James Marple

[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day, I will be joined by guests from across TD, many of whom you will only see her. We will take you through what's moving the markets and answer your questions about investing. Coming up on today show, will have a look at what recent strong labour reports mean for the futurewith James Marple, Senior economist at TD Bank. And essays WebBroker education segment, Jason Hnatyk will take us through how you can stay up-to-date on use and reports on the platform. Here's how you get in touch with us, just email moneytalklive@td.com or you can fill out that your response box right under the video player here on WebBroker. Before we get to our guests of the day, let's get you an update on the market action right now. Of course, we've got a big week ahead of us. We do have some green on the screen in Toronto, 19,512 of the TSX Composite Index, up a pretty modest third of a percent, a little bit of money moving into energy names with the price of crude firm today among some others. Let's check in on Cenovus Energy and see how it's faring. Nothing too dramatic, but it is 2% to the upside, a little more than 29 bucks per share. Some of the miners rallied last week. Let's check in on Hudbay, at six bucks and $0.54, it is down to the tune of about 4%. South of the border, checking on the S&P 500, this is a big week. We got the midterm elections in the states. Perhaps by tomorrow we will have a bit of clarity. Who knows how much clarity we might have and what it will mean for the legislative agenda of Pres. Joe Biden? We got that on the docket. On Thursday, for US inflation, we get the latest read. We are still in the thick of earnings season. Plenty to keep an eye on. We are modestly in positive territory for the broader read of the American market. The tech heavy NASDAQ has been faring too well. It's a little negative, down just about seven ticks at the moment. Meta Platforms, unconfirmed reports that they are looking at cutting jobs, trying to rein in some spending. This is the parent company of Facebook, all about them a diverse these days. The stock on that news, 95 bucks and $0.69. That's your market update. The recent strong jobs numbers that we've got in the United States and Canada suggests that the slowing economic growth central bankers are hoping to see it tame inflation isn't happening. Joining us now for his take is James Marple, Senior economist at TD Bank. Great to have you here. Let's dig in. This is what we've heard from the central bankers, until we see some taming, we can't lower ranks. >> We certainly didn't get it in October,in Canada, more than $1800 created, that offset losses in previous months. We are positive on a five month, six month moving average basis. Jobs are the highest they have been, we are way beyond recovering from the pandemic shock. The really gains across sectors, across regions, across age groups, there was really nothing, no weakness in the report. I mean, you see a lot of volatility in the labour force report and you saw some weakness in prior months, but besides that, this was all go. The one thing, even wages were up, 5.7%, accelerating, showing just how tight that job market is, is so really nothing not to like except that, as you said, we are hoping to see some gradual slowing and the stronger it is in the here and now, perhaps, the harder we have to step on the brakes later. On the US side, little bit more of a mixed story. We saw a really good payroll growth, 266,000, again, strong across sectors, both services and good sectors, creating jobs. Wage growth decelerated a little bit and then on the unemployment side, that's where things are a bit mixed. The unemployment rate edged up, the household… Showed job losses of around 250,000, so an uptick of 3.7%. It's still relatively low. 266,000 job creation… In 2019, we are running around 160,000, so you are creating jobs well in excess of what normal would be even as we have levels of employment that are at all time highs. >> Some pundits were opining about peak job creation. Just like everyone's been asking the question of the last several months, have we reached peak inflation? I saw a few people asking heavily reached peak job creation? Would be looking at to get that? >> We look at the monthly rate of job growth and so far it hasn't showed any signs of really slowing. We would like to see it come down somewhere in the neighbourhood of 160,000, maybe even a bit lower than that would be nice. Anything above 160,000, your putting upward pressure on the on employment rate, even if it doesn't show up in that particular month given differences in surveys. So yeah, I mean, we should be, in terms of where we are with respect to the labour market and the unemployment rate, I would say that the one caveat is that there is some scope for more people to return to the workforce in the US more so than we have in Canada. Unfortunately, that didn't happen in October, the participation rate had a modest take down and so maybe if you could get people coming into the labour market, you could maintain a rate of job growth above that kind of 100, 150,000 per month, but if you are not seeing signs of that, you want to see job growth come to those levels. > When we see trends like this in the labour market, is it suggesting that these are economies, whether it is the Canadian or the US economy, that can handle higher borrowing costs? They