout. The last two options here are the option chain, how many rows you would like to display, and your account holder name, so how you would like your name to show up in the top right-hand side of the account. Make sure you always had say when you are done here so that all of your changes will take effect.
So that is the majority of things that you're able to customize within WebBroker.
Hopefully, you can do some changes there to give it the best possible extremes for you.
>> Our thanks to Caitlin Cormier, client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
before we get back to your questions about quantitative investing for Emin Baghramyan, a reminder of how you can get in touch with us. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
we are back with Emin Baghramyan, discussing quantitative strategies. That's things like low volatility investing, dividend strategy. Let's get another question in here. What's the housing market telling usabout the health of the economy and the credit cycle?
>> The housing market is one of the most historically interest rate sensitive sectors. They tend to be this boom bus driver of the business cycle and they tend to be accelerating first, decelerating first and however, this time, considering from where we came, interest rates being zero, mortgage rates being extremely low, multi-decade lows, and how fast they increase, many were anticipating that the housing market will crash.
However, we haven't seen that so far, but what we are seeing is that basically came to a standstill. If you look at the latest housing transactions data relative to the rest of the economy, we see that people are not transacting. The majority of transactions now come from the new homes completed and when you have an interest rate locked into the next 30 years, it is… If interest rates go up sharply, you don't feel the impact.
However, it kind of keeps people locked in also in terms of not being able to sell the house, to move in something bigger.
For younger people, it creates a problem if they were planning to move out from their parents home to purchase a new home, given how high interest rates are. So on the margin, we did not see the big shock.
In contrast to mid-2000 people's preference to longer term fixed rates where people were mostly borrowing in the variable rates in the US especially.
In contrast to that, we don't see this major crash in the housing markets.
However, the transaction volume is at a standstill and that's a big good negative for economic growth because when people move, they tend to consume, they hire the moving services, they purchase durable goods and a lot of additional spending comes with it. And also economic growth.
People find new jobs.
So this is negating the long-term growth of the economy as well. So housing beingat this juncture at a standstill and given how the credit conditions are being tightened, it is not painting a very attractive picture in the near term.
>> The way you laid it out, it almost feels like a double-edged sword. The south of the border you got your 30 year mortgage, you know your costs are and you can manage your cost, but as you said, there are so many other knock on effects to people trading homes and a whole generation just waiting for other people to move up the ladder so they can get on the ladder.
>> Yes, and it's becoming very hard for them to be able to do that. Affordability is now very tight and that's not even considering the income effect because, as we have been seeing, the labour market in the US has been quite tight and hasn't weakened yet.
There are some initial signs, especially over the past year, a few large tech companies that kind of shed a bit of employees, but the majority of the US employment is very strong so far, and the incomes have been protected and have been quite strong. So the negative impact, sooner or later, it's way to start going up and people will start losing their jobs as well, some people. And that will also put an aggregate negative impact on a portability as well.
So considering high interest rates, high home prices and impeding or coming soon negative impact on, it's not a good cocktail for the housing market and economic growth.
>> Here is an interesting question coming in.
If you are want to get your geographic view right now. North America versus Europe versus Asia. How are we seeing things globally?
>> Yes, TD Asset Management quantitative team, we tend to be more investing in strategies like low volatility in our global funds and given my outlook on the large US companies that tend to dominate the benchmark, our views derived from that point, being underweight US stocks, enough because the majority of this risk is now concentrated in the tech sector or tech related sectors of the US economy.
Given the very large size of the US and the global benchmark being underweight and having a negative relative view for US equities.
Meanwhile, most of the other sectors, including emerging markets and including Japan, we have overweights. The only other underweight market that we have is the United Kingdom.
>> Actually had a viewer question, a nice following, you mentioned Japan. If you are want to know if it's an interesting place to take a look at right now. We've heard a lot of stories about Japan, an aging population,but lately I've been things more positive headlines.
> Yes, Japan is indeed very interesting place right now for investors to look at.
Japan is one of the few countries that does not have a central bank that has been waging this war against inflation, did not phase, they actually have been waging a war for decades to generate inflationgiven what you just mentioned, the negative demographic outlook and the massive bubble they had in the late 80s and early 90s that they have been struggling to deflate away.
So that's a market that doesn't have that issue. They are not waiting for the central bank to pivot.
There is no charging superhigh runaway inflation, and that allows to keep basically Japanese Yen to weaken and that was the main reason the relatives central bank policy stances where the rates were kept at a low level while most of the central banks have been tightening policy aggressively. That allowed the Japanese Yen to weaken and meanwhile Japan is a company that largely, its main corporation, it is very global oriented and they have been treating and generating revenues across the world and they have these exporters who have greatly benefited from the weakening Yen and their stock prices so it's very interesting to look at the industrial conglomerates, the trading companies, large auto traders even, consumer stable companies that tend to be, some of them are global, interesting tech names that you can look at that are also very global and well established, not very risky compared to their technology peers around the world.
So the Japanese equity market in general is very interesting. Obviously, near term, some hedging of the Japanese Yen will still be required while this fight versus inflation still takes place in the US or Canada or Europe. However, the Japanese Yen's long-term outlook is as a safe haven currency and should benefit from having some exposure over the long term to Japanese and as well that will allow to navigate the choppy or equity markets better and a bit safer.
>> Alright, interesting set of circumstances there Japan to take a look at and do some homework on.
We will get back your questions for Emin Baghramyan on quantitative strategies 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 and 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.
Lumber -related stocks have been under pressure recently as companies continue to navigate weaker prices for lumber amid higher interest rates and the slowing of the housing markets.
Our Anthony Okolie joins us now, take a look at a TD Securities report on the outlook for the space. What are you seeing there?
>> TD Security says the forest product equity momentum remains negative in the midst of summer doldrums and the effect of inflation and higher interest rates are affecting consumer spending in housing and DIY markets.
It had a negative impact on lumber market prices. Additionally, there are some signs of elevated levels of offshore lumber imports that have also affected market demand for lumber products this year.
TD notes thatweakness reflected in the second quarter earning results have undermined equities.
