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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. You're going to take you through with moving the markets and answer your questions about investing. Coming up on today show, TD Asset Management's James Hunter will take us through some of the pros and cons of higher interest rates when it comes to financial stocks. And in today's WebBroker education segment, Bryan Rogers is going to show us how we can see what's trending in the markets on the WebBroker platform. Here's how you get in touch with us. Just email moneytalklive@td.com or you can fill out the viewer response box right under the video player here on WebBroker. Before we get to all that and our guest of the day, let's get you an update on the market. We got some green on the screen. The price of crude oil is stabilizing today. The price of gold is stabilizing and the US dollar is pulling back a little bit against a basket of its international trading partners, so that does have some money movementtoward some of the heavyweight sectors, oil and gas, the minors. Right now we are up 201 points, and a triple digit gain 41% the upside on the TSX Composite Index. As we said, gold is not soaring or anything but there is a bit of a bid now for some of the mining names, including Kinross that are up a little shy of 4% to five bucks and $0.65 per share. It's a pretty wild ride on the price of crude yesterday for some of the big names in energy in Toronto. Crude is stabilizing today with US dollar pulling back a bit at 4825, we've got Suncor up almost 2%. South of the border, let's check in on the S&P 500. Of course, this is a shorter trading because the Americans get closer and closer to their thanks giving holiday but we have some positive momentum today. It's modest, the S&P 500 of 29 points, three quarters of a percent. Let's check out the NASDAQ, tech heavy index. It's up more than 1/3 of a percent. Chevron, one of the big oil and gas names trading says the border is getting a bit of a bid today to his oil prices sort of calm themselves after some pretty wild gyrations over the past couple of days, hundred and 85 bucks and $0.33. It's up a little bit more than 2 1/4% that to market update. Rising interest rates can be viewed as a positive for the banking sector but it hasn't played out that way through 2022. Itjoining us now for more, James Hunter, Bank and insurance analyst at TD asset management. Welcome to the program. >> Thanks very much for having me. >> We know that over the past year central banks and try to tame inflation and there have been effects on the different asset classes. At first blush, you might say financials are doing well. It is a work obligated in that? > It can be more complicated than that but when you think about this year, that's mostly how it's played out. When a total return basis, the banks are down a few percentage points and the shares are up a little bit so they are sorta very close to the TSX, and our thesis going into the year would've been that the banks and insurance companies would benefit from rising rates. Banks because they have higher profit margins, and the insurers because they'll generate more investment income on their investment portfolios. So you seen that in the earnings estimates. Those have risen. Dividends have been really good, for 5% yield and there's been some double-digit dividend increases, which is really great. The sort of thing that's held them back, as your question, are valuations on recession fears so we are working to that now but overall, I would say financials have really been holding their own. >> As they will their own, what are some of the issues with the higher rate environment? But with the Canadian housing market, how it slowed dramatically as borrowing costs are higher, is going to visit the banks at some point? >> Yeah, if we talk about credit, you have to keep in mind that Canadian banks have about a $3 trillion loan portfolio. so it's significant and every year they have to put aside some portion of their loans for loans that could go bad, provision for credit losses. Those loans could go higher and higher as we move into this potential economic recession peered the thing is really been helping them offset this has been higher margins. There's been really good revenue growth. They benefit from the higher interest rates. There is in pretty good expense control as well. So there is this give-and-take between provisions and the revenue and expense sideof things that has been pretty strong too. >> What we need to think about for 2023? Right now, it seems like a lot of people are baking in a recession and the big debate becomes is it a deep recession, is it a shallow recession? I think you are hearing just in a lunchtime chat from the senior deputy governor of the Bank of Canada saying they feel that the moves they made so far to raise borrowing costs are working and they hope to avoid a hard landing. In that environment, did the banks and of having a favourable situation with, you know, nice net interest margins but not a ballooning of provisions to try to cover bad loans? >> So the nice situation is basically what paid at this year when you had the revenue growth really be there to offset the increase in provisions, which we are starting to see that now, it showed up a little bit in Q3 