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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 the outlook for consumer discretionary stocks and whether shoppers are shifting those spending habits. It TD Asset Management Jacky He joins us. MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from this week's Canadian GDP report. And in today's education segment,Caitlin Cormier is going to take us through how bubble charts work and how you can find them on Advanced Dashboard.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to our guest of the day, let's give you an update on the market. We got a nice rally on our hands on Bay Street and Wall Street. We will start here at home with the TSX Composite Index.
You can see a nice 184 point again, almost a full percent to the upside.
Taking a look at the price of gold, higher, the price of oil modestly higher above 80.
Kinross Gold is in the list. Nothing is too outsized in terms of upside performance but it is green on the screen. Six bucks and $0.89 per share for Kinross, Europe 1.6%. Check-in on Cenovus Energy with oil holding over 80 bucks for rail the last couple of days, a bit of a bit again. As on a massive move or some of these names but it's been day after day. Got Cenovus now at 2629, it's up almost 2%.
South of the border, there are further signs in terms of consumer confidence that Americans are starting to feel the pinch of higher interest rates. Of course, that was the entire exercise of what the Fed in our central bank has been through for the past year and 1/2, trying to tame inflation by curbing consumer demand. Confidence taking a bit of a hit, seems to be good news for the markets.
S&P 500 is up about 40 points, more than a full percent.
Tech stocks doing a little bit better. Let's check in on the NASDAQ, there is a 1.6% gain so far on the session. The chipmakers getting a bid.
Nvidia, no stranger to anyone, they been running their bit on since the beginning of the year with the AI excitement.
It's at 485 bucks per share, of about 3.7%. And that is your market update.
Consumer discretionary stocks have been strong performance so far this year, but with signs that households are shifting their spending habits, could that trend continue? 20 is not to discuss is Jacky He, global consumer discretionary analyst with TD Asset Management. Great to have you back on the program.
>> Thank you so much for having me.
>> It's always nice to talk about stocks when stocks are making some money. Consumer discretionary has been interesting this year. We know that in the face of soaring inflation which is central banks have been trying to combat, households of headless disposable income to third towards discretionary items but when you go to the earnings, is on a terrible story for everyone.
How is the space holding of?
>> Yeah, that's quite interesting. If you look at the stock performance perspective, it went up 30%, quite a lot, right? That's double the S&P 500 return.
But if you exclude Amazon and Tesla, they represent about half of the sector, the sector overall actually was only half of the SP500returns. Quite challenging on a relative basis. That's why broad chart. I really want to understandwhat's the underlying dynamic within the sector from an equal weight basis.
See you look at a chart.
You can see a very divergent performance across industries.
The one that continues to work, homebuilding and travel. We know the US housing market is still pretty tight.
We know consumers do have a lot of pent-up demand for travel. So that has been working. What has been lagging is those more discretionary categories like home goods, footwear and apparel.
That partly explains why if you look at factors, you can see the lower quality companies have outperformed higher-quality companies this year and that's because if you think about casinos or cruise lines that tend to be higher leverage and lower earning stability, they outperformed the market by a significant magnitude so far.
>> That chart gives us a nice context into what might or might not be working in retail. We just came through earnings season and it was sort of mixed. Sometimes I would expect a retailer to go one way and they said, no, we managed to earn our way through this while others were not so lucky. What did you see in all of that?
>> Yeah, there's a lot of information going on but I would say that at an aggregate level, it's pretty solid. If you look at the numbers, probably the best sector within the S&P 500, we got double-digit topline and bottom-line growth and more importantly it has outperformed expectations by the street, three Street quarters.
That's not bad.
Overall, it continues to be led by the services industry, travel, etc.
Margins are more mixed.
We still see about half of the companies with contracted margins. But sequentially, we see about 80% of companies expanding their margins. So think about lower commodity costs, better logistic cost, those tailwinds are likely to continue into the next year.
I brought another chart that I think it's important to look at what the management outlook looks like and I use this chart to compare management outlook and investors outlook.
So if you look at the Y axis, that's a earnings distribution over a six-month period.
On the X axis, it tells us about how much investors are willing to pay relative to history. Right? You can see the overall sector earnings was more positive, driven by but that has not been rewarded.
Investors have been quite sceptical about that.
Most of the industry continue to trade below historical numbers and in fact about half of the overall stocks are trading near historical lows.
so if you're a long-term investor, that could present some increasing opportunities going forward.
>> Last time you were on the show, we talked aboutsomething that was weighing on a lot of these names: excess inventory.
You get rid of excess inventory, use markdown, he squeeze margins, how are they working through that?
>> That's exacting how it works. Inventory is a function of supply and demand.
The pandemic of the supply chain distorted that to an extreme level about a year ago.
It's a year now.
And companies are making substantial progress. But we have to look at the direct channel.
On a direct channel, if you look at the products directly from the company, that's a direct channel, you concede that the inventory problem is largely behind us. Overall, absolute dollars is still elevated but the trend continues to trend down be because sales growth has outpaced inventory growth.
A good example is Home Depot. People exacted they would have a modest inventory growth but they had a double digit decline in inventory. On the other hand, wholesale is a different story. Inventory problems are still lingering.
That's not surprising because wholesale tends to lack a direct channel by about two quarters because they manage inventory a bit differently, they react more slowly to demand and also they allow customers to cancel your order during the season if it comes in shorter than expected. So that means if you are a brand that is heavily relied on wholesale, you may see inventory challenge.
>> Interesting divergence there, want to keep an eye on.
Luxury, for those who can afford it, they don't seem to be hit by the same pressures as regular households.
What is happening in that space?
>> Yeah, luxury, I think we are talking about European luxury. That has been one of the bright spots within the sector.
Their customers are less impacted by macro risk and especially during the pandemic, they are the ones that disproportionately benefited more in terms of excess savings, in terms of liquidity and now this year, we have a new story like the biggest growth driver, China, is coming back.
So that has been a tailwind. The problem over the past three months, and we can see some pressure there, it's because the US is slowing and China macro data hasn't been supportive.
People have been worried about that and taking some profit off.
But I think there's some relief there because China luxury demand went up 80% year-over-year.
So that has more than offset the US slowness. So I would say the US is still in the normalization trend.
It's not too worrisome.
I think the upside can come from China.
Historically, the Chinese spent about two thirds of their luxury budget outside of the border.
>> So when they travel abroad, they are spending money.
The handbag, why not?
>> It's cheaper.
those things won't last forever.
As those problems are fixed and you see more upside on the Chinese travel upside.
what I want to highlight is that in all all luxury are created equal.
If you are a luxury name that have more exposure to aspirational consumers, you may see more volatile earnings than say the top end luxury names like Hermes or Ferrari.
>> Was go to the other end of the spectrum. We know that households are struggling.
Even the headline inflation is coming down, things are still far more expensive this time this year than they were last year.