Since recent highs less than two months ago, the average share price has declined for the TD Securities covered universe down roughly 14%. Now, earnings for several wood and pulp -weighted equities were below consensus estimates of verses generally above expected results for packaging and tissue companies.
With second-quarter earnings season complete, TD Securities, some of the key insights on the sector inventory trends, and the first one is sawmill inventory declined in the second quarter following a smaller than normal inventory buildup in the first quarter of this year.
The second-quarter declines pretty much reflected the peak spring and summer building season consumption. Historically, the first quarter inventory buildup gets reversed again in the second quarter and third quarter as people are spending on their homes and doing more DIY projects.
In fact, TD Securities notes that all companies in their covered universe do down lumber inventory in the second quarter. While inventories are believed to still be below normal, management commentary suggest that customers are managing inventories carefully and they are keeping their purchases within a 1 to 2 month window.
Now finally, TD Securities highlight some key factors impacting wood products prices.
Some of lumber, where price momentum has been inconsistent across grades and regions across North America.
They point to theSo that's a market that doesn't have that issue. They are not waiting for the central bank to pivot.
There is no charging superhigh runaway inflation, and that allows to keep basically Japanese Yen to weaken and that was the main reason the relatives central bank policy stances where the rates were kept at a low level while most of the central banks have been tightening policy aggressively. That allowed the Japanese Yen to weaken and meanwhile Japan is a company that largely, its main corporation, it is very global oriented and they have been treating and generating revenues across the world and they have these exporters who have greatly benefited from the weakening Yen and their stock prices so it's very interesting to look at the industrial conglomerates, the trading companies, large auto traders even, consumer stable companies that tend to be, some of them are global, interesting tech names that you can look at that are also very global and well established, not very risky compared to their technology peers around the world. So the Japanese equity market in general is very interesting.
Obviously, near term, some hedging of the Japanese Yen will still be required while this fight versus inflation still takes place in the US or Canada or Europe.
However, the Japanese Yen's long-term outlook is as a safe haven currency and should benefit from having some exposure over the long term to Japanese and as well that will allow to navigate the choppy or equity markets better and a bit safer.
>> Alright, interesting set of circumstances there Japan to take a look at and do some homework on. We will get back your questions for Emin Baghramyan Anna on quantitative strategies 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 and 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.
Lumber -related stocks have been under pressure recently as companies continue to navigate weaker prices for lumber amid higher interest rates and the slowing of the housing markets. Our Anthony Okolie joins us now, take a look at a TD Securities report on the outlook for the space. What are you seeing there?
>> TD Security says the forest product equity momentum remains negative in the midst of summer doldrums and the effect of inflation and higher interest rates are affecting consumer spending in housing and DIY markets. It had a negative impact on lumber market prices. Additionally, there are some signs of elevated levels of offshore lumber imports that have also affected market demand for lumber products this year. TD notes thatweakness reflected in the second quarter earning results have undermined equities. Since recent highs less than two months ago, the average share price has declined for the TD Securities covered universe down roughly 14%. Now, earnings for several wood and pulp -weighted equities were below consensus estimates of verses generally above expected results for packaging and tissue companies. With second-quarter earnings season complete, TD Securities, some of the key insights on the sector inventory trends, and the first one is sawmill inventory declined in the second quarter following a smaller than normal inventory buildup in the first quarter of this year. The second-quarter declines pretty much reflected the peak spring and summer building season consumption. Historically, the first quarter inventory buildup gets reversed again in the second quarter and third quarter as people are spending on their homes and doing more DIY projects. In fact, TD Securities notes that all companies in their covered universe do down lumber inventory in the second quarter. While inventories are believed to still be below normal, management commentary suggest that customers are managing inventories carefully and they are keeping their purchases within a 1 to 2 month window. Now finally, TD Securities highlight some key factors impacting wood products prices. Some of lumber, where price momentum has been inconsistent across grades and regions across North America. They point to theSo that's a market that doesn't have that issue. They are not waiting for the central bank to pivot. There is no charging superhigh runaway inflation, and that allows to keep basically Japanese Yen to weaken and that was the main reason the relatives central bank policy stances where the rates were kept at a low level while most of the central banks have been tightening policy aggressively. That allowed the Japanese Yen to weaken and meanwhile Japan is a company that largely, its main corporation, it is very global oriented and they have been treating and generating revenues across the world and they have these exporters who have greatly benefited from the weakening Yen and their stock prices so it's very interesting to look at the industrial conglomerates, the trading companies, large auto traders even, consumer stable companies that tend to be, some of them are global, interesting tech names that you can look at that are also very global and well established, not very risky compared to their technology peers around the world. So the Japanese equity market in general is very interesting.
Obviously, near term, some hedging of the Japanese Yen will still be required while this fight versus inflation still takes place in the US or Canada or Europe.
However, the Japanese Yen's long-term outlook is as a safe haven currency and should benefit from having some exposure over the long term to Japanese and as well that will allow to navigate the choppy or equity markets better and a bit safer.
>> Alright, interesting set of circumstances there Japan to take a look at and do some homework on. We will get back your questions for Emin Baghramyan Anna on quantitative strategies 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 and 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.
Lumber -related stocks have been under pressure recently as companies continue to navigate weaker prices for lumber amid higher interest rates and the slowing of the housing markets. Our Anthony Okolie joins us now, take a look at a TD Securities report on the outlook for the space. What are you seeing there?
>> TD Security says the forest product equity momentum remains negative in the midst of summer doldrums and the effect of inflation and higher interest rates are affecting consumer spending in housing and DIY markets. It had a negative impact on lumber market prices. Additionally, there are some signs of elevated levels of offshore lumber imports that have also affected market demand for lumber products this year. TD notes thatweakness reflected in the second quarter earning results have undermined equities. Since recent highs less than two months ago, the average share price has declined for the TD Securities covered universe down roughly 14%. Now, earnings for several wood and pulp -weighted equities were below consensus estimates of verses generally above expected results for packaging and tissue companies. With second-quarter earnings season complete, TD Securities, some of the key insights on the sector inventory trends, and the first one is sawmill inventory declined in the second quarter following a smaller than normal inventory buildup in the first quarter of this year. The second-quarter declines pretty much reflected the peak spring and summer building season consumption. Historically, the first quarter inventory buildup gets reversed again in the second quarter and third quarter as people are spending on their homes and doing more DIY projects. In fact, TD Securities notes that all companies in their covered universe do down lumber inventory in the second quarter. While inventories are believed to still be below normal, management commentary suggest that customers are managing inventories carefully and they are keeping their purchases within a 1 to 2 month window. Now finally, TD Securities highlight some key factors impacting wood products prices. Some of lumber, where price momentum has been inconsistent across grades and regions across North America.
when we look at the pulp markets, they seem to be nearing an inflection points according to TD Securities things to better pricing in Chinain contrast to further erosions in the north American market. Greg?