were/to historical lows or at the pandemic and it's been painful, the speed at which they gone higher, but as the economy telling us, we are comfortable with rates at these levels? >> We are certainly seeing continued resilience, especially in the job market. We had a rate hike starting in February, we are six months in and we have job creation still pretty good as a solid economic indicator is he can get. There are lags and leads in some of these things because we are still opening up from the pandemic, we are still having some of that shock in terms of spending that hasn't moved back to normal, there still a lot of jobs and service sectors that are not back to normal, even in terms of the level of employment, as others go beyond it. so it is difficult, but it certainly suggests that overall, there is some economic resilience out there, even as we have seen, interest rates have an effect on the housing market, to a lesser effect on auto sales and other interest rate sensitive sectors of the economy, but it's really hard to see. Overall, yeah, we are not in recession now and probably won't be through the end of this year. The economy is showing some significant resilience. >> Now the jobs are obviously very important, but the latest read about inflation we are going to get later this week, and this has been an important one to four investors try to gauge have we hit peak inflation, how quickly the coming off? So far, we've seen from the American market, jobs are still strong. Can we expect to see inflation come back in a meaningful way or is this a long journey home? >> It probably is going to take some time and we can see that between the headlight in the core read of inflation in the US. The headline did peak and it's likely to come down a little bit more in the next month, probably a reading around 8%. Some of that is the energy price unwind after the rush of shock, but elsewhere you see continued sources of strength, prices have been shown really any signs of slowing. And in that core prices, excluding food and energy, especially core service prices, were very strong last month and probably will be strong again this month. Some of that is really the way the CPI is constructed in the US. They have a large portion of the core measure that is shelter inflation. Shelter inflation really lags changes even in market rents and asking rentsso there will still be a pressure on that core measure. Our guess would be that we are looking at these kind of rates of core inflation at around the 6 1/2% market that are sustained through the end of this year, and that of course presents a challenge to the central bank because they are looking for inflation to start to come down, especially the measures of underlying inflation. >> Heading into the message from the Fed, there's this idea that we were fully expecting the rate hike that we got, but then there's going to be some, you know, acknowledgement, hey, maybe we need to take a foot off the gas pedal a little bit, maybe we need to reflect what we have done. Jerome Powell was pretty certain after that decision. Even the decision itself seemed a little dovish until he opened his mouth. It seems they still have a fight on their hands and there won't be relief anytime soon for people looking for the magical pivot. >> Yeah, exactly. The pivot was we have been raising rates by 75 basis points, maybe we don't go 75 next meeting, we go 50, but his message was, we may be doing 50 and then 25, and then 25 and 25. >> These are still hikes. >> Yes, and we are not at what we think the terminal rate will be. An offsetting any notion of pivot, he said that rate is probably higher now than we even thought it was at our last meeting in September. So yeah, overall, consistent with the economic data we have seen, this was even before, the statement was before the payrolls number, even though highly anticipated to be strong, but yeah, seeing the sort of stubbornness in inflation and strong labour markets means they have to go a bit further if they want to be successful in bringing down inflation. >> Fascinating stuff and a great start to the program. We'll get to your questions about the economy for James Marple in just a moment's time. A reminder, of course, you get in touch with us anytime. Email moneytalklive@td.com or you can fill out that your response box right under the video player here on WebBroker. Right now, let's get you updated on some of the top stories in the world of business and look at how the markets are trading. Apple says iPhone sales could be hampered over the holidays because of COVID outbreaks in China. ShipmentsAs a preemie and iPhone 14 models are at risk due to production cuts in a factory dealing with a viral outbreak. Apple says the plant is operating at "Significantly reduced capacity. " China's zero COVID policy is proving a challenge for companies with manufacturing operations in the country. Dream Industrial REIT and a sovereign wealth fund out of Singapore are teaming up to buy Summit Industrial Income REIT. The deal is valued at nearly $6 billion, including debt. Under the terms of the deal, dream would take a 10% stake in the joint venture, and the sovereign wealth fund would hold the remaining 90%. The deal is expected to close early next year, pending approvals. As you can see, dream is up a little bit north of 4% on the news. Ritchie Brothers Auctioneers making a multibillion dollar purchase south of the border. The