So some of those bargain retailers, how are they navigating all this?
>> Well, yes.
The lower and consumer continues to struggle and David been struggling for over a year now. That's not use.
From the investment perspective,you probably cannot really monetize that because lower end will just trickle away, they won't spend. Bo EC recently is higher and consumers are also trading down and you can find opportunities there. For example, if you look at whatever company that provides you with better value propositions, they will benefit. An example would be off-price retailer. We see traffic has accelerated.
People, more mainstream consumers are trading down to them, buying the brands at 20 to 60% discount, that's not a bad deal, right?
Also we see growing customers trading back to e-commerce like Amazon.
People are buying more there. It's deeper, it's more convenient.
And also companies like brands if you focus more on function over fashion, you can be in a relatively better position.
That would be a lululemon or a Japanese brand like Uniqlo.
>> Before we and our conversation, going forward, what are we thinking about of the retail space?
Everyone keeps beating the drum about the recession that hasn't come. Not everyone, but a lot of people have beating the drum lately.
>> Yes, I would say we have to look at it from a longer-term or shorter-term. From longer-term, I'm structurally bullish on the consumer discretionary space because there are a lot of innovations going on, there's a secular story going on. If you look at history, the sector always tends to underperform leading up to a recession, but during a recession, they always tend to outperform.
near term, I am cautious on a certain part of the sector, especially the more discretionary part.
one example would be the department stores, some general apparels, because they are more exposed to middle income consumers, we know they are trading down, so that can be a risk.
The other part is the auto industry.
If you look at the headlines, we know that they are going through a pretty intense negotiation, labour negotiation.
I think that the chance of a strike is higher this time and even outside of that,we know there is a delayed impact on higher rates, so the auto prices may see more cuts so that would weigh on the automaker's profitability. The part I am more optimistic is still trouble.
I think travel is interesting, especially in the lodging area.
The leisure continues to hold up.
At the same time, we see business travel, international travel recovery still on the horizon doing really well and that's one of the few areas where we have not seen material trade down. Surprising power still there.
also, certain dollar stores and off-price retailers are really benefitingbecause last year, the benefit that they provided it was not as obvious. This year, their value is more which is why we see more and more traffic going there.
>> Always great insights. We are going to get your questions about consumer discretionary stocks for Jacky He and just moments time.
a reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
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.
Best Buy is cutting its annual sales outlook as it anticipates that 2023, this year, is going to mark what it calls a low point in tech demand.
The electronics retailer did, however, manage to beat its earnings expectations for the most recent quarter.
Apparently, demand for gaming systems countered some weakness in appliance sales. Right now, the market seems to like the news.
the stock is up about 6%. Well, the White House has named the first 10 prescription drugs it's going to target as part of Medicare price negotiations.
The talks are aimed at making medications for ailments such as diabetes and heart failure less costly for seniors. The list they released today includes drugs made by AstraZeneca, Johnson & Johnson and Merck along with a few other names.
Let's take a look at AstraZeneca. Doesn't seem to be to rattle by the news, mostly flat. It appears artificial intelligence is making inroads in the makeup industry.
The parent company of Google, that would be Alphabet, and Estée Lauder, are building on their existing partnership to bring AI tools to cosmetics consumers.
the company say I tools can help better understand consumer preferences and improve the makeup shopping experiences.
A I in everything.
Let's check it out to the markets. The TSX Composite Index, up 191 points, almost a full percent for the price of oil is higher, the price of gold is higher.
A lot of green on the screen. South of the border,signs consumer confidence is starting to be sapped by higher interest rates and a bit of a market rally on her hands hereto. You got the S&P 500, the broader read of the American market, no up 50 points, will overflow percent.
We are back now with Jacky He, take your questions about consumer discretion or stocks. The first one on the list is a big one. Can you give us an update on Amazon?
>> Amazon is over 30% of the sector.
it went up about 30% this year. But if you look at the history, it's about 30% below the peak of about three years ago.
What has been waiting on the stocks is really two things. The retail profitability andAWS deceleration.
If we look at them separately, we can see inflection on both ends. On the retail side, we know that Amazon, during the pandemic, for two years, they sent tens of billions of dollars to create a transportation network that is equivalent to the size of UPS. That created a lot of opportunity.
People were wondering about when they would start making money in one profitability would recovery.
Over the last quarters, we saw companies being more disciplined and what they spend on.
They started cutting the workforce and pausing those lower return projects. More recently, they are regional rising there networks from national to more regional areas and all of those are having an immediate positive impact on retail profitability.
that has surprised the market quite a lot.
The other end is AWS. Q2, growth was 12%. It is no longer 30 or 40%.
People are maybe disappointed. If you look at the trend, it's actually better than the exit rate of Q1.
The exit rate of Q1 was 11%.
Why is that? Because from a company perspective, there is only so much you can cut. Now we are in a world of AIA, so companies are rethinking workflows and re-engaging data to better compete in the world of AI.AWS is one of the solution.
>> When I think of Amazon, I think of the packages in my doorstep during the pandemic but we have to remember web services in the cloud as well.
It's been interesting the stock this summer. Outlook for Tesla?
> Tesla has done pretty well, I think.
It went pretty well today as well.
We have to differentiate Tesla from Amazon because Amazon growth this year has all been driven by earnings, but Tesla, so far, has all been driven by expansion. A lot of things that keep people excited. AI is certainly one of it. If you have a long-term view, then Tesla is a great company because think about what can drive the success of AI. It's really, you got your supercomputer and you've got your data. And the Tesla car model as released in 2012, they have a lot of cameras around on the cars. They start collecting data even today so the data they collect is way more to the liking of automakers, that allowed them to train their AI system smarter and smarter.
But the near-term thing is a little bit tricky because you won't make a meaningful contribution from your software until many years later. So until then, you are primarily a carmaker that has to deal with demand and profitability.
We are continuing to see Tesla cut prices .
But as an investor, you can struggle with near-term earnings.
That means your multiple would keep going higher. At the end of the day, investors investing in Tesla have questions. How much near-term risk are you willing to go through? How much risk are you willing to take?
>> You mentioned this briefly off the top of the show, of course the strike mandates on the other side of the border for the autoworkers of the big companies. Of euros to know what the potential impact of autoworkers going on strike?
Does that mean that autos are still investable?
>> It's quite an active space. It's not only… Even if I'm working for Tesla, then I see my neighbour God a 50% pay jump, I wouldn't be satisfied with a 50% jump.
That represents about hundred 50,000 workers and the reason I said the chance of a strike is higher than historically is because we know automakers have experienced record high profitability through the pandemic and we know the workers have been suffering from rises and the cost of living and we know there is new leadership and the UAW it has been quite aggressive and demanding. The problem is that the ask we are seeing on the public side, it would be quite hard for automakers absorb everything, that includes about 4046% pay bum, that includes about 32 hour week,that would cost them pretty much tens of millions of dollars for automakers meanwhile they have to figure out a way how to compete with Tesla during the CV transition. So that's a tough spot.