> Some interesting dynamics at play there in the market. In the report, did they talk about any of the risks for the pulp and paper and forestry industries?
>> When it comes to risks for this industry, I will point out some of the key ones, particularly in the near term. In the near-term, relatively high rising interest rates could have an impact on ongoing business due to political development as well as a legged impact of recent inflationary pressure. Other risks include economic and financial conditions including inflation, international demand for forest products, natural disasters as well. They also talk about the impact of climate change, government regulation as well as relations with first Nations groups among other key risks.
Greg? I've interesting stuff as always.
Thanks, Anthony. Anthony. Anthony.
Anthony.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat not function. He gives us a nice view of the market movers. We are taking a look at the TSX 60, screening by price and volume.
After several weeks of downside action for volume, PCE is bringing some green on the screen, it's up about 1.6%. Of course, bank earnings kicked off this morning with Royal Bank and TD. You can see a bit of a mixed result there as a reaction to what's happening there. And some of the other banks that are still in the wings, awaiting big price moves today. I noticed that the price of crude, West Texas intermediate was under pressure this morning. It has slipped into positive territory, not doing a lot for energy names right now.
They are all pre-much is flat into the downside.
South of the border, I want to check out the S&P 100, Nvidia still doing a fairly robust trade, taking up a lot of real estate on the page.
It's up 3 1/2%.
But first it looked like a case of those rising tide of tall boats.
One of their competitors AMD down about 6%, Intel down about 2%. Nvidia has a GP use, those graphic processing units that are proven to be pretty instrumental in the artificial intelligence technology front, so they seem to be a beneficiary.
The rest of the market not doing all that much.
Of course, Jackson Hole is tomorrow. Last year Jerome Powell came out with a very short speech.
Perhaps a bit of nervousness or anticipation as to what he might say tomorrow.
You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now is Emin Baghramyan from TD Asset Management. Let's get to a few more questions.
we just talked about artificial intelligence in the context of Nvidia.
A viewer wants to know, is it hype or is there real opportunity here for investing?
>> That's a good question.
We at TD Asset Management quantitative team obviously believe in artificial intelligence being a very powerful tool and we have been hiring a bunch of very smart people, PhDs, to beef up our capacity to do a lot of research into that. And we understand that it is a very powerful tool for identifying these trends, in enormous amounts of data, which is very hard forthe naked eye to do by itself.
However, it is a very competitive spaceand the bigger, the stronger, the more powerful the tool is, and its ability to identify the market inefficiencies for investors to exploit, the more it will attract the competitive forces.
It has its pitfalls as well as many people try it and the more they try it, the more these opportunities will cease to exist and it can turn out to what many would call it as a hype.
Everybody invested a lot of money and tried to exploit that. But when many do it, it might go away.
So something that we will look at but it is too early to tell what kind of exactly results it will generate for many people but we understand its importance, keeping a close eye on that as well.
>> We have run out of time for questions.
Before let you go, I want to go back to the top of our conversation.
He laid out a scenario where these aggressive rate hikes we have seen over the past year and then some have already triggered a manufacturing recession, expecting spending and services to roll off, perhaps we're being too optimistic about a soft landing. That opens up the conversation about alternative investments. What should investors be thinking about here?
>>people who tend to be more risk averse, they should be probably looking at the low volatility strategies or dividend strategies the people who tend to be more risk takers, there is still the belief that there is some juice left in the equity markets and they might not want to follow is but a better way would suggest for all strategies that they are not benchmark centric and our multifactor strategies, for example, or small and mid-cap stocks that have a bit different profile.
That don't have this large exposure to tag and tech related mega-cap stocks that might be vulnerable to different winds of change. So that among those are the alternative strategies I would sit us to follow.
>> Is always such an insightful conversation when you join us. I really appreciate you taking the time today.
>> Thank you very much for having me.
>> Our thanks to Emin Baghramyan, lead of quantitative Portfolio management at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned. We are going to back tomorrow with an update on what we are hearing from central bankers at the Jackson Hole conference, by the time we go to air we will have already heard from Jerome Powell, big event of the day. And then on Monday, Bart Melek, head of commodity strategy at TD Security will be taking your questions about the commodity space.as always, you had start with your questions. You can just email moneytalklive@td.com. The full-time we have the show today. Things were watching.
We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether investors are too optimistic about the prospects for growth and why now may be a good time to consider alternative strategies.
TD Asset Management's Emin Baghramyan joins us. MoneyTalk's Anthony Okolie is going to have a look at a new TD Securities report on the outlook for the lumber sector. And in today's WebBroker education segment, Caitlin Cormier shows us how you can customize your view on the WebBroker platform. So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before you get our guest of the day, let's get you an update on the markets. We'll start here at home with the TSX Composite Index.
We are down 70 points, about 1/3 of a percent.
Nothing too dramatic. We have seen a drift in market sentiment. Yesterday after the close of earnings, Nvidia was the big one and it delivered on the promise of AI. The market more broadly in the states got a lift off of all that but it seems like some of the tech names are just sort of drifting out. We will start here at home with our big tech name. Shopify has been on a nice run for the last couple of sessions, giving a bit back today.
At 75 bucks and change, it's not about 2 1/4%. Noticed earlier that BCE which has been under pressure for the past month or so, perhaps more so going back to me, adding a bit of a bid today. At 5565, it's up about 1/2%. Now south of the border, those Nvidia earnings did lift the broader market in the earlier going, but as I said, we have been drifting. Right now, that broader read of the American market, the S&P 500,down about 36 points, almost a full percent. The tech heavy NASDAQ is also giving up some points.