and is probably something we will see in Q4 as well. So I think that's a good part of the story that happened this year and next year, there are more risks around that part of the story where the revenue growth might not be enough to offset the increase in provisions. So that's what investors are really grappling with. I think, you know, what we sort of think is that there is going to be a mild recession and then the question about how deep or how shallow it is will influence how positive or not positive you would be on the various stocks in the financial sector. >> What does it look like for insurance companies, life companies in this environment as well? We have a great rundown on the banks and how business performance, higher rates… >> So the insurance sector, it's interesting. There are two different pockets to it. There is the property-casualty insurers and then there is the life insurers. The PNT insurers have had a really good year and the reason is because they got inflationary pricing power. If you think about having an insurance policy for your home or your car, you don't have a choice. You have to have that. So if the insurer increases their rates by five or 10% or more because of inflation, you're going to pay. And that has resulted in higher earnings this year and that has been really good for those stocks. The life cos, they haven't been quite as good about reasonably a resilient given all of the difficulties we've had this year. Two things to keep in mind would be : they have a lot of business in Asia, so for Manulife and Sun Life, the slowdown in insurance sales has been a bit of a headwind as there have been it continued zero COVID policies and that part of the world. In the other part of it is an accounting transition, not quite as exciting to talk about, but there is going to be less earnings and less bulk value next year and so the insurance companies are just having to let investors know that entity they need a little bit of time to digest that information. >> When I think about the life Co. side of it, obviously they have long-term liability obligations and it felt like it had been such a low rate environment for so long, we didn't see these banks move until they realized they were gonna get that kind of return in the bond market. Things changing now or are these levels, it's been a dramatic rise in interest rates so far this year but to take the life Co.'s close to where they used to be structured? >> I would say that it helps. It takes time to filter through the earnings profile of the insurers. As you mentioned, the liability profile is quite long, and that means that their assets are also pretty long in duration, and so every year that goes on where rates are little bit higher, even hold at these levels, there will be more investment income flowing through the earnings profile of the life Co.'s. It just doesn't happen in 1/4 or two like it can note with the banks. It takes a couple of years. So I think this will be a theme, that will probably help them through the next couple of years if rates stay at higher levels for a longer period of time. >> We touched on the weakness of the housing market a little bit. Of course, we have credit runs in cycles as well. What do we need to think about in terms of credit quality and heading into 2023? >> We need to think about, in terms of credit quality, is three things: the unemployment rate, housing prices and commodity prices. Those of the three sort of big factors that go into the economic forecasts that really drive provisions and credit. And if you think about the employment rate, it's been rocksolid so far. It's hovering in sort of the 5% range in Canada, which is low and that's really good for credit. It means that people have jobs, they can pay their bills. So that's a supportive factor. The thing that is starting to sort of way on the outlook is that decline in housing prices. As that happens, people don't have quite as much confidence. It's happening because their mortgage rates are going up. So that sort of makes their budget a little tighter. And those factors, you know, can work in different directions at times but over the next year or two, it will probably be a slowing direction rather than a more positive direction. >> Interesting stuff in a great start to the show. We are going to get your questions about financial stocks for James Hunter in just a moment's time. A reminder, of course, you get in touch with us anytime. Email moneytalklive@td.com or fellow that your response box right into the video player here on WebBroker. Right now, I want to get you updated on the top stories in the world of business and take a look at how the markets are trading. Shares of Best Buy are in the spotlight today, that as the retailer stands by its sales forecast the holiday season despiteAll this brought a concern about consumer demand. It appears Best Buy shoppers still have an appetite for higher-priced electronics, and it did help the company deliver an earnings beat in its most recent quarter. He could see the shares right now up a little bit more than 12 1/2%. Zoom Video Communications is cutting his annual revenue forecast. That as the lifting of COVID research in this year has seen people spend less time connecting online. Zoom is also competing with similar online offerings for the likes of Microsoft