auctioneer of heavy machinery isbuying IAA Inc. in a deal valued at more than $7 billion US, including $1 billion and net debt. IAA auctions vehicles through its digital platform. You can see Ritchie Brothers are down very significantly on the day, to the tune of 20%. Let's check in on how the main benchmark indices are trading. We will start with the TSX Composite Index, making a gain of about 1/3 of a percent, the first trading day of the week, up 66 points. South of the border, let's check in on the S&P 500. No shortage of things this week for investors to keep an eye on, whether it's rounding out earnings season, US midterm elections, inflation coming up Thursday. Right now pretty modest to the upside, a little more than 5.3 tenths of a percent for the S&P 500. We are back now with James Marple. We are taking your questions about the economy so let's get to them. Right off the hop, perhaps your sector has felt the rate hikes more than this. The look of the housing market. >> Sure, as you said, we have seen quite a correction in the demand for housing. That's true for Canada and the United States, but especially in Canada, sales are down to 40% from their peak in February of this year. We have seen that they are quite elevated relative to where they were prior to the pandemic. You know, just with the correction, we are about the level of sales just before the pandemic hit, but we had much lower interest rates. So now, with the interest rate correction, we think we probably still have some way to go in terms of that sale. So we are there in terms of having three quarters of the correction likely, but our thinking is probably another 20% decline in sales from here. If that happens, then prices will continue to be under pressure. We haven't seen prices fall nearly as much is sales but the trends active measure at the current date is about 17% below. Some of the repeat sales measures that account for the change in the mix are down by about 10%. I think those will tend to catch up to the average measure, so we will probably be something in the neighbourhood of 20% decline from peak. That still leaves prices above where they were prior to the pandemic. Obviously, as we get more interest rate hikes, this correction is likely to come in the next few quarters. We think by the midpoint of next year, once rates are stable and we have home sales that have hopefully stabilized, markets are pretty close to balanced. One thing going for the Canadian market is that we do have pretty low levels of listings. We haven't seen anything like people panic came. >> That forced selling becomes the real concern. >> That's right. And the supply story was constrained going into the pandemic and that may put a floor on home prices. But there is still some pain to be had. I don't think you're quite there yet. >> What about the economic impacts? Not only in terms of sales volumes, people directly involved in that area of the housing market, but then there is construction, the renovation market and the wealth effect. When home prices are going up, we all feel a bit richer and or may be more willing to go and spend money. >> Absolutely. That is something that is going to, that we are going to see in the data. We haven't seen it in the resilient so far, but housing has changed relative to GDP by about 2%. That's over the course of the pandemic and that has to come down. That in itself will be a drag on economic activity. As you said, there is all the ancillary activity that happens. People buy goods for their homes and appliances when they purchase homes. So you have a 50, 60% drop in sales, those are going to be impacted as well. The wealth effect, as he said, overall consumer spending, which is your biggest driver, that is probably going to slow relative to what has been and those of the things that lead you to a much slower pace of economic growth. Canada is particularly vulnerable because we have a higher share of activity in real estate relative to a lot of other countries. >> Of course, the stress test was brought in several years ago and there was some controversy around it now it seems people weren't too happy when it first showed up, saying, people were much more stressed at this higher rate. Are we getting to the point where we are thinking now, the rates have gone up much more quickly and aggressively than we expected this year. People who bought homes were tested in a much higher level of interest. >> I think so. I think the overall mortgage market is relatively safe but I think there will be pockets of pressure and I think the bigger risk for the economy is, as we say, changes in consumption that have a broader economic impact. I wouldn't be as worried about people defaulting on their rates or not able to make their mortgage payments as long as we have-- as long as the economic downturn is relatively mild. Obviously, these things can cascade on themselves. If we were to have a deep economic downturn. But as a factor that would accelerate that, I don't think that's there. But nonetheless, it's an important sector for the economy as it contracts, it's going to decrease activity everywhere else. >> Great breakdown there of the Canadian housing market. Let's get to another question, this one about the central bank. Will the Bank of Canada stop hiking rates before the Fed stops? >> Yeah, that's a great question and I think relate to our previous conversation around housing and if we look at