If there is no middle ground by mid-September, the financial impact will depend on the duration of the strike.
It will be costly for both companies and employees.
So a one-month strike can cost two to $3 billion.
>> Something to keep an eye on a September starts this week. As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Jacky He on consumer discretionary stocksin just a moment 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. In today's education segment, we are taking a look at TB's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Lots of stock chart options on the popper.
Caitlin Cormier is going to join us now, client education instructor with TD Direct Investing. Take us through the bubble charts.
I'm looking forward to this one. Explain to me what I'm looking out when I'm looking at a bubble chart.
>>this is not your typical chart. It is a little bit different from a standard chart. So this, as you mentioned, is called the bold chart.
I think maybe one of the finest looking charts on Advanced Dashboard to be honest.
Once you launch Advanced Dashboard, it is found under the Market Pulse tab.
We have a whole bunch of things available there. The bubble chart is the one we are going to take a peek at today. Essentially, we are looking at is we are looking at a chart of the TSX 60, the X axis is showing us the ranking of all of the stocks that are on the TSX 60 and the ranking is based on their one year performance. So on the y-axis, we can see kind of the percentage performance for the last year and then again this would be the highest performing security on the TSX 60 and on the lowest performing on the right-hand side. You may be wondering the different sizes that you can see and maybe itself expenditure if you are familiar with market Because we do see two of the bigger ones.
The size is because of market capitalization.
And the last piece of it is the colour and the colour represents what sector these individual companies are actually in. For example, if I were potentially looking at this chart and maybe there's a particular area of the market that I'm not all that interested in, I can go ahead and come to the bottom and see the different colours for each different sector and then if I did not want to see for example financials, I simply click on financials and then magically, they disappear.
So all we can see now are the other sectors that are available.
Again, I remove multiple if I want to and just kind of see some specific areas and I also add them back in.
Essentially, this is a backward looking tool that we are using to essentially see the past performance of securities on a specific index. This is the standard here, the TSX 60.
Not too many securities.
If you add too many on there, it can be a bit overwhelming. I just a quick visual representation of performance, market capitalization and sectors.
>> All right, Caitlin. I saw some bubbles disappear for a second and come back. It makes me think that investors can customize the chart.
>> Yeah, absolutely.
That's a key component of Advanced Dashboard's customization.
So with Advanced Dashboard, basically, each of the different components we have, we are able to do some customization. Let's see what we can do with this particular chart.
When we hop the bubble chart, under index, it's the first thing we see, we can choose either Canadian or a US index.
We can also choose the sector. For example, if we want to see the real estate market, and I just the real estate, gives me a more in-depth look.
I can change how I want my rankings to go. What I want my x-axis and y-axis to say. I also change with the bubble size represents.
and then finally, I change the bubble colour, with that colour would meanon the last piece here.
So there is quite a bit of customization that you can do. I will just show for example… It's a little hard to see here. If we add too many securities.
We are not even looking at the S&P 500. But that's why kind of like the idea of the 60 are looking at something more specific like a specific sector because you can actually see the individual securities, you can see the colours and their actual stock symbols there so it is a lot easier.
I should show this as well. As you hover over the bubble, you can actually see theperformance, the sector and the market For each securities. If you are interested in what it is, you can hover over and see additional information about those individual bubbles.
>> Great stuff as always, Caitlin. Thanks of that.
>> Have fun playing with that one.
>> I will indeed.
Caitlin Cormier, client education sector 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.
Okay, we are back with Jacky He, taking your questions about consumer discretionary stocks. Okay, we talked about luxury off the top. Someone once specifically your view on luxury brands like Ferrari.
>> Ferrari that we have like for quite a while.
What is special about this is that they really targeted the top end of high and consumers. What you can see is there hasn't been a big impact on their demand. Many high end models are sold out before they are officially unveiled, so that is impressive.
if you look at their older backlog, thus the industry-leading ones that can give them visibility well into 2025.
Now what's even more interesting about this company is they are in the middle of a new product launch.
They are going to launch a lot of higher end models that are charging more and they will come with more customizations. Customization is a great thing.
Having a look, Ferrari can cost you easily over $50,000. Most of those will go directly to the bottom line, so it's quite a profitable business over there.
So I would not worry much about Ferraris demand even when… History proves they have been quite resilient. I would worry more about when the macro changes. People who have been hiding income will take Ferrari as a source of fun.
It means… That even with a company that has strong demand on a luxury demand product, you can see pressure on the stock price as the market shifts.
We get out of a phase when the Fed is neither hiking or telling us that we are saying hi forever.
>> Yeah, demand wise, no matter what environment, you've always got that type of customer that demand is so strong for the products and you see Ferraris so their models as a gift to their loyal customers.
It's not like they are begging customers to buy the product.
Demand would still be resilient. It's more about portfolio positioning. For he is trading around 40 times, it's quite expensive stocks.
If the environment is turning, say we are hitting a recession, people sell those high-value names and might use names like Rory to build that up.
>> Interesting.
I had not thought about that angle.
now, if you're shopping at Winner's and Marshall's, their parent company is TJX. Can I get your thoughts on TJX?
>> TJX has done well. One reason is because their business model is designed for this environment. If TJX doesn't work in this environment, I don't know what environment it would work in. They really by excess inventories from brands and then sell those at 20, 60% discount to consumers, we see that, so you got tailwinds on both ends.
you buy things cheaper, mark it up and sell it to others. Then, TJX, we have not seen any issues with the company because the traffic has been accelerated over time, right?
And last year, it hasn't been as obvious, as you mentioned, because everyone was promoting. This year, people are more gravitating to their product and, more importantly, as higher and companies are selling lower to TJX, they will buy--you see better tailwinds for theretail mix.
The reason why TJX has done well is because they have lower exposure to low income consumers.
You got all the good deals, but no one visits their store… But TJX has a better exposure to mainstream and higher income consumers so as they trade down, that traffic offsets the low income consumers trading out.
>> What is the risk, though? That's always a risk for everything.
What can change for TJX and some of those names?
>> Currently, TJX is trading at a perfect environment.
They have been having the best buying environment for about four years.
Things will go down going forward.
The point is how long this will last. If TJX doesn't, is not disciplined enough to buy their inventory at a decent cost, and they do not mark up the way they did before, there will be a problem.
Another problem is theft. Really, it's retail crime.
You see US retail thefts have been getting a lot of complaints from CEOs publicly about retail theft. That is also a problem for TJX.they have been thriving on consistent shrink impact to last year and pre-COVID.
But that is always a risk. If that goes out more, it will impact your company and your bottom line.
>> I think, if memory serves, this tie is a Marshall's tie. I enjoyed the hunt, right?
I didn't go there because of economic restraint.