and Cisco. Shares of zoom, of course, soared during the pandemic, this is one most people were working and socializing from home, but they lost a great deal, more than half their value this year. The return of office work and in-person social events is helping boost sales at Abercrombie and Fitch. His latest quarter, the retailer delivered a surprise profit in Holden's investors it's cautiously optimistic about this holiday shopping season. Part of that caution is that inflation is continuing to pressure household budgets. It's up 18% of the tower. Let's check in on the main indices. We will start here on Bay Street with the TSX Composite Index. We have some green on the screen, a triple digit gain with 206 points, a little bit more than a full percent. The S&P 500, south of the border, how are we reading there? A more modest 29 points, about three quarters of a percent to the upside. We are back now James Hunter. We are taking your questions about financial stocks so let's get to them. Here of your wants to get your general view on the big Canadian banks ahead of banks earnings season? I think that's rounded out, starting next week. One of the key themes you'll be looking for the sector? >> They are starting next week. I'm not going to be sleeping too much. >> It's a busy week for you. >> It's a busy week for me. What we need to keep in mind as we should expect earnings growth to slow down. It's been really strong in the last year or so but I think it's going to start slowing. So it's going to cause that? Low growth is going to be pretty good. Margins are going to be pretty good, but we are going to see that increasing provisions that we were talking about earlier and that will slow down the growth of earnings. One of the things that investors will be relieved focus on will be credit, that's what management teams are going to start guiding to is the outlook for next year, so that will be important. And just one of the thought is the differentiation between the banks. There has been quite a lot of that this year. Not all banks are made the same. They've got different levels of capital. They got different pieces of growth, and so we will probably continue to see that through Q4, the differentiation between banks. >> How do we feel about the cash on the balance sheet, basically? That well-capitalized financials, the better its capitalize, the more it can weather a rough store. What shape are the banks and? >> Banks are in really good shape in terms of capital. It's much better than say, you know, 10 years ago during the financial crisis and even before pre-COVID, we are ahead of that as well. A number of the banks have common equity tier 1 ratio so that's how you sort of measure the overall capital to banks. They are well above that the regulatory minimum. That's good. It means they have extra capital that can be a hidden form of earnings growth, so that's encouraging. But again, there's different levels depending on which bank you look at. So they are not all the same. >> Of course, when it comes to provisions for home losses, this is the anticipation of rough economic times, maybe start to see some of those loans go sour, so they put the money aside. That doesn't necessarily mean the money is going to be used for sour loads. If it doesn't come to pass. And that'll started at the beginning of the pandemic, right? Obviously the banks put a good deal cipher provisions because things didn't look good. But things and end up quite as bad. In terms of going forward, would you expect them to be very conservative heading into what could be a recessionary environment this year? >> We should definitely affect the banks to be conservative. they are very conservative here in Canada. And that means they will build it there provisions in the coming quarters. our view is that the build is going to be slow, it will be a big spike, it goes back to unemployment because the starting point is so strong today, we would expect the building provision should be slow and steady but we should expect the banks to be conservative. They aren't going to do massive dividend hikes. They are going to be a slow and steady dividend hikes and it will be the same for other parts of businesses. >> Will be an interesting week is always next week for the kickoff on that Canadian banks earnings season. We'll get us more questions off the platform. So let's get you take, James, on the big Wall Street banks. >> It's been a volatile year for the US banks and if we think about the themes in Q1, it was all about expenses. J.P. Morgan sort of came out of nowhere and said they had to spend a whole bunch more money than anticipated. People don't really like that very much. If we move to Q2, concerns around capital, some of the banks had to suspend or pause their share buyback programs we could say had to build up their provisions a bit more. But that's not a concern here and now. So I think the outlook for the next couple of quarters for the US banks will be one of caution in terms of how much are we going to see those credit provisions come through and it's difficult to say, but as long as unemployment in the US, it's hovering in the 3 1/2 to 4% range, and as long as unemployment stays to get the low levels, which we can't anticipate forever, but to long as it does, credit will be pretty good there. The other thing