the twocountries, we have a higher economic activity in real estate, it's highly rate sensitive, we have household debt levels that in the United States after the housing crisis there was deleveraging that happen. So a level of household debt relative to income are lower and therefore debt service costs are lower, how much household have to pay to continue to service their debt. Canada also has more variable rate mortgages, so we have more turnover in the number of people facing higher interest rates in real time. when you have 30 year fixed mortgages, the turnover rate is lower. We saw the cautiousness from the Bank of Canada where there was, I think, maybe more signs that pitted then we saw from the Federal Reserve at least in saying, we think we are getting close to where the terminal rate has to be, but probably we are saying we are getting there and we don't have to increase as much as the US. I have to caveat that a little bit and say that the worry is, if the gap between the policymaking Canada and the United States gets too big,we see further downward pressure on the Canadian dollar. That is inflationary and we are a small, open economy. We have seen that in terms of food prices and other elements of imported prices, it makes our exporters more competitive but Canada is trying to slow the overall rate of growth, so the dollar is definitely a factor and I think that limits how much of a gap can form between policy rates in Canada and the United States. But that said, my bet would be that the terminal rate is higher in the US and it is in Canada. >> Excellent points on that one. Let's take another one, this one from the monetary side to the fiscal policy side. What is your reaction to the fiscal update we got last week? it was an interesting want to watch. It's always interesting in times like these, but considering what happened in England when they tried to bring inflation down, the market was not happy. Did we strike a balance on the side? >> Yeah, I mean, as you seen in the past with these updates, revenues have come in a bit better so they actually were starting a position of having lower deficits this year and therefore lower debt levels. The revenue has been a surprise positively. In Canada, what they tended to do is spend not all of it but a little bit of it and that's exactly what they did this time when they took some of the revenue and the allocated it in terms of additional spending over the next few years. It's pretty small in terms of the macroeconomic impact. We are looking at .1% of GDP. A even as it probably will be spent, because of these measures were to help student loans, with the income tax credit, these will go into the economy and I think there is a legitimate worry about working at cross purposes with monetary policy when you are trying tobalance the economy, but if you are looking at something that less than 1% of the GDP, debt is on a downward trajectory and fell with a strong nominal growth we've had. so we don't have quite the same worries. That doesn't mean we won't have long-term challenges. They had the budget back in surplus by 2028. That's far enough into the future as to not even look at, but I do think that we are relatively lucky in having a good starting point and as long as they maintain that fiscal discipline of having deficits decline, I mean, one thing that was interesting in the follow from the statement as they printed a second scenario or downside economic scenario and budget projections that would go with that scenario and that was a recessionary scenario, not a deep recession, pretty mild recession, but in that scenario, you would see deficits increase and debt levels be higher than they would. So that's obviously something to watch for because that's becoming an increasingly likely probability so you know there should be some deterioration in physical ballads that they will have to react to going forward. >> As always, at home, make sure you do your own research before you make any investment decisions. You will get back to your questions for James Marple on the economy in just a moment's time. A reminder, of course, you get in touch with us anytime. Email moneytalklive@td. com. Now let's get to our educational segment. It's always important to stay up-to-date on news and reports that may impact your investments. Joining us now is more, Jason Hnatyk, client education instructor at TD Direct Investing. Jason, take us through it. > It's great to be here, great. Thanks so much. I'm here to talk to everybody about routines. That might not be the sexiest topic to talk about but it's important to build a small habits to do those small things right on a regular basis, to make sure we are informed, to make our investment decisions when the time comes. I'm gonna bring us into WebBroker right now. First of all, we are going to start on the home page. We are in my demo account right now. If you navigate away from the home page, you can always access it again by clicking on theTD shield in the top right-hand corner. We are to focus on the right-hand side of the screen here we have our market updates that are updated here every single day. At the bottom here under the featured reports, this particular section, both for the Canadian and the US market, help highlight some of the major news, some of the major factors that people will be focusing on when the market opens at 930 in the morning so you're ready to go when the market starts