I went there to see if there'sa tile I that I will buy it.
>> That is been a big advantage for companies like that.
They have a very flexible business model. To go in there sword and you find everything. You move things around, you probably won't find the same time next week.
>> That was the fun, the hunt.
>> Yeah, exactly.
>> Okay, here's another one. The potential for recession, is this a good time to look at discount stores like Dollarama?
>> Dollarama works really, really well. I think that it continues to be well-positioned in this environment.
the trade down in Dollarama, they are the best tray down beneficiary in Canada. On the US side, people would argue, okay, the dollar store seems to have a lot of pressurebut I would argue Dollarama has a different business model than a dollar store in the US. The reason being Dollarama has been in urban, suburban areas versus in the US, more rural areas. So by consumer demographics, Dollarama is more mainstream and the US appear, you can see them lower income focused and then if you look at what they sell, Dollarama sells about 60% general merchandise like seasonal products, it's more profitable.
Versus the US appear, they are selling more consumable products with a lower margin.
So overall, I think Dollarama is still very well and it's well-positioned in this environment, well-positioned company in this environment.
>> What would the risk be?
>> Valuation. If they don't grow their stores at the same pace as they did before, people will not pay the same amount as they did before. The valuation now is trading a little bit above historical average, but it's probably justified in the environment of slowing macro but going forward, Dollarama has to continue to deliver.
>> We are going to get back to your questions for Jacky He on consumer discussion are stocks in a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canada's economy rose in the first quarter amid higher household spending in both goods and services, but there are signs pointing to some slowing momentum heading into the summer months.
Anthony Okolie is now here, taking a look at a TD Securities forecast on the GDP report due out later this week. What are they saying, Anthony?
>> TD Securities is looking for the Canadian economy to cool to just 1.
2% annualized gain for real GDP in the second quarter.
That is in line with estimates. But again, a big draw from 3.1 annualized gains that we saw back in the first quarter of 2023.
for the month of June, TD Securities is forecasting a contraction of 0.1% month over month versus consensus which is 0.2%. When we look back to Q1, the strength and household bedding there was a big driver of GDP growth as this next chart shows.
Particularly, spending on semi durable goods were strong in the first quarter, led by garments, while spending on durable goods was also strong driven by autos and trucks and SUVs. Now, looking forward to the second quarter, TD Securities is protecting that household consumer consumptionwill provide the main catalyst for a slowdown in GDP with a pullback in good spending, unwinding part of the search that we saw in the first quarter of this year.
When it comes to residential investing, investments, TD Security says that residential investors should see a mixed performance with stronger resale activity offsetting software construction spending.
Net exports will be a bit of a drag on the second quarter GDP while broad-based pullback in activity will offset stronger oil and gas production during the quarter. Now, TD Securities also anticipates that staff Canada's flash estimate for July will show muted growth of just .1% up or lower, rather, we should anchor the third quarter GDP growth below potential. Looking ahead to the next Bank of Canada rate decision, that on September 20, TD Securities believes that the bank has reached its terminal rate for the cycle after the last 25 basis point hike to you 5%. If economic activity continues to slow over the second half of the year and core inflation starts to trend lower, if, I say if, TD Securities expects the Bank of Canada will be able to remain on the sidelines into 2024.
>> Slowing economy, this is what they were trying to engineer, bank on the sidelines, according to the report. The question you get a lot, question I get a lot, is one of the cuts coming to Mark >> TD Security says that rate cuts again are a more distant proposition and will require inflation back inside the bank's target range on a sustainable basis. But TD Securities continues to look for the first cut in the second quarter of 2024, again with risks skewed towards a longer. At 5%.
Need that inflation rate to come down and be down sustainably over a period of time before we see these rate cuts.
>> Some important data coming out this week, despite it being the so-called dog days were doldrums of summer.
>> It's going to be interesting.
>> Anthony will be here to break it down for us.
MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are taking a look at the heat map function here, it gives you a view of the market movers. We are taking a look at the TSX 60 by price and by volume.
lots of green on the screen. Looking at the energy stocks, he got the price of crude oil up the past couple of days, holding above 80 bucks. Some of the big energy name seemed to be benefiting, CVE, Cenovus up almost 2%. Right next door is Suncor. The writers bit of green on the screen as of the top corner with Shopify, we are seeing a rally in tech names on both sides of the border. Got Shopify up almost 4%. Looking for a little red? It is there. He brought Cameco, a uranium play, to the downside. Not rallying along with oil and gas needs. We are in the thick of bank earnings season. You got Bank of Montréal which should report today down modestly, less than a percent. Now, south of the border, we do have a rally on our hands, technology stocks performing pretty strongly. The chipmakers like Nvidia and AMD are mixing some upward movements along with some of the big names like Google.
Look was in the middle of the screen taking up all that real estate, Tesla! Pretty strong rally in the same today. It's up a little bit more than 6%.
You can find more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now it Jacky He from TD Asset Management, talking retail.
This question just came in in the past couple of moments.
Retail talk like the gap and lululemon have been moving up recently. Why is that? Everyone seems to be saying a recession is coming.
>> That's interesting.
We have talked about underperforming for this year. But lululemon and gap both fall under that category but they, I wouldn't compare them the same. Gap is fast fashion while lululemon is more functional apparel.
While gap is comparing more directly with companies like Zara and Uniqlo, the problem with gap is that it is relatively lower quality in terms of earnings, they don't really make money, and they see continuous competition, increasing competition there.
So it can be difficult and it's a naturally volatile name. If you are seeking a high quality name in a volatile environment, it's probably not the best name I think, I would bet on.
Lululemon is a bit different.
When you look at data like traffic, other things, it has been outperforming the other apparel businesses.
It's probably one of the best growth profiles if you look at channel, geography or product categories, they are of performing and gaining market share. Their market share quite slow globally. In north America it's only 5%, globally is only 1%. So it's still quite a lot of space for them to grow into.
one thing that's interesting about lululemon is that it's a direct channel. They sell pretty much everything directly to customers.
and half of that is sold online.
That's a higher margin.
direct selling and selling online are both very profitable.
the reason being that the return rate is quite low. You don't have to deal with those logistic operational issues because I think even myself, by yoga pants, I squeeze myself in. I don't need to exchange it.
So they really benefited from that angle.
Going forward, we have to see how much consumer will cut their apparel spending and whether that will start hitting the overall sentiment of companies even like lululemon.
> Jackie, always a pleasure having you here.
I'd rather conversation.
I look forward to the next one.
>> Thank you so much for having me.
>> Are things to Jacky He, global consumer discretionary analyst at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Ben Gossack, portfolio manager at TD Asset Management will be our guest, taking your questions about global stocks.
Ben brings the charts as well. you can get a head start with your questions by emailingmoneytalklive@td.com.
That's all the time we have the show today. thanks for watching and we will see you tomorrow.