It's been a nice rallied the last couple of days ahead of Nvidia but it's turned the corner. Hundred and 70 points to the downside, 1 1/4%.
The next big market catalyst could very well be what Jerome Powell has to tell us tomorrow morning from Jackson Hole.
Perhaps a little caution ahead of that.
And guess jeans, let's check in on them.
Apparently some retailers feeling the pressure of inflation, consumers not spending on discretionary items, but Abercrombie and Fitch has earned its way through this environment and so HouseGuest. The market is liking what they are seeing.
20 bucks and Jane, were up almost 26% on the name. And that's market update.
Markets have been increasingly pricing in a soft landing scenario for the economy, but our guest today says that still means there's going to be a landing of some sortand investors may be too optimistic about the prospects for growth. Joining us now to discuss is Emin Baghramyan, lead of quantitative Portfolio management at TD Asset Management. It great to see you again, great to have you back on the show.
>> Next, Greg. Thanks for having me.
>> So if our theory is, we are going to put it to the test here in our conversation, that investors are a little too optimistic about economic growth for a soft landing, what are we looking at to give us that sense?
>> Well, amidst to the current optimistic outlook regarding the global economy, we at TD Asset Management's quantitive team and take a bit more of a measured perspective on the local economic growth.
While it is true that economic conditions, they proved to be more resilient than many believe, especially considering the amount of monetary tightening we have seen over the past few years, however, we are seeing that there are a few emerging signs that people need to consider when they are making judgements about global economic growth going forward.
The first sign is that while indeed, the interest rate sensitivity of the economy has been greatly reduced and that's because over the past decade, people, companies, local governments took advantage of low interest rates that we have seen over the past decade and kind of locked into these long-term low interest rates. However, there's not really much evidence that there is no sensitivity at all, and we think that the brunt of the negative impacts of the monetary tightening is yet to come.
So there is some kind of time lag that has increased but the negative impacts of the monetary tightening is going to come.
and we look at the sources of economic growth recently, we can see that manufacturing is in recession.
if we look at all the manufacturing PMI's from the US to Canada to Japan to China to Europe, they are in deeply contractionary territory.
And the main source of economic growth has been consumer spending on services. And we think that the service sector has been benefiting still from the legged impacts of the reopening post-pandemic because when we think about this, governments have greatly underwritten the consumer incomes during the pandemic.
The unemployment rate did not shoot up, people were supported by zero interest rates that banks provide around the world.
Plus an enormous amount of physical spending and the payroll production loans and things like that. Soincomes were steady and people had nowhere to spend their money and the brunt of the spending went into goods and renovations and that kind of created this boom in goods spending. However, in the past year or so, when people have the chance to direct their marginal dollars into things that have been missed out and they couldn't spend on things due to social distancing, such as travel and entertainment, restaurants, dining out and things like that, consumer spending has been really, really strong in that area.
However, if we look at the forward-looking indicators, for example, restaurant, hotel bookings that are already showing signs that we are in the final innings of that source of economic growth as well.
So we will leave that services sector will also slow down. And it's not only that.
If we continue looking at the leading indicators such as credit growth, for example, if we take the Senior loan Ofc.
survey, which measures the bank's willingness to lend to consumers, to corporations, we are seeing that there's deep contraction where the lending standards are being tightened sharply and that usually slows down credit growth, and we know that if there is not enough credit in advanced economies, usually economic growth feels the brunt.
>> So we have a few indicators there. It's pretty interesting, perhaps you will see those legs take part in the economy.
When we take a look at the market performance, up until this month, it's been pretty strong.
But you say there are some risks around the so called Magnificent Seven. Take me to the Magnificent Seven.
>> Yes, indeed. If we look at the performance of let's say a very broad basket such as the S&P 500, it looks like it's a positive message that general sentiment is reminding participants that economic growth is okay. However, we look below the surface, we can see that the majority of those gains did not come… It wasn't widely participated rally. We have to first remember that these double-digit gains in the S&P 500 and almost 35% rally so far that we have seen in the NASDAQ is coming on the back of the very similarly deep correction that we saw over the past year. The SNP declined 25% last year and the NASDAQ was down more than 30% last year as well.
But if we look at what is actually increased, it's these so-called tech companies.
And the chart that we currently see, these are a few companies, the so called Magnificent Seven, are responsible for the majority of the gains that we saw in the benchmarks. For example, if we take the very broad average that has equal weighted, and we look at the performance of that, we can see it's basically flat so far and it's running at -10% year to date, 10% annualized returns over the past two years. Which tells us that the average stock or median stock has not really participated so far in this rally.
And that's not a very good sign for the coming health of economic growth going forward. Sowhat that didn't go, and made the benchmarks quite vulnerable to the developments of the so-called Magnificent Seven.
What if something happens? What if the investors are overly optimistic as we have seen throughout history many times, investors get very optimistic about something, very positive, such as currently AR is the driving force where people feel extremely positive on these companies outlooks. However, what if it doesn't pan out as rosy as many expect?
And we see this D concentration of the benchmarks I basically cause big risk for people who tend to invest in the broad benchmarks, such as the S&P 500 or NASDAQ.
That is why we add TD Asset Management quantitative team think that it's a very good time actually to look awaymay be from traditional cap-weighted benchmarks and look for alternative strategies.
>> What would some of those alternative strategies be in an environment like this?
>> In this environment, it would be strategies such as that favour for example low volatility strategies that tend to invest in companies that tend to be more defensive and less benchmark oriented.
They are a lot more diversified and company names, sectors and regionally.
Another interesting strategy is investing in dividend paying stocks and multifactor strategies.
>> Okay, we are going to get deeper into all of that during the show. A great start to the program. We will get to your questions for Emin Baghramyan the in quantitative strategies and just moments time.
Low volatility investing, dividend strategies and other things. A reminder that you in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Nvidia touched all-time highs right out of the gate this morning. The chip maker delivered a strong earnings beat for the quarter. The AI boom is driving demand for Nvidia's chips.
Quarterly sales came in stronger than affected at 13 1/2 billion dollars, that's just for three months.