to keep in mind for the US banks as capital markets, of course. That's a big part of the business there. Capital markets have been really weak. So we could get some rebound in investment banking activity, M&A deals, that would be helpful but there are no imminent signs of out of the horizon. >> When I think of the levers at Wall Street, there was have a number to pull. They relied on this part of the division. Are they well offset, diversify that way or could there be a moment for the Wall Street banks where they say capital markets isn't working, this isn't working this isn't working? >> The biggest US banks are pretty diversified. If you think about the different pockets, it would be sort of 40% capital markets, 40% personal and commercial banking, then there would be another 20% that would be on the commercial side and there be a few other businesses. They are reasonably well diversified. That's one of the things that's always been so great about the Canadian banks is they've got so many different businesses and levers to pull. It's not quite as good as that in the US, but by and large, for the biggest banks, yeah, that would be a fair characterization. >> Will get another question now. This one that US focused as well. All the Wall Street to the regionals, how are they stacking up against the likes of a J.P. Morgan right now? >> That's a good question and it's a good question because it's one of the themes that we've seen in the last quarter and will continue to be topical, deposits. The deposits in the big banks are starting to move. They are starting to flow out of the system as interest rates rise and as consumers, you know, their budgets are strained. One of the things that will be tricky for the regional banks in the coming year will be how they manage those deposit outflows and to the extent the deposits are moving, it increases their cost of funding so it means they can't quite show as much margin. That's what J.P. Morgan and Bank of America have done really well this year, and that'll be a bit of a headwind for the regional banks. So it sort of plan to one of our themes which is that you have to be a little bit selected when you are picking between which banks you want to own right now. The regionals, they are in a reasonable place but you need to be aware of deposits and how that could slow the margins. >> Obviously, any bank is fairly attuned and sensitive to the economic conditions. Are the regional banks even more geared to the economy and given their businesses or is that an over supplication? >> No, that's about right. But they wouldn't have would be 1/3 or 40 or 50% of the business that's related to capital markets. And although you do think of that is something that is boom and bust, there are revenue streams with the capital markets that can be reasonably stable and one of them would be sales and trading revenues. You don't typically see those jump up and down by 70, 80, 90%. So to the extent that the regional banks don't have that business stream, it can be a little bit more tied to, as you say, the economy and that's right. That's what we've seen in the last few quarters. They have been benefiting with rate hikes and they have been benefiting with the economy really healing from the pandemic as we move past that, I think it would be more of a concern for that part of the banking system in 2023. >> If we jump back to the Wall Street banks, you're talking about the dealmaking, IPOs, always say that activity has not been robust. I can hurt them. But we need to see in the economy or investors in the financial space start thinking we are going to see more that dealmaking activity that's going to benefit these banks? >> I think we need to see confidence. The thing that would drive dealmaking is CEO confidence and CFO confidence, when management teams are confident making big capital allocation decisions, then he would see more deals. They're probably not to be super confident when, a, the consumers being strained and so they'd be a little worried about revenue profiles of the businesses they might have, and then the other part of it is central bank policy. As central banks continue to hike interest rates even with some initial sides of the economy slowing down, that's not a great condition to have M&A activity pickup. So I can tell you is that when the conference calls that I listen to, we know that the pipelines, the underlying pipelines of M&A deals and that kind of stuff, they are healthy. It's just that management teams aren't ready to sort of pull the trigger on a deal and what we need to see is just more confidence and stability on where were going to be a year from now, and we don't have that right at this time. > Exciting set. At home as always, make sure you do your own research before you make any investment decisions. We will get back to your questions for James Hunter on financial stocks in just a moment's time. A reminder, of course, you get in touch with us anytime. Just email moneytalklive@td.com. Analogous to our educational segment of the day. If you're interested in researching stocks that are getting a lot of attention from analyst, what progress was I can help. Joining us now is Bryan Rogers, Senior client education instructor at TD Direct Investing. Great to have you with us as always. A lot of change in the markets this year. There