[music]
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 the outlook for consumer discretionary stocks and whether shoppers are shifting those spending habits. It TD Asset Management Jacky He joins us. MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from this week's Canadian GDP report. And in today's education segment,Caitlin Cormier is going to take us through how bubble charts work and how you can find them on Advanced Dashboard.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to our guest of the day, let's give you an update on the market. We got a nice rally on our hands on Bay Street and Wall Street. We will start here at home with the TSX Composite Index.
You can see a nice 184 point again, almost a full percent to the upside.
Taking a look at the price of gold, higher, the price of oil modestly higher above 80.
Kinross Gold is in the list. Nothing is too outsized in terms of upside performance but it is green on the screen. Six bucks and $0.89 per share for Kinross, Europe 1.6%. Check-in on Cenovus Energy with oil holding over 80 bucks for rail the last couple of days, a bit of a bit again. As on a massive move or some of these names but it's been day after day. Got Cenovus now at 2629, it's up almost 2%.
South of the border, there are further signs in terms of consumer confidence that Americans are starting to feel the pinch of higher interest rates. Of course, that was the entire exercise of what the Fed in our central bank has been through for the past year and 1/2, trying to tame inflation by curbing consumer demand. Confidence taking a bit of a hit, seems to be good news for the markets.
S&P 500 is up about 40 points, more than a full percent.
Tech stocks doing a little bit better. Let's check in on the NASDAQ, there is a 1.6% gain so far on the session. The chipmakers getting a bid.
Nvidia, no stranger to anyone, they been running their bit on since the beginning of the year with the AI excitement.
It's at 485 bucks per share, of about 3.7%. And that is your market update.
Consumer discretionary stocks have been strong performance so far this year, but with signs that households are shifting their spending habits, could that trend continue? 20 is not to discuss is Jacky He, global consumer discretionary analyst with TD Asset Management. Great to have you back on the program.
>> Thank you so much for having me.
>> It's always nice to talk about stocks when stocks are making some money. Consumer discretionary has been interesting this year. We know that in the face of soaring inflation which is central banks have been trying to combat, households of headless disposable income to third towards discretionary items but when you go to the earnings, is on a terrible story for everyone.
How is the space holding of?
>> Yeah, that's quite interesting. If you look at the stock performance perspective, it went up 30%, quite a lot, right? That's double the S&P 500 return.
But if you exclude Amazon and Tesla, they represent about half of the sector, the sector overall actually was only half of the SP500returns. Quite challenging on a relative basis. That's why broad chart. I really want to understandwhat's the underlying dynamic within the sector from an equal weight basis.
See you look at a chart.
You can see a very divergent performance across industries.
The one that continues to work, homebuilding and travel. We know the US housing market is still pretty tight.
We know consumers do have a lot of pent-up demand for travel. So that has been working. What has been lagging is those more discretionary categories like home goods, footwear and apparel.
That partly explains why if you look at factors, you can see the lower quality companies have outperformed higher-quality companies this year and that's because if you think about casinos or cruise lines that tend to be higher leverage and lower earning stability, they outperformed the market by a significant magnitude so far.
>> That chart gives us a nice context into what might or might not be working in retail. We just came through earnings season and it was sort of mixed. Sometimes I would expect a retailer to go one way and they said, no, we managed to earn our way through this while others were not so lucky. What did you see in all of that?
>> Yeah, there's a lot of information going on but I would say that at an aggregate level, it's pretty solid. If you look at the numbers, probably the best sector within the S&P 500, we got double-digit topline and bottom-line growth and more importantly it has outperformed expectations by the street, three Street quarters.
That's not bad.
Overall, it continues to be led by the services industry, travel, etc.
Margins are more mixed.
We still see about half of the companies with contracted margins. But sequentially, we see about 80% of companies expanding their margins. So think about lower commodity costs, better logistic cost, those tailwinds are likely to continue into the next year.
I brought another chart that I think it's important to look at what the management outlook looks like and I use this chart to compare management outlook and investors outlook.
So if you look at the Y axis, that's a earnings distribution over a six-month period.
On the X axis, it tells us about how much investors are willing to pay relative to history. Right? You can see the overall sector earnings was more positive, driven by but that has not been rewarded.
Investors have been quite sceptical about that.
Most of the industry continue to trade below historical numbers and in fact about half of the overall stocks are trading near historical lows.
so if you're a long-term investor, that could present some increasing opportunities going forward.
>> Last time you were on the show, we talked aboutsomething that was weighing on a lot of these names: excess inventory.
You get rid of excess inventory, use markdown, he squeeze margins, how are they working through that?
>> That's exacting how it works. Inventory is a function of supply and demand.
The pandemic of the supply chain distorted that to an extreme level about a year ago.
It's a year now.
And companies are making substantial progress. But we have to look at the direct channel.
On a direct channel, if you look at the products directly from the company, that's a direct channel, you concede that the inventory problem is largely behind us. Overall, absolute dollars is still elevated but the trend continues to trend down be because sales growth has outpaced inventory growth.
A good example is Home Depot. People exacted they would have a modest inventory growth but they had a double digit decline in inventory. On the other hand, wholesale is a different story. Inventory problems are still lingering.
That's not surprising because wholesale tends to lack a direct channel by about two quarters because they manage inventory a bit differently, they react more slowly to demand and also they allow customers to cancel your order during the season if it comes in shorter than expected. So that means if you are a brand that is heavily relied on wholesale, you may see inventory challenge.
>> Interesting divergence there, want to keep an eye on.
Luxury, for those who can afford it, they don't seem to be hit by the same pressures as regular households.
What is happening in that space?
>> Yeah, luxury, I think we are talking about European luxury. That has been one of the bright spots within the sector.
Their customers are less impacted by macro risk and especially during the pandemic, they are the ones that disproportionately benefited more in terms of excess savings, in terms of liquidity and now this year, we have a new story like the biggest growth driver, China, is coming back.
So that has been a tailwind. The problem over the past three months, and we can see some pressure there, it's because the US is slowing and China macro data hasn't been supportive.
People have been worried about that and taking some profit off.
But I think there's some relief there because China luxury demand went up 80% year-over-year.
So that has more than offset the US slowness. So I would say the US is still in the normalization trend.
It's not too worrisome.
I think the upside can come from China.
Historically, the Chinese spent about two thirds of their luxury budget outside of the border.
>> So when they travel abroad, they are spending money.
The handbag, why not?
>> It's cheaper.
those things won't last forever.
As those problems are fixed and you see more upside on the Chinese travel upside.
what I want to highlight is that in all all luxury are created equal.
If you are a luxury name that have more exposure to aspirational consumers, you may see more volatile earnings than say the top end luxury names like Hermes or Ferrari.
>> Was go to the other end of the spectrum. We know that households are struggling.
Even the headline inflation is coming down, things are still far more expensive this time this year than they were last year.