Nvidia is also providing investors with a pretty robust sales outlook for the current quarter. The stock was doing a bit better earlier in the session. It's still in positive territory at 480 bucks per share, off about 2%, but the broader market lift off from these Nvidia earnings seems to be tapering off a little bit.
Let's take a look at Boeing. It's facing another delay in delivering it 737 Max Jets to customers. The aircraft maker is pointing to a quality problem, some bulkheads supplied by Spirit Aerosystems.
Billing says the issue will impact deliveries in the near term but it hasn't determined whether they will fall short on delivering 400 of those deaths throughout the rest of the year. The stock is down 3 1/2% right now.
Rising costs and shifting consumer habits are pressuring sales at Dollar Tree. The discount retailer says inflation weary households are buying more consumables, such as snacks and cookies, but when it comes to their business, the margins on those items are much smaller than the discretionary items that people are shying away from. They are also seeing labour costs among rising costs hitting Dollar Tree. The market not reacting favourably to the news. The stock is down about 10 1/2%.
A quick check in on the markets.
We will start here at home on Bay Street with the TSX Composite Index.
We are down 54 points right now, about 1/4 of a percent. Nothing too dramatic.
South of the border, the Nvidia bump that we were getting earlier in the trade seems to be dissipating. Maybe investors are now thinking, what are we going to get from Jackson Hole, Jerome Powell, pro morning?
What's he going to tell us about the state of the economy in the future direction of interest rates?
It could be weighing on the market. Down 30 points, a little shy of three quarters of a percent.
We are back now with Emin Baghramyan, taking your questions about quantitative strategies.
Let's get to them. Here's the first one for us.
What is your view on low volatility in this current market?
>> Thank you for the question. Low volatility stocks, we have to remember, I already mentioned that the majority of the gains are coming from the few very large mega-cap tech stocks and they tend to be a highly volatile stocks and they are usually not very widely represented in low volatility strategies.
therefore the performance year-to-date has been great for the strategies. We have to remember that this year,it has been performing strongly over the last year when the market saw sharp drawdowns which is the bread and butter of the strategies which helps investors navigate choppy markets. If investors are looking forward to remain exposed to equities and continue to generate and realize the equity risk premium, they should look in this kind of strategies and the outlook remains positive, especially if the outlook that I hand out about the weakening or softening economic growth indeed takes place, defensive strategies such as low volatility strategy, should do well in such an environment.
>> Is that the biggest risk to a strategy like this, that we do get the mystical soft landing or no landing whatsoever and everything just comes along?
> Of course, if we indeed see an acceleration of economic growth, for some magical reason inflation disappears and interest rates get slashed again, the companies that tend to be expensiveand tend to be more volatile,they would see another uptick. However, the low volatility strategies are more about long term where investors continue to remain exposed to equities and that's the most efficient way of generating this equity risk premium in the long run over the full business cycle where you have a couple of years of strong gains in strong downsides but the strategy is the main strengths.
It limits the downside, but spades and the upside, not as 100% because of the strategy but the power of compounding helps and plays a crucial role of allowing these type of strategies to generate higher risk-adjusted returns than traditional Rated benchmarks over the full business cycle.
> Very interesting stuff.
We've got another one here. They want to get your outlook for dividend stocks right now.
With bond yields driving higher all summer, I've been wondering about this myself.
>> Yeah, so they are now facing competition, strong competition, which they haven't seen for a long time, with money market funds that already provide quite a bit of high interest rates for people who aren't really ready to, do not take that risk and basically safely realize those kind of concerns.
So these type of strategies are facing competition, obviously. However, I would like to highlight a few points in favour of these strategies. First of all, the kind of benefit from tax advantage for many because part of the gains of dividend strategies, also from capital gains, even though they are high paying dividend stocks, some of the gains are not interest income, they come from capital gains, from the longer-term holding these companies for a long term. In the second point is this is more of a long-term strategy where in the long run they should continue to help investors to accumulate wealth and by being exposed to a bit more risk than money market funds, that will allow them many, many years to realize those type of wealth generation by strong and high dividend paying stocks and tend to be the more better at generating wealth.
>> I recently had a conversation with one of your colleagues, TD Asset Management's Michael O'Brien, and we showed that as bond yields go higher, these traditional steady Eddie dividend payers like the telecoms and utilities as a basket of stocks have been trending lower. Could we expect, when we finally get a signal from the Fed or other central banks, not only are they down but they could be in a position to start easing off on rates at some point, that that my turnaround?
>> Yes, there could be a very good trigger. If negative economic research showing up in the data and central banks feel that the aggregate demand that was excessively boosted in the pandemic now we are realizing post-factum that it is time now to a little bit back off and allow inflation to cool down, allow the interest rates to start coming down, that could be a potentially strong trigger for this, these dividend paying companies, the steady and safe companies, to actually perform and also we have to consider that they tend to be less economically sensitive, so their business model, their profit generation, is not really impacted much.
And from the ups and downs of the business cycle.
And if the economic cycle weakens and central banks start loosening a bid or at least kind of stop tightening policy, that can be a good sign for the relative performance gains for this type of companies in these type of sectors.
>> Next question, a nice follow-on to that, a viewer wants to know, can you get your guest to discuss how defensive sectors might perform going forward?
> Stock markets tend to be discounting mechanisms, investors look for signs of future strength to forecast what will be coming so they are not so much backward looking you and. And when economic markets go down, the cyclical components of the market, the more economically sensitive companies and their profits rely on the expanding of the business pie and their margins more rely on this kind of developments in the economic trends, they tend to drop more compared to sectors that tend to be less economically sensitive, lower beta,and in the market downturns they tend to outperform. In the opposite is true. When markets start rallying, defensive markets rally, but that's the environment that investors should be aware of.
Nothing is free.
>> Indeed.
Important things for investors to consider as we move through the economic cycle.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions for a Emin Baghramyan on quantitative strategies 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.
Well, there are ways you can customize WebBroker to better suit your needs.
Caitlin Cormier, client education instructor at TD Direct Investing has more.
>> There isn't a ton that can be customized within WebBroker.