ways to see what stocks analysts are focused on. How we do that? >> Absolutely, great. I know that we look to the analyst centre before, more of a focus on who are the Analyst Centre rating, what's their ranking, look at things like that. But I want to look at it a little bit differently today. so if we jump into WebBroker, we see and hear often times we are running over to the research tab. We are going to be looking at researchand then the analyst Centre, so the goal over here, we can see research, we're going to click on the analyst Centre under the markets tab, that will take us to the initial page were we can look at the ranking. These are the rankings of the analyst themselves. We can look at whether there by ratings, hold, sell and so on. That's a great tool but when we are talking about looking at trending stocks, a lot of people don't even notice that there's this little tab up on the top right hand side and this is brought to us by a company called… That allocates all of this information together and looks at what are the analyst saying and what are the trending stocks that the analysts are looking at. See click on the tab and you can see here that automatically is going to pull up something based on the most rated. it will show the timeframe on the left-hand side, the company name and so on. But what I want to show you is if you want to look at say a best rated stock as an example of the top, this is going to give you all of the best rated trending stock over the last 90 days. You can filter it if you want to make it a little bit of a shorter time frame. I usually like to keep it as a bit of a longer-term like we do 90 days. And then I can filter it as well by the country, if you want to go just United States or Canada or you can keep it as all. And then we were talking today about financials, you go down to the sector, click on financial, that's going to give us quite a bit of a number to select from. Or if you want to go even into a larger market, like you're looking at the larger size. There may not be anything there depending on the category, but once you keep selecting, you're going to see some things that show up. And then you're going to go into the section where you can now see, okay, there's a company that we are looking at. This is the day was updated. So it's not just the current rankings but showing all of the rankings, this is when it was last posted. There you can see it was seven byes on this particular element fleet management. We can see an average price target and it actually shows you the upside potential based on the analyst ratings and because we are looking at the best rated, they are showing up as a strong buy. So we get an idea of what's out there in terms of the fence right now. >> Investors have this tool to start taking a look around. What if their interest gets peaked in a certain name, what's the next step? >> That's a good point, great. We don't want to use just the Analyst Centre. That's just one input on the analyst rating. You want to do your own research and it makes it easy and WebBroker as well. So we go back to that same screen we can see on here if I do like, if I'm looking at the financial industry that we just looked at, we looked at Tricon and Intact and infinity financial. Once you might not have heard of by its peak your interest and you see is an upside potential of 35% with Tricon residential, so want to see a little bit more. I'll click on this link right here it's going to take you into the overview on WebBroker. We've seen this but for those who might be new to it, he considers a total overview with the chart, a lot of news if you want to quickly access a number of reports, and you can go across charts, news and so on. And the one I would say to start with is go to the Analyst Centre within the actual stock itself and then you can see a little bit more detail and what they mean by the price target on the left. It will show you average high, low, it'll show you the analyst ratings, what they are rated at. If you want to see a particular analyst or follow that person. But the place like to go myself is going into fundamentals. You don't have to be a total expert, you can go to the fundamentals and you can now see where that stock fits within its industry peers. You can see industry comparison. You will see down here at the bottom which is what the category is. There's valuation. You will see some ratios that will show you what is the valuation numbers. Where does it fit? Is it higher or lower within the target industry? You can scroll down and look at valuation, profitability, management effectiveness and so on. So gives you an overview or big picture look at that stock and then you can go here to comparisons with their peers and you have also a quick view of the financial statements as well for those that like to crunch the numbers. >> For those who like to crunch the numbers indeed. Great stuff. Thanks. >> Thanks. >> Bryan Rogers, Senior client education instructor at TD Direct Investing. Make sure to check at the learning centre and WebBroker for more educational videos, live, interactive master classes and some upcoming webinars. Now before we back to your questions about financial stocks for James Hunter, a reminder of how you get in touch with us. Well, of course, you can always get in touch with us through