to move. Second of all, up at the top of the section under the market updates, this is a constantly updating section of the website so as the world turns, as the market changes, you get up-to-date information on what's causing the trends to change, what are some of the major factors that are impacting the market on any given day. So lots of great information there to use. The second thing that I would like to highlight with the WebBroker is the report section. That can be found under the research tab at the top of the page. Under the left-hand column, we can see the reports is about halfway down. On this particular page, we have lots of reports from different areas within TD, but there is also third-party independent research that's available here, so lots of information to help give you a lot of breadth and perspective of what's going on in the market. What I would like to talk about on this page, we scroll down on the left side, we have notes from TD Securities. These are flash Notes as we call them. They are available on very specific securities. As things change in the market, as pricing trends change, maybe as major news comes out, there are specific reports on specific companies that you will have the ability to analyse, to see if they move, if they meet your own investment criteria. Then just over to the right hand side, this is something we have shown on the statement before but it is worth mentioning it again. These are the MorningStar reports over here on the right. You can funnel it down and if you are concerned about one particular sector, well, all of the major market and economic sectors are available here for you to review, from energy to financials to healthcare and beyond. Lots of great information for people to use that as it is updated on a regular basis. The last thing we will mention on this particular page is the reports from TD Economics. Our friends over at TD Economics take a-- they are looking at the Canadian marketplace as well as the local economies around the world to find and provide useful analysis and insight on major events that can impact us all from economic concerns around inflation to employment data to real estate concerns as we have been discussing on the program, lots of great information that's available in TD Economics here on the reports page. Now, the last time I would like to share with everybody is to try to automate the process within WebBroker, and that can be done through the use of alerts within the platform. We can get to them by choosing research at the top of the page and under the tools column, alerts will be towards the bottom of the list. There are three main types of alerts that you can access within the platform. You can do-- you can choose specific security is, if you want to be alerted, maybe it breaks out above or below a specific support or resistance point, guess what? You don't have to have your face buried in your phone the whole time or always on your laptop. You can be notified to your email address when certain events are happening to these alerts. You can also get alerts beyond price action. We have markets news or research reports. When those reports are published, you can be notified right through your email address. Everything is there. It will be quick and easy. It's really just about trying to simplify your approach to investing. The last thing we will highlight here is a technical alert section. So if you follow the technical analyst at their like to spend some time diving into charts, if you want to be alerted to what maybe there is a moving average crossover or breakout or any other specific study that you put your faith in, the technical alerts can help once again automate the process so you don't need to be at your computer, slaving over the data. You can be alerted to when an event happens that you find important and then you can spend some time to dig in and do the research from there. So three quick tips to take and use your best advantage. >> Great stuff as always, Jason. Thanks that. >> My pleasure. >> Jason Hnatyk, client education instructor at TD Direct Investing. Make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and some upcoming webinars, including the one on dividend investing. Before I get back your questions about the economy for James Marple, a reminder about how you can get in touch with us. Email us anytime@moneytalklive@td.com or you can use the question box right below the screen here in WebBroker. Just right in your question and hit send. We will see if any of our guest can get you your answer right here at MoneyTalk Live. we are back now with James Marple. We are taking your questions about the economy, couple just coming in in the past few moments, let's get to them. With energy prices increasing, do you see a benefit to Canada? >>Canada, perhaps more than other countries, we are in energy exporter, so when we see prices rising, tends to result in a positive income shock to Canada that we don't have, you know, if you are more of a net importer of energy. Increasingly, the US is in the same boat as a net exporter, but they are exporting natural gas which is harder to move around. So that does benefit producers. We see, especially in regions of the country that are more resource dependent, Alberta and Saskatchewan, they had a real windfall. As prices have risen, mitigated in part by the gap between the world market price and the market price of Western Canadian