However, there are some interesting settings that you can go ahead and change, including what your homepage is, what your default performance view, and some other different things. Let's go ahead and look in WebBroker and see what different settings can be customized. So first we are going to start in the top right-hand corner of the screen. You're going to click on your name and we are going to go under customized site.
Once we are here, we have the option to go under this tab and choose what we would like to see on our homepage.
The one we have here is our default but you could choose to see your holdings, your goal dashboard, there's lots of different options here including market overview.
The next option we have here is managing account preference. You can choose for your default account to be one particular county trade more often in. You can have an account that you are able to see kind of specifically every time you go to a specific page, or one that default as you are active trading account.
Default performance view is where you can choose between time -weighted return and personal rate of return. Essentially, time weighted talks about from one point in time to another.
Personal rate of return takes into consideration any deposits and withdrawals in the account as well. So if you look at this little? Here, you can actually watch a quick video on the differences between the two and make a decision about how you would like to see your performance. One of the really important ones we have here is session timeout. This tells you basically how long you can remain within WebBroker before it will actually log you out and you will have to re-enter your password.
I have mine set the maximum because I'm always on my computer and it also has a password law, but just make sure that if you are using kind of a family computer or something like that that you have the security in place if you are choosing a longer session timeout. The last two options here are the option chain, how many rows you would like to display, and your account holder name, so how you would like your name to show up in the top right-hand side of the account. Make sure you always had say when you are done here so that all of your changes will take effect.
So that is the majority of things that you're able to customize within WebBroker.
Hopefully, you can do some changes there to give it the best possible extremes for you.
>> Our thanks to Caitlin Cormier, client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
before we get back to your questions about quantitative investing for Emin Baghramyan, a reminder of how you can get in touch with us. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
we are back with Emin Baghramyan, discussing quantitative strategies. That's things like low volatility investing, dividend strategy. Let's get another question in here. What's the housing market telling usabout the health of the economy and the credit cycle?
>> The housing market is one of the most historically interest rate sensitive sectors. They tend to be this boom bus driver of the business cycle and they tend to be accelerating first, decelerating first and however, this time, considering from where we came, interest rates being zero, mortgage rates being extremely low, multi-decade lows, and how fast they increase, many were anticipating that the housing market will crash.
However, we haven't seen that so far, but what we are seeing is that basically came to a standstill. If you look at the latest housing transactions data relative to the rest of the economy, we see that people are not transacting. The majority of transactions now come from the new homes completed and when you have an interest rate locked into the next 30 years, it is… If interest rates go up sharply, you don't feel the impact.
However, it kind of keeps people locked in also in terms of not being able to sell the house, to move in something bigger.
For younger people, it creates a problem if they were planning to move out from their parents home to purchase a new home, given how high interest rates are. So on the margin, we did not see the big shock.
In contrast to mid-2000 people's preference to longer term fixed rates where people were mostly borrowing in the variable rates in the US especially.
In contrast to that, we don't see this major crash in the housing markets.
However, the transaction volume is at a standstill and that's a big good negative for economic growth because when people move, they tend to consume, they hire the moving services, they purchase durable goods and a lot of additional spending comes with it. And also economic growth.
People find new jobs.
So this is negating the long-term growth of the economy as well. So housing beingat this juncture at a standstill and given how the credit conditions are being tightened, it is not painting a very attractive picture in the near term.
>> The way you laid it out, it almost feels like a double-edged sword. The south of the border you got your 30 year mortgage, you know your costs are and you can manage your cost, but as you said, there are so many other knock on effects to people trading homes and a whole generation just waiting for other people to move up the ladder so they can get on the ladder.
>> Yes, and it's becoming very hard for them to be able to do that. Affordability is now very tight and that's not even considering the income effect because, as we have been seeing, the labour market in the US has been quite tight and hasn't weakened yet.
There are some initial signs, especially over the past year, a few large tech companies that kind of shed a bit of employees, but the majority of the US employment is very strong so far, and the incomes have been protected and have been quite strong. So the negative impact, sooner or later, it's way to start going up and people will start losing their jobs as well, some people. And that will also put an aggregate negative impact on a portability as well.
So considering high interest rates, high home prices and impeding or coming soon negative impact on, it's not a good cocktail for the housing market and economic growth.
>> Here is an interesting question coming in.
If you are want to get your geographic view right now. North America versus Europe versus Asia. How are we seeing things globally?
>> Yes, TD Asset Management quantitative team, we tend to be more investing in strategies like low volatility in our global funds and given my outlook on the large US companies that tend to dominate the benchmark, our views derived from that point, being underweight US stocks, enough because the majority of this risk is now concentrated in the tech sector or tech related sectors of the US economy.
Given the very large size of the US and the global benchmark being underweight and having a negative relative view for US equities.
Meanwhile, most of the other sectors, including emerging markets and including Japan, we have overweights. The only other underweight market that we have is the United Kingdom.
>> Actually had a viewer question, a nice following, you mentioned Japan. If you are want to know if it's an interesting place to take a look at right now. We've heard a lot of stories about Japan, an aging population,but lately I've been things more positive headlines.
> Yes, Japan is indeed very interesting place right now for investors to look at.
Japan is one of the few countries that does not have a central bank that has been waging this war against inflation, did not phase, they actually have been waging a war for decades to generate inflationgiven what you just mentioned, the negative demographic outlook and the massive bubble they had in the late 80s and early 90s that they have been struggling to deflate away.
So that's a market that doesn't have that issue. They are not waiting for the central bank to pivot.
There is no charging superhigh runaway inflation, and that allows to keep basically Japanese Yen to weaken and that was the main reason the relatives central bank policy stances where the rates were kept at a low level while most of the central banks have been tightening policy aggressively. That allowed the Japanese Yen to weaken and meanwhile Japan is a company that largely, its main corporation, it is very global oriented and they have been treating and generating revenues across the world and they have these exporters who have greatly benefited from the weakening Yen and their stock prices so it's very interesting to look at the industrial conglomerates, the trading companies, large auto traders even, consumer stable companies that tend to be, some of them are global, interesting tech names that you can look at that are also very global and well established, not very risky compared to their technology peers around the world.