the little window below the video player here. Let's get back to James Hunter, take your questions about financial stocks. If you are asking about Citibank. >> Citibank, that's an interesting one. That's one of the big banks in the US, obviously. What's important to keep in mind about city is that they don't have any loan growth. They are running off their asset profile because they had a regulatory On them for a number of years. And the return on equity is not as high as some of the other banks. Those are two really important indicators that you would look for when you are getting interested as an investor about a bank. So that's one thing that sort of is a structural thing to know about Citi. They have done a reasonable job in the last couple of years trying to prove their expense profile and improve their… There are some puts and takes on that name and I think it's been a tricky year for them because they have a lot of international exposure which has struggled as the economy in other parts of the world is really starting to slow down. >> Interesting stuff indeed. A good rundown of Citi there. Let's take a question about Manulife. Is Asian exposure a risk for them with COVID lockdowns in China? >> Asian is the biggest part of Manulife's business so it's really crucial to the company and insurance sales have been slowing this year and they've been slowing especially in China and Hong Kong because of the zero COVID policies there. We continue to see that in the results. It is a headwind for that stock and we need to see it approved. One of the things we've seen them do a little bit better is in their wealth and asset management business. They've had some pretty good net flows in their AUM's and down as much as you would've thought. So that's been a positive. But wealth and asset management is only 20, maybe 25% of Manulife's earnings profile, so it doesn't really rule the day there. What we want to see from Manulife is a more consistent delivery quarter to quarter and that might actually come in next year or the year after, but for the time being, it's been a bit of a struggle with Manulife. >> How important is it for names like Manulife or others to do that international expansion? In the sense that in North America, I've been told in the past, you may correct that, we are pretty well served in terms of products. We have the products we need for this service. There was people graduating from university, getting houses and getting into the market, but perhaps we are oversaturated in this market. >> That's exactly right. In North America, the growth profile is a lot slower and so that's one of the reasons why some of these big insurance companies are looking to other parts of the world. The key to remember is that to make those insurance sales profitable, you have to have really good scale. And that's what Manulife and Sun Life are really trying to do in their businesses in Asia. They operate in many different countries. It's not a one-size-fits-all. But they really need to get their scale as high as they can to then deliver the profitability that an insurer, even if they have a smaller footprint in North America, maybe the revenue growth is a little bit slower, but if they do really well in one region or with one product they can achieve that scale and deliver pretty good possibility. >> Alright, we know we are going to talk Manulife, we will have of you out there who wants to talk about Sun Life as well. How does Sun Life look in this environment? >> Also a tricky year for Sun Life, but there is an important distinction with Manulife which is that within Asia, Sun Life has much less exposure to China and Hong Kong, and they also have no exposure to Japan. And so the countries that they are operating and have been a little bit more resilient, so that's helped their Asian business. The other thing to keep in mind with Sun Life is that yes, they have a larger asset management business and that's not good in a world where that said is hiking rates and asset prices are coming down. But they have been able to continue to deploy capital into the asset-management business. They done a few acquisitions and new partnerships through the summer and that's been well received, I think, because they are finding it organically with their excess capital which it creates right into earnings so Sun Life is having a reasonably good year and they set up there is one that there's just a little bit more confidence around it compared to Manulife because they don't have the same types of exposure within Asia. As you said Sun Life has done a couple of deals this year. Is there much left out there to buy of these life companies, whether they are Canadian or American, can they expand operations requisitions? >> I do think there is quite a lot left to buy. Within North America, but even other parts of the world as well,I don't is going to come to an end anytime soon. I think it's a trend that will continue. >> Fascinating stuff. Let's get to another question now about whether. Hurricanes did lots of damage across Canada and the United States is here. Are these rising rates of natural disasters a risk to insurance firms? >> They are definitely at a risk to some insurance firms. We were talking earlier about how they're sort of two broad buckets, the property-casualty and the life insurers. In