So some of those bargain retailers, how are they navigating all this?
>> Well, yes.
The lower and consumer continues to struggle and David been struggling for over a year now. That's not use.
From the investment perspective,you probably cannot really monetize that because lower end will just trickle away, they won't spend. Bo EC recently is higher and consumers are also trading down and you can find opportunities there. For example, if you look at whatever company that provides you with better value propositions, they will benefit. An example would be off-price retailer. We see traffic has accelerated.
People, more mainstream consumers are trading down to them, buying the brands at 20 to 60% discount, that's not a bad deal, right?
Also we see growing customers trading back to e-commerce like Amazon.
People are buying more there. It's deeper, it's more convenient.
And also companies like brands if you focus more on function over fashion, you can be in a relatively better position.
That would be a lululemon or a Japanese brand like Uniqlo.
>> Before we and our conversation, going forward, what are we thinking about of the retail space?
Everyone keeps beating the drum about the recession that hasn't come. Not everyone, but a lot of people have beating the drum lately.
>> Yes, I would say we have to look at it from a longer-term or shorter-term. From longer-term, I'm structurally bullish on the consumer discretionary space because there are a lot of innovations going on, there's a secular story going on. If you look at history, the sector always tends to underperform leading up to a recession, but during a recession, they always tend to outperform.
near term, I am cautious on a certain part of the sector, especially the more discretionary part.
one example would be the department stores, some general apparels, because they are more exposed to middle income consumers, we know they are trading down, so that can be a risk.
The other part is the auto industry.
If you look at the headlines, we know that they are going through a pretty intense negotiation, labour negotiation.
I think that the chance of a strike is higher this time and even outside of that,we know there is a delayed impact on higher rates, so the auto prices may see more cuts so that would weigh on the automaker's profitability. The part I am more optimistic is still trouble.
I think travel is interesting, especially in the lodging area.
The leisure continues to hold up.
At the same time, we see business travel, international travel recovery still on the horizon doing really well and that's one of the few areas where we have not seen material trade down. Surprising power still there.
also, certain dollar stores and off-price retailers are really benefitingbecause last year, the benefit that they provided it was not as obvious. This year, their value is more which is why we see more and more traffic going there.
>> Always great insights. We are going to get your questions about consumer discretionary stocks for Jacky He and just moments time.
a reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
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.
Best Buy is cutting its annual sales outlook as it anticipates that 2023, this year, is going to mark what it calls a low point in tech demand.
The electronics retailer did, however, manage to beat its earnings expectations for the most recent quarter.
Apparently, demand for gaming systems countered some weakness in appliance sales. Right now, the market seems to like the news.
the stock is up about 6%. Well, the White House has named the first 10 prescription drugs it's going to target as part of Medicare price negotiations.
The talks are aimed at making medications for ailments such as diabetes and heart failure less costly for seniors. The list they released today includes drugs made by AstraZeneca, Johnson & Johnson and Merck along with a few other names.
Let's take a look at AstraZeneca. Doesn't seem to be to rattle by the news, mostly flat. It appears artificial intelligence is making inroads in the makeup industry.
The parent company of Google, that would be Alphabet, and Estée Lauder, are building on their existing partnership to bring AI tools to cosmetics consumers.
the company say I tools can help better understand consumer preferences and improve the makeup shopping experiences.
A I in everything.
Let's check it out to the markets. The TSX Composite Index, up 191 points, almost a full percent for the price of oil is higher, the price of gold is higher.
A lot of green on the screen. South of the border,signs consumer confidence is starting to be sapped by higher interest rates and a bit of a market rally on her hands hereto. You got the S&P 500, the broader read of the American market, no up 50 points, will overflow percent.
We are back now with Jacky He, take your questions about consumer discretion or stocks. The first one on the list is a big one. Can you give us an update on Amazon?
>> Amazon is over 30% of the sector.
it went up about 30% this year. But if you look at the history, it's about 30% below the peak of about three years ago.
What has been waiting on the stocks is really two things. The retail profitability andAWS deceleration.
If we look at them separately, we can see inflection on both ends. On the retail side, we know that Amazon, during the pandemic, for two years, they sent tens of billions of dollars to create a transportation network that is equivalent to the size of UPS. That created a lot of opportunity.
People were wondering about when they would start making money in one profitability would recovery.
Over the last quarters, we saw companies being more disciplined and what they spend on.
They started cutting the workforce and pausing those lower return projects. More recently, they are regional rising there networks from national to more regional areas and all of those are having an immediate positive impact on retail profitability.
that has surprised the market quite a lot.
The other end is AWS. Q2, growth was 12%. It is no longer 30 or 40%.
People are maybe disappointed. If you look at the trend, it's actually better than the exit rate of Q1.
The exit rate of Q1 was 11%.
Why is that? Because from a company perspective, there is only so much you can cut. Now we are in a world of AIA, so companies are rethinking workflows and re-engaging data to better compete in the world of AI.AWS is one of the solution.
>> When I think of Amazon, I think of the packages in my doorstep during the pandemic but we have to remember web services in the cloud as well.
It's been interesting the stock this summer. Outlook for Tesla?
> Tesla has done pretty well, I think.
It went pretty well today as well.
We have to differentiate Tesla from Amazon because Amazon growth this year has all been driven by earnings, but Tesla, so far, has all been driven by expansion. A lot of things that keep people excited. AI is certainly one of it. If you have a long-term view, then Tesla is a great company because think about what can drive the success of AI. It's really, you got your supercomputer and you've got your data. And the Tesla car model as released in 2012, they have a lot of cameras around on the cars. They start collecting data even today so the data they collect is way more to the liking of automakers, that allowed them to train their AI system smarter and smarter.
But the near-term thing is a little bit tricky because you won't make a meaningful contribution from your software until many years later. So until then, you are primarily a carmaker that has to deal with demand and profitability.
We are continuing to see Tesla cut prices .
But as an investor, you can struggle with near-term earnings.
That means your multiple would keep going higher. At the end of the day, investors investing in Tesla have questions. How much near-term risk are you willing to go through? How much risk are you willing to take?
>> You mentioned this briefly off the top of the show, of course the strike mandates on the other side of the border for the autoworkers of the big companies. Of euros to know what the potential impact of autoworkers going on strike?
Does that mean that autos are still investable?
>> It's quite an active space. It's not only… Even if I'm working for Tesla, then I see my neighbour God a 50% pay jump, I wouldn't be satisfied with a 50% jump.
That represents about hundred 50,000 workers and the reason I said the chance of a strike is higher than historically is because we know automakers have experienced record high profitability through the pandemic and we know the workers have been suffering from rises and the cost of living and we know there is new leadership and the UAW it has been quite aggressive and demanding. The problem is that the ask we are seeing on the public side, it would be quite hard for automakers absorb everything, that includes about 4046% pay bum, that includes about 32 hour week,that would cost them pretty much tens of millions of dollars for automakers meanwhile they have to figure out a way how to compete with Tesla during the CV transition. So that's a tough spot.