So the Japanese equity market in general is very interesting. Obviously, near term, some hedging of the Japanese Yen will still be required while this fight versus inflation still takes place in the US or Canada or Europe. However, the Japanese Yen's long-term outlook is as a safe haven currency and should benefit from having some exposure over the long term to Japanese and as well that will allow to navigate the choppy or equity markets better and a bit safer.
>> Alright, interesting set of circumstances there Japan to take a look at and do some homework on.
We will get back your questions for Emin Baghramyan on quantitative strategies 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 and 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.
Lumber -related stocks have been under pressure recently as companies continue to navigate weaker prices for lumber amid higher interest rates and the slowing of the housing markets.
Our Anthony Okolie joins us now, take a look at a TD Securities report on the outlook for the space. What are you seeing there?
>> TD Security says the forest product equity momentum remains negative in the midst of summer doldrums and the effect of inflation and higher interest rates are affecting consumer spending in housing and DIY markets.
It had a negative impact on lumber market prices. Additionally, there are some signs of elevated levels of offshore lumber imports that have also affected market demand for lumber products this year.
TD notes thatweakness reflected in the second quarter earning results have undermined equities.
Since recent highs less than two months ago, the average share price has declined for the TD Securities covered universe down roughly 14%. Now, earnings for several wood and pulp -weighted equities were below consensus estimates of verses generally above expected results for packaging and tissue companies.
With second-quarter earnings season complete, TD Securities, some of the key insights on the sector inventory trends, and the first one is sawmill inventory declined in the second quarter following a smaller than normal inventory buildup in the first quarter of this year.
The second-quarter declines pretty much reflected the peak spring and summer building season consumption. Historically, the first quarter inventory buildup gets reversed again in the second quarter and third quarter as people are spending on their homes and doing more DIY projects.
In fact, TD Securities notes that all companies in their covered universe do down lumber inventory in the second quarter. While inventories are believed to still be below normal, management commentary suggest that customers are managing inventories carefully and they are keeping their purchases within a 1 to 2 month window.
Now finally, TD Securities highlight some key factors impacting wood products prices.
Some of lumber, where price momentum has been inconsistent across grades and regions across North America.
They point to theSo that's a market that doesn't have that issue. They are not waiting for the central bank to pivot.
There is no charging superhigh runaway inflation, and that allows to keep basically Japanese Yen to weaken and that was the main reason the relatives central bank policy stances where the rates were kept at a low level while most of the central banks have been tightening policy aggressively. That allowed the Japanese Yen to weaken and meanwhile Japan is a company that largely, its main corporation, it is very global oriented and they have been treating and generating revenues across the world and they have these exporters who have greatly benefited from the weakening Yen and their stock prices so it's very interesting to look at the industrial conglomerates, the trading companies, large auto traders even, consumer stable companies that tend to be, some of them are global, interesting tech names that you can look at that are also very global and well established, not very risky compared to their technology peers around the world. So the Japanese equity market in general is very interesting.
Obviously, near term, some hedging of the Japanese Yen will still be required while this fight versus inflation still takes place in the US or Canada or Europe.
However, the Japanese Yen's long-term outlook is as a safe haven currency and should benefit from having some exposure over the long term to Japanese and as well that will allow to navigate the choppy or equity markets better and a bit safer.
>> Alright, interesting set of circumstances there Japan to take a look at and do some homework on. We will get back your questions for Emin Baghramyan Anna on quantitative strategies 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 and 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.
Lumber -related stocks have been under pressure recently as companies continue to navigate weaker prices for lumber amid higher interest rates and the slowing of the housing markets. Our Anthony Okolie joins us now, take a look at a TD Securities report on the outlook for the space. What are you seeing there?
>> TD Security says the forest product equity momentum remains negative in the midst of summer doldrums and the effect of inflation and higher interest rates are affecting consumer spending in housing and DIY markets. It had a negative impact on lumber market prices. Additionally, there are some signs of elevated levels of offshore lumber imports that have also affected market demand for lumber products this year. TD notes thatweakness reflected in the second quarter earning results have undermined equities. Since recent highs less than two months ago, the average share price has declined for the TD Securities covered universe down roughly 14%. Now, earnings for several wood and pulp -weighted equities were below consensus estimates of verses generally above expected results for packaging and tissue companies. With second-quarter earnings season complete, TD Securities, some of the key insights on the sector inventory trends, and the first one is sawmill inventory declined in the second quarter following a smaller than normal inventory buildup in the first quarter of this year. The second-quarter declines pretty much reflected the peak spring and summer building season consumption. Historically, the first quarter inventory buildup gets reversed again in the second quarter and third quarter as people are spending on their homes and doing more DIY projects. In fact, TD Securities notes that all companies in their covered universe do down lumber inventory in the second quarter. While inventories are believed to still be below normal, management commentary suggest that customers are managing inventories carefully and they are keeping their purchases within a 1 to 2 month window. Now finally, TD Securities highlight some key factors impacting wood products prices. Some of lumber, where price momentum has been inconsistent across grades and regions across North America. They point to theSo that's a market that doesn't have that issue. They are not waiting for the central bank to pivot. There is no charging superhigh runaway inflation, and that allows to keep basically Japanese Yen to weaken and that was the main reason the relatives central bank policy stances where the rates were kept at a low level while most of the central banks have been tightening policy aggressively. That allowed the Japanese Yen to weaken and meanwhile Japan is a company that largely, its main corporation, it is very global oriented and they have been treating and generating revenues across the world and they have these exporters who have greatly benefited from the weakening Yen and their stock prices so it's very interesting to look at the industrial conglomerates, the trading companies, large auto traders even, consumer stable companies that tend to be, some of them are global, interesting tech names that you can look at that are also very global and well established, not very risky compared to their technology peers around the world. So the Japanese equity market in general is very interesting.
Obviously, near term, some hedging of the Japanese Yen will still be required while this fight versus inflation still takes place in the US or Canada or Europe.
However, the Japanese Yen's long-term outlook is as a safe haven currency and should benefit from having some exposure over the long term to Japanese and as well that will allow to navigate the choppy or equity markets better and a bit safer.