select, but overall, there is a benefit producers that is offset, of course, by consumers having to pay higher energy costs and that's something that they don't have in the near term a lot of discretion over, that spending that has to go into the gas tank doesn't go elsewhere in the economy. So it's not an unambiguous positive but having that position of having a resource-based economy or at least a portion of the economy that is in that sector does give some benefits Canada overall. >> Alright, this viewer was awful enough to put in their own follow question. The following question is will this benefit last as the world moves away from oil? >> Well, I think, eventually, Canada is going to have to move away from fossil fuels. We have commitments to net zero. That is going to be something that will take place over a long period of time, or at least an increasingly shorter period of time as we get nearer to 2030 and 2050. But no, I think it's right to admit that that will be a major challenge for the Canadian economy and it will be important to make the right investments so that we do have these kind of strong sources of growth going forward even as we move away from energy production. >> Let's get into another question from the platform. With all the supply-chain problems we've seen every shoring production, will Canada benefit from re-shoring of jobs to North America? >> We could see more production happening in the country but we are going to have to pay more for products. There is a reason globalization happened to the skillet did, because it resulted inlower prices for consumers. So reversing that for whatever reason, I mean, the price we pay will literally be higher prices in all likelihood. There, I think it also matters with the state of the economy is. I mean, we are not going to be re-shoring a lot of jobs right now when the unemployment rate is at an all-time low in getting workers is the real challenge. If you have an economy that has more slack in it, you may see potentially more benefits. But there again, I think it's not quite as obviously beneficial given that there are the other side of things and we will pay higher prices. >> And if you think about the investment that needs to be made, businesses are looking at re-shoring in a substantial way, if it's manufacturing, these are pricey endeavours to build the infrastructure and I guess businesses would need some sort of assurance that if you're gonna spend as much money, and this is a long-term play, it's on a fad that's going to fade again and all production goes back overseas. >> That's right, and I think getting their investment in the right parts of the economy is important with the energy transition. But having a situation in which you have to have more inventories just in case instead of just in time, I think that is overall a great thing for the global economy because we have to build redundancies into the system just in order to have the insurance and that just adds costs overall. It's not obvious that there is any real benefit to anybody. >> Will go to another question now. This one, do you think it will be difficult to bring down inflation because of the wage inflation that we are seeing? >> Certainly, we have now seen the growth in wage inflation even in Canada where earlier it hadn't accelerated, it was laying, it happen sooner in the US, but we are now at a point of 5.6% that that is a rate that is higher than anything we've seen in the last several decades. And it's something, you could even look at that as its own core inflation metric and something that is a challenge for the Bank of Canada. The level of wage inflation is not consistent with the Bank of Canada's inflation target of 2%, so they are going to have to come down if they are going to meet the inflation target,which will have to be met with higher unemployment or a reduction in the demand for workers to get there. >> We have a lot of questions, so we will keep firing through them. Here's another one about the state of the economy and where we might be headed. It is a recession pretty much guaranteed for next year? I don't know if we have many guarantees in life, what is it looking like? >> I would not say guaranteed but I would say the odds are definitely getting 50-50 or worse for at least a substantial slowdown in economic activity. We can wrangle over terminology, but certainly we think that the rate of growth will slow to the point that the unemployment rate will start to move higher and to me, that's the most important indicator of a recession is are we seeing that the economy is not generating enough jobs for people who would like them? And that is I think are pretty sure thing over the next year, just given the rate of increase is we've had, we are not there yet. In some sense, even the resilience we see in the economy today increases some of the downside risk over the next 12 months because it means policy has to go that much higher in order to slow the economy. >> The bigger they are, the harder they fall most argument, right? If unit is in seeing the changes it wants, it has to get severe in terms of trying to restrict. >> Yes, and it increases the chance that it's a more abrupt kind of dislocation. Things happen in financial markets that contribute to the economic downturn. So would be nice if we would start to see someone signs of slowing and we are in various cases and there are long lags and there is resilience in ways