the property and casualty companies, yeah, it's a risk. If you start seeing more hurricanes like we still recently in Florida, there is damage to homes and cars and property, that will flow through an earnings and it can be really lumpy and it can really affect one quarter rather than another quarter. But the important point for the insurers is that they can reprice that business fairly quickly. They get price adjustments annually if they want them. So that's a really good offset. And as the customer, you have to have the insurance, so if the increase in prices, you have to pay. It's a risk. There will be more bad weather that can damage property, but ultimately for the insurance companies, they should be able to recoup that through earnings over time. >> Interesting stuff indeed. We are going to get back your questions for James Hunter on financial stocks in just a moment's time. As always, make sure you do your own research before you make any investment decisions. Of course, he can get in touch with us anytime. Just email moneytalklive@td.com. We have an update on the markets right now we will take a look at what's happening here at home on Bay Street. The TSX Composite Index. It's got a pretty decent triple digit gain of 250 points, up a little more than a full percent. We have seen the US dollar pull back a little bit today. Firming in the prices of gold and minds. Nothing to outsize to the upside for this commodities, but it's been a volatile couple of days, so a bit of common that space. Let's check in on one of the gold names that was making gains earlier today. Yamana, still at six bucks and $0.98 per share, up about 2 1/2%. As we said, some of the oil names are steadying after a particularly rocky session yesterday in the past couple of days. Athabasca 269 per share, Apple 5%. South of the border, let's check in on the S&P 500. This is a shortened trading week for Americans as we draw closer to Thanksgiving. Got some green on the screen, up about three quarters of a percent. The tech heavy NASDAQ was a bit lagging off the top of the show. It's up more than half a percent right now and Best Buy coming out and not only pleased with its quarterly results but saying they will stand by their full-year sales forecast heading into the holiday season. A lot of concern about the strength of the consumer due to inflation this year. Apparently aT Best Buy, there shoppers at least are still buying some of those high priced electronics. Those shares are upper right now a little bit more than 12%. people continue to weather record high inflation, increased borrowing costs… This is making consumers spend a little bit more cautiously. MoneyTalk's Anthony Okolie will tell us about the retail sales report. >> Stats Canada just reported that Canadian retail sales actually edged lower about half a percent month over month, which is in line with their estimates and while their flash estimate for October points to a 1.25% month over month gain, more notably stats Canada reported that for the third quarter, we talk about higher interest rates and higher inflation, for the third quarter, retail sales fell 1% in the third quarter. That represents the first quarterly drop since the second quarter of 2020, when sales dropped nearly 12%. As the chart shows, that drop in the second quarter was the unofficial beginning of the COVID-19 pandemic. When we look at core sales, that excludes autos and gas. That was down .4%. And the partially reversed some of the gains we saw in the prior month. Now, when you look at it in real terms, of course we adjusted for inflation core. Retail sales right now are further down month over month. Now when we break it out by sector as my next chart shows, we saw that sales were actually down in 7/11 categories. Leading the decrease of course was gasoline sales. Gasoline sales fell for the third straight month and that was entirely due to lower prices at the pump. Performance was mixed. When we look at housing related categories, it was pretty mixed there. Consumers actually cut back on spending on things like buildings materials and garden equipment stores as well as electronic and appliances stores. But sales were actually higher for furniture and home furnishing stores for the second consecutive month. Meanwhile, consumer demand did go up for clothing and accessory stores in September. This might be because buyers are taking advantage of some of the discounts that we are seeing from particularly the larger retailers as they try to reduce their glut of excess inventories as we head into the critical holiday season. TD Securities does note that the weakness in retail sales that we saw last month may be driven by a shift away from spending from goods to more services. However, when we look at the numbers, dining out at bars and restaurants actually showed spending may have plateaued at the end of the summer with food and beverage stores down during the month. Greg? >> What does TD Economics think about our appetite to shop the rest of this year heading into next year? >> All in all, TD Economicsthanks consumers are facing triple headwinds of higher interest rates, higher inflation and a drop in well. That's really causing consumers to be more frugal when it comes to spending. So TD Economics believes that higher debt servicing costs are expected to hithousehold