>> Alright, interesting set of circumstances there Japan to take a look at and do some homework on. We will get back your questions for Emin Baghramyan Anna on quantitative strategies 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 and 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.
Lumber -related stocks have been under pressure recently as companies continue to navigate weaker prices for lumber amid higher interest rates and the slowing of the housing markets. Our Anthony Okolie joins us now, take a look at a TD Securities report on the outlook for the space. What are you seeing there?
>> TD Security says the forest product equity momentum remains negative in the midst of summer doldrums and the effect of inflation and higher interest rates are affecting consumer spending in housing and DIY markets. It had a negative impact on lumber market prices. Additionally, there are some signs of elevated levels of offshore lumber imports that have also affected market demand for lumber products this year. TD notes thatweakness reflected in the second quarter earning results have undermined equities. Since recent highs less than two months ago, the average share price has declined for the TD Securities covered universe down roughly 14%. Now, earnings for several wood and pulp -weighted equities were below consensus estimates of verses generally above expected results for packaging and tissue companies. With second-quarter earnings season complete, TD Securities, some of the key insights on the sector inventory trends, and the first one is sawmill inventory declined in the second quarter following a smaller than normal inventory buildup in the first quarter of this year. The second-quarter declines pretty much reflected the peak spring and summer building season consumption. Historically, the first quarter inventory buildup gets reversed again in the second quarter and third quarter as people are spending on their homes and doing more DIY projects. In fact, TD Securities notes that all companies in their covered universe do down lumber inventory in the second quarter. While inventories are believed to still be below normal, management commentary suggest that customers are managing inventories carefully and they are keeping their purchases within a 1 to 2 month window. Now finally, TD Securities highlight some key factors impacting wood products prices. Some of lumber, where price momentum has been inconsistent across grades and regions across North America.
when we look at the pulp markets, they seem to be nearing an inflection points according to TD Securities things to better pricing in Chinain contrast to further erosions in the north American market. Greg?
> Some interesting dynamics at play there in the market. In the report, did they talk about any of the risks for the pulp and paper and forestry industries?
>> When it comes to risks for this industry, I will point out some of the key ones, particularly in the near term. In the near-term, relatively high rising interest rates could have an impact on ongoing business due to political development as well as a legged impact of recent inflationary pressure. Other risks include economic and financial conditions including inflation, international demand for forest products, natural disasters as well. They also talk about the impact of climate change, government regulation as well as relations with first Nations groups among other key risks.
Greg? I've interesting stuff as always.
Thanks, Anthony. Anthony. Anthony.
Anthony.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat not function. He gives us a nice view of the market movers. We are taking a look at the TSX 60, screening by price and volume.
After several weeks of downside action for volume, PCE is bringing some green on the screen, it's up about 1.6%. Of course, bank earnings kicked off this morning with Royal Bank and TD. You can see a bit of a mixed result there as a reaction to what's happening there. And some of the other banks that are still in the wings, awaiting big price moves today. I noticed that the price of crude, West Texas intermediate was under pressure this morning. It has slipped into positive territory, not doing a lot for energy names right now.
They are all pre-much is flat into the downside.
South of the border, I want to check out the S&P 100, Nvidia still doing a fairly robust trade, taking up a lot of real estate on the page.
It's up 3 1/2%.
But first it looked like a case of those rising tide of tall boats.
One of their competitors AMD down about 6%, Intel down about 2%. Nvidia has a GP use, those graphic processing units that are proven to be pretty instrumental in the artificial intelligence technology front, so they seem to be a beneficiary.
The rest of the market not doing all that much.
Of course, Jackson Hole is tomorrow. Last year Jerome Powell came out with a very short speech.
Perhaps a bit of nervousness or anticipation as to what he might say tomorrow.
You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now is Emin Baghramyan from TD Asset Management. Let's get to a few more questions.
we just talked about artificial intelligence in the context of Nvidia.
A viewer wants to know, is it hype or is there real opportunity here for investing?
>> That's a good question.
We at TD Asset Management quantitative team obviously believe in artificial intelligence being a very powerful tool and we have been hiring a bunch of very smart people, PhDs, to beef up our capacity to do a lot of research into that. And we understand that it is a very powerful tool for identifying these trends, in enormous amounts of data, which is very hard forthe naked eye to do by itself.
However, it is a very competitive spaceand the bigger, the stronger, the more powerful the tool is, and its ability to identify the market inefficiencies for investors to exploit, the more it will attract the competitive forces.
It has its pitfalls as well as many people try it and the more they try it, the more these opportunities will cease to exist and it can turn out to what many would call it as a hype.
Everybody invested a lot of money and tried to exploit that. But when many do it, it might go away.
So something that we will look at but it is too early to tell what kind of exactly results it will generate for many people but we understand its importance, keeping a close eye on that as well.
>> We have run out of time for questions.
Before let you go, I want to go back to the top of our conversation.
He laid out a scenario where these aggressive rate hikes we have seen over the past year and then some have already triggered a manufacturing recession, expecting spending and services to roll off, perhaps we're being too optimistic about a soft landing. That opens up the conversation about alternative investments. What should investors be thinking about here?
>>people who tend to be more risk averse, they should be probably looking at the low volatility strategies or dividend strategies the people who tend to be more risk takers, there is still the belief that there is some juice left in the equity markets and they might not want to follow is but a better way would suggest for all strategies that they are not benchmark centric and our multifactor strategies, for example, or small and mid-cap stocks that have a bit different profile.
That don't have this large exposure to tag and tech related mega-cap stocks that might be vulnerable to different winds of change. So that among those are the alternative strategies I would sit us to follow.
>> Is always such an insightful conversation when you join us. I really appreciate you taking the time today.
>> Thank you very much for having me.
>> Our thanks to Emin Baghramyan, lead of quantitative Portfolio management at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned. We are going to back tomorrow with an update on what we are hearing from central bankers at the Jackson Hole conference, by the time we go to air we will have already heard from Jerome Powell, big event of the day. And then on Monday, Bart Melek, head of commodity strategy at TD Security will be taking your questions about the commodity space.as always, you had start with your questions. You can just email moneytalklive@td.com. The full-time we have the show today. Things were watching.
We will see you tomorrow.
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