If there is no middle ground by mid-September, the financial impact will depend on the duration of the strike.
It will be costly for both companies and employees.
So a one-month strike can cost two to $3 billion.
>> Something to keep an eye on a September starts this week. As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Jacky He on consumer discretionary stocksin just a moment 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. In today's education segment, we are taking a look at TB's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Lots of stock chart options on the popper.
Caitlin Cormier is going to join us now, client education instructor with TD Direct Investing. Take us through the bubble charts.
I'm looking forward to this one. Explain to me what I'm looking out when I'm looking at a bubble chart.
>>this is not your typical chart. It is a little bit different from a standard chart. So this, as you mentioned, is called the bold chart.
I think maybe one of the finest looking charts on Advanced Dashboard to be honest.
Once you launch Advanced Dashboard, it is found under the Market Pulse tab.
We have a whole bunch of things available there. The bubble chart is the one we are going to take a peek at today. Essentially, we are looking at is we are looking at a chart of the TSX 60, the X axis is showing us the ranking of all of the stocks that are on the TSX 60 and the ranking is based on their one year performance. So on the y-axis, we can see kind of the percentage performance for the last year and then again this would be the highest performing security on the TSX 60 and on the lowest performing on the right-hand side. You may be wondering the different sizes that you can see and maybe itself expenditure if you are familiar with market Because we do see two of the bigger ones.
The size is because of market capitalization.
And the last piece of it is the colour and the colour represents what sector these individual companies are actually in. For example, if I were potentially looking at this chart and maybe there's a particular area of the market that I'm not all that interested in, I can go ahead and come to the bottom and see the different colours for each different sector and then if I did not want to see for example financials, I simply click on financials and then magically, they disappear.
So all we can see now are the other sectors that are available.
Again, I remove multiple if I want to and just kind of see some specific areas and I also add them back in.
Essentially, this is a backward looking tool that we are using to essentially see the past performance of securities on a specific index. This is the standard here, the TSX 60.
Not too many securities.
If you add too many on there, it can be a bit overwhelming. I just a quick visual representation of performance, market capitalization and sectors.
>> All right, Caitlin. I saw some bubbles disappear for a second and come back. It makes me think that investors can customize the chart.
>> Yeah, absolutely.
That's a key component of Advanced Dashboard's customization.
So with Advanced Dashboard, basically, each of the different components we have, we are able to do some customization. Let's see what we can do with this particular chart.
When we hop the bubble chart, under index, it's the first thing we see, we can choose either Canadian or a US index.
We can also choose the sector. For example, if we want to see the real estate market, and I just the real estate, gives me a more in-depth look.
I can change how I want my rankings to go. What I want my x-axis and y-axis to say. I also change with the bubble size represents.
and then finally, I change the bubble colour, with that colour would meanon the last piece here.
So there is quite a bit of customization that you can do. I will just show for example… It's a little hard to see here. If we add too many securities.
We are not even looking at the S&P 500. But that's why kind of like the idea of the 60 are looking at something more specific like a specific sector because you can actually see the individual securities, you can see the colours and their actual stock symbols there so it is a lot easier.
I should show this as well. As you hover over the bubble, you can actually see theperformance, the sector and the market For each securities. If you are interested in what it is, you can hover over and see additional information about those individual bubbles.
>> Great stuff as always, Caitlin. Thanks of that.
>> Have fun playing with that one.
>> I will indeed.
Caitlin Cormier, client education sector 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.
Okay, we are back with Jacky He, taking your questions about consumer discretionary stocks. Okay, we talked about luxury off the top. Someone once specifically your view on luxury brands like Ferrari.
>> Ferrari that we have like for quite a while.
What is special about this is that they really targeted the top end of high and consumers. What you can see is there hasn't been a big impact on their demand. Many high end models are sold out before they are officially unveiled, so that is impressive.
if you look at their older backlog, thus the industry-leading ones that can give them visibility well into 2025.
Now what's even more interesting about this company is they are in the middle of a new product launch.
They are going to launch a lot of higher end models that are charging more and they will come with more customizations. Customization is a great thing.
Having a look, Ferrari can cost you easily over $50,000. Most of those will go directly to the bottom line, so it's quite a profitable business over there.
So I would not worry much about Ferraris demand even when… History proves they have been quite resilient. I would worry more about when the macro changes. People who have been hiding income will take Ferrari as a source of fun.
It means… That even with a company that has strong demand on a luxury demand product, you can see pressure on the stock price as the market shifts.
We get out of a phase when the Fed is neither hiking or telling us that we are saying hi forever.
>> Yeah, demand wise, no matter what environment, you've always got that type of customer that demand is so strong for the products and you see Ferraris so their models as a gift to their loyal customers.
It's not like they are begging customers to buy the product.
Demand would still be resilient. It's more about portfolio positioning. For he is trading around 40 times, it's quite expensive stocks.
If the environment is turning, say we are hitting a recession, people sell those high-value names and might use names like Rory to build that up.
>> Interesting.
I had not thought about that angle.
now, if you're shopping at Winner's and Marshall's, their parent company is TJX. Can I get your thoughts on TJX?
>> TJX has done well. One reason is because their business model is designed for this environment. If TJX doesn't work in this environment, I don't know what environment it would work in. They really by excess inventories from brands and then sell those at 20, 60% discount to consumers, we see that, so you got tailwinds on both ends.
you buy things cheaper, mark it up and sell it to others. Then, TJX, we have not seen any issues with the company because the traffic has been accelerated over time, right?
And last year, it hasn't been as obvious, as you mentioned, because everyone was promoting. This year, people are more gravitating to their product and, more importantly, as higher and companies are selling lower to TJX, they will buy--you see better tailwinds for theretail mix.
The reason why TJX has done well is because they have lower exposure to low income consumers.
You got all the good deals, but no one visits their store… But TJX has a better exposure to mainstream and higher income consumers so as they trade down, that traffic offsets the low income consumers trading out.
>> What is the risk, though? That's always a risk for everything.
What can change for TJX and some of those names?
>> Currently, TJX is trading at a perfect environment.
They have been having the best buying environment for about four years.
Things will go down going forward.
The point is how long this will last. If TJX doesn't, is not disciplined enough to buy their inventory at a decent cost, and they do not mark up the way they did before, there will be a problem.
Another problem is theft. Really, it's retail crime.
You see US retail thefts have been getting a lot of complaints from CEOs publicly about retail theft. That is also a problem for TJX.they have been thriving on consistent shrink impact to last year and pre-COVID.
But that is always a risk. If that goes out more, it will impact your company and your bottom line.
>> I think, if memory serves, this tie is a Marshall's tie. I enjoyed the hunt, right?
I didn't go there because of economic restraint.