finances harder over the holiday season so they are affecting to see overall spinning fall for the rest of the year and the points much weaker consumer spending into the year. >> Thanks for that, Anthony. >> My pleasure. >> MoneyTalk's Anthony Okolie. Let's check in on the markets, starting with the TSX Composite Index. Right now and I struggled to gain of 225 points, up a little bit more than 1%. Sent to the border, we do have some green on the screen for the broader read of the American market, the S&P 500. Up 30 points right now, a little bit more than three quarters of a percent. We are back now with James Hunter from TD Asset Management, we are talking financial stocks. Let's get back to some your questions. He is a provocative one. Do fintech startups was a serious challenge to some of the established names are there? >>That's a really interesting question and I get that one a lot. I would say is that in a world where interest rates are zero, the fintech's can be well-capitalized, they can get customers and have an exciting story to tell. I think that's completely different now. Interest rates are four, 5% in some of these stocks have really been hammered. I think the business models are going to be tested now. We not only could be seeing customers maybe not using their products and services quite as much. We can see employees leave those companies to find work elsewhere. So I think it will be a tricky time for the fintechs. They will probably is survived to fight another day, but it's going to be a tough one and I think it's important to remember that banks spend a lot of money on technology. So as much as they are not branded as fintechs, in a way, they are technology companies and they are in a good position right now to continue investing in businesses, and digital to improvetheir products and services. >> When you think about any space where you have the big margins, obviously there are tech companies that existed long before the cloud was all the rage and there were some aspersions cast, you're not nimble, you're not moving as quickly as these other startups in the cloud space, and the names like Microsoft figured out, here's what we are going to do in the cloud. They do have the funds to deploy when someone else comes up with the bright idea. > That's right. >> Interesting stuff indeed. This one revolving a bit around the politics of the border. Will the results of the US midterms pose any risks to the banks? I guess you always think in terms of regulation on Wall Street. >> Yeah, and so to the extent that the Republican Party has taken a majority of the house, all that when the margin may be helpful little bit the regulatory environment to the extent that the regulatory burden is increasing rather than saying the same, that's probably a mild positive for the US banks, but I don't think we are expecting any major changes just from the midterm elections. It would really be around presidential election cycles where you would see big changes. >> The banks often fair, I think in terms of US politics, often the pharmaceutical companies will get in the spotlight of politicians looking to score points on either side of the equation. To the banks of her figure into that much or do they kind of skate pass? >> It depends on the election of the public mood. One thing to think about is that the banks really aren't the villains today in the way that they would've been during the financial crisis. I think there was a lot of scrutiny around what went wrong during that period of time, but the banks have partially moved on from that and while there are still legitimate concerns around different types of products and services that the banks have and they do need to be regulated, they are well regulated and they've gotten stronger coming out of the financial crisis. So I don't think it's quite as hot a button as it might've been before. >> Alright, lots of great questions. It we think our audience for those. The front of time for questions. Before you go, it's been a turbulent year, going into 2023, what should we be looking at as investors looking at financial services? > Banks and insurance companies benefit from rising interest rates. We will continue to see that benefit for a couple more quarters, but is going to get harder because the economy is slowing down. So you need to make sure that you are getting paid to take the risk, meaning that valuations for the stocks need to be reasonably attractive. The other part of it is to make sure that you own the banks that have the strongest competitive advantages. The banks that have the strongest capital positions, the ones with the strongest deposit franchises, those are the ones that are probably going to win over the next 12 months. >> Interesting stuff, James. Really appreciate you being here and sharing her insights. >> Thank you very much. >> Thanks to James Hunter, bank and insurance analyst with TD Asset Management. Stay tuned for tomorrow show. Alex Gorewicz, prickly manager of active fixed income at TD Asset Management will be here to take your questions about all things fixed income. You don't have to wait until the show starts my with Alex to get a head start on your questions. Just email moneytalklive@td. com. That's all the time we have for the show today. Thanks for watching, and we will see you tomorrow. [music]