I went there to see if there'sa tile I that I will buy it.
>> That is been a big advantage for companies like that.
They have a very flexible business model. To go in there sword and you find everything. You move things around, you probably won't find the same time next week.
>> That was the fun, the hunt.
>> Yeah, exactly.
>> Okay, here's another one. The potential for recession, is this a good time to look at discount stores like Dollarama?
>> Dollarama works really, really well. I think that it continues to be well-positioned in this environment.
the trade down in Dollarama, they are the best tray down beneficiary in Canada. On the US side, people would argue, okay, the dollar store seems to have a lot of pressurebut I would argue Dollarama has a different business model than a dollar store in the US. The reason being Dollarama has been in urban, suburban areas versus in the US, more rural areas. So by consumer demographics, Dollarama is more mainstream and the US appear, you can see them lower income focused and then if you look at what they sell, Dollarama sells about 60% general merchandise like seasonal products, it's more profitable.
Versus the US appear, they are selling more consumable products with a lower margin.
So overall, I think Dollarama is still very well and it's well-positioned in this environment, well-positioned company in this environment.
>> What would the risk be?
>> Valuation. If they don't grow their stores at the same pace as they did before, people will not pay the same amount as they did before. The valuation now is trading a little bit above historical average, but it's probably justified in the environment of slowing macro but going forward, Dollarama has to continue to deliver.
>> We are going to get back to your questions for Jacky He on consumer discussion are stocks in a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canada's economy rose in the first quarter amid higher household spending in both goods and services, but there are signs pointing to some slowing momentum heading into the summer months.
Anthony Okolie is now here, taking a look at a TD Securities forecast on the GDP report due out later this week. What are they saying, Anthony?
>> TD Securities is looking for the Canadian economy to cool to just 1.
2% annualized gain for real GDP in the second quarter.
That is in line with estimates. But again, a big draw from 3.1 annualized gains that we saw back in the first quarter of 2023.
for the month of June, TD Securities is forecasting a contraction of 0.1% month over month versus consensus which is 0.2%. When we look back to Q1, the strength and household bedding there was a big driver of GDP growth as this next chart shows.
Particularly, spending on semi durable goods were strong in the first quarter, led by garments, while spending on durable goods was also strong driven by autos and trucks and SUVs. Now, looking forward to the second quarter, TD Securities is protecting that household consumer consumptionwill provide the main catalyst for a slowdown in GDP with a pullback in good spending, unwinding part of the search that we saw in the first quarter of this year.
When it comes to residential investing, investments, TD Security says that residential investors should see a mixed performance with stronger resale activity offsetting software construction spending.
Net exports will be a bit of a drag on the second quarter GDP while broad-based pullback in activity will offset stronger oil and gas production during the quarter. Now, TD Securities also anticipates that staff Canada's flash estimate for July will show muted growth of just .1% up or lower, rather, we should anchor the third quarter GDP growth below potential. Looking ahead to the next Bank of Canada rate decision, that on September 20, TD Securities believes that the bank has reached its terminal rate for the cycle after the last 25 basis point hike to you 5%. If economic activity continues to slow over the second half of the year and core inflation starts to trend lower, if, I say if, TD Securities expects the Bank of Canada will be able to remain on the sidelines into 2024.
>> Slowing economy, this is what they were trying to engineer, bank on the sidelines, according to the report. The question you get a lot, question I get a lot, is one of the cuts coming to Mark >> TD Security says that rate cuts again are a more distant proposition and will require inflation back inside the bank's target range on a sustainable basis. But TD Securities continues to look for the first cut in the second quarter of 2024, again with risks skewed towards a longer. At 5%.
Need that inflation rate to come down and be down sustainably over a period of time before we see these rate cuts.
>> Some important data coming out this week, despite it being the so-called dog days were doldrums of summer.
>> It's going to be interesting.
>> Anthony will be here to break it down for us.
MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are taking a look at the heat map function here, it gives you a view of the market movers. We are taking a look at the TSX 60 by price and by volume.
lots of green on the screen. Looking at the energy stocks, he got the price of crude oil up the past couple of days, holding above 80 bucks. Some of the big energy name seemed to be benefiting, CVE, Cenovus up almost 2%. Right next door is Suncor. The writers bit of green on the screen as of the top corner with Shopify, we are seeing a rally in tech names on both sides of the border. Got Shopify up almost 4%. Looking for a little red? It is there. He brought Cameco, a uranium play, to the downside. Not rallying along with oil and gas needs. We are in the thick of bank earnings season. You got Bank of Montréal which should report today down modestly, less than a percent. Now, south of the border, we do have a rally on our hands, technology stocks performing pretty strongly. The chipmakers like Nvidia and AMD are mixing some upward movements along with some of the big names like Google.
Look was in the middle of the screen taking up all that real estate, Tesla! Pretty strong rally in the same today. It's up a little bit more than 6%.
You can find more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now it Jacky He from TD Asset Management, talking retail.
This question just came in in the past couple of moments.
Retail talk like the gap and lululemon have been moving up recently. Why is that? Everyone seems to be saying a recession is coming.
>> That's interesting.
We have talked about underperforming for this year. But lululemon and gap both fall under that category but they, I wouldn't compare them the same. Gap is fast fashion while lululemon is more functional apparel.
While gap is comparing more directly with companies like Zara and Uniqlo, the problem with gap is that it is relatively lower quality in terms of earnings, they don't really make money, and they see continuous competition, increasing competition there.
So it can be difficult and it's a naturally volatile name. If you are seeking a high quality name in a volatile environment, it's probably not the best name I think, I would bet on.
Lululemon is a bit different.
When you look at data like traffic, other things, it has been outperforming the other apparel businesses.
It's probably one of the best growth profiles if you look at channel, geography or product categories, they are of performing and gaining market share. Their market share quite slow globally. In north America it's only 5%, globally is only 1%. So it's still quite a lot of space for them to grow into.
one thing that's interesting about lululemon is that it's a direct channel. They sell pretty much everything directly to customers.
and half of that is sold online.
That's a higher margin.
direct selling and selling online are both very profitable.
the reason being that the return rate is quite low. You don't have to deal with those logistic operational issues because I think even myself, by yoga pants, I squeeze myself in. I don't need to exchange it.
So they really benefited from that angle.
Going forward, we have to see how much consumer will cut their apparel spending and whether that will start hitting the overall sentiment of companies even like lululemon.
> Jackie, always a pleasure having you here.
I'd rather conversation.
I look forward to the next one.
>> Thank you so much for having me.
>> Are things to Jacky He, global consumer discretionary analyst at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Ben Gossack, portfolio manager at TD Asset Management will be our guest, taking your questions about global stocks.
Ben brings the charts as well. you can get a head start with your questions by emailingmoneytalklive@td.com.
That's all the time we have the show today. thanks for watching and we will see you tomorrow.
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