that may avoid a harsher economic downturn, high levels of household savings, businesses that now have pretty high levels of buffers and margins that are very good, that could start to come down. I think there's a lot of-- we don't see a lot of risks in the banking system that would lead us to think we are going to have anything like we saw in 2008, so I think there's a lot of reasons for optimism but certainly when you've seen historically rates have to move this high in order to quell inflation, the inevitable outcome is a dramatic slowdown in economic growth. >> We will get back your questions for James Marple in the economy just a moment's time. As always, make sure you do your own research before you make any investment decisions and a reminder you can get in touch with us at any time. Do you have a question about investing or what's driving the market? Our guests are eager to hear what's on your mind, is so a us your questions. There are two ways you can get in touch with us. You can send us an email anytime 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 will see if one of our guest can get you your answer right here at MoneyTalk Live. This third quarter earnings season starts to wind down, companies in the S&P 500 are reporting their Lowest earnings growth in two years. here's Anthony Okolie. >> Yes, we are well past the midpoint of the current earnings season note with about 85% of S&P 500 companies reporting to date. now, 70% of actually reported earnings per share that's above estimates according to facts that. That's well below the five year average of 77% and also below the 10 year average of 73%. When we look at it in aggregate, companies reported profits that are nearly 2% above estimates so far. Now, that will mark the second lowest earnings percentage reporting by the index in the past nine years, so certainly we are not seeing the robust earnings that we seen in the past. Not surprisingly, companies have been facing headwinds such as higher interest rates, headline inflation, do political crisis. These also weighed on earnings as we are moving through the third quarter. Now, out of the 11 sectors that have reported, and I brought a chart to highlight this, into the left-hand side, the big winners have been led not surprisingly by energy, one of the big winners this quarter. We have also seen real estate and industrials. And oil companies of course, have benefited from soaring oil prices. Rising demand as well as undersupplied energy market. And I want just to give you an idea of just how companies are doing. One of the companies, Exxon Mobile, had a record-breaking recorded profit. They smashed in their earnings expectations, earning nearly $20 billion and net profit. Just to put that in perspective, that nearly matched in the earnings from the tech company Apple. So why it's an impressive earnings from some of the big oil companies. On the downside, of course, we have seen seven sectors reporting year-over-year earnings declines and that has been met with communication services, financial, materials. Another declines we have talked about on the show is the tech sector. Primarily led by the big tech names. Names like Alphabet, Amazon, Meta and Microsoft. But the week that they reported, the last week of October, those for companies, excluding Apple, lost a combined $350 billion in market Alone. That was disappointing earnings news and one of the companies, Facebook, it recorded its lowest average revenue per user in two years. They also warns that their sales in the fourth quarter are likely to fall for the third straight period. There is a brighter performance according to facts that, 70% of S&P 500 companies that reported actually reported revenue that was higher than estimates, so that also be the €5.10 year average, again, with positive revenue surprises led by energy and financials. Now we still have about 30 companies yet report this week, but so far the S&P 500 have been reporting their lowest earnings growth since the third quarter of 2020. Great? >> That's a great breakdown of the third quarter. Of course, as investors, we are always forward-looking and a little bit impatient. One of the estimates for the fourth quarter? >> The fourth quarter is not looking so bright. I think analysts are not expecting robust earnings in the fourth quarter. According to facts that, they are expecting a decline in earnings around 1% with some companies heading into the busy holiday season. Again, we are seeing a higher inflation, rising interest rates, increasing debt servicing costs for consumers, there is less optimism around fourth-quarter earnings. We have seen multiples come down as well. So analysts are worried that the fourth-quarter earnings again won't be quite as robust as the third quarter. >> Thanks for that breakdown. >> My pleasure. >> MoneyTalk Anthony Okolie paid let's check in on the market now and see how we are faring on this first day of the trading week. Got some green on the screen in Toronto, we are hanging onto it. A up over a little more than 1/3 of a percent, 67 points, 19,517. Summit industrial region is one of the big movers of the day on pastry, up to the tune of almost 26%. The story we told you earlier that Dream REIT and the Singapore's sovereign wealth fund are buying Summit, that has the shares on the move substantially higher. Some of the weakness in the mining stocks today. Let's check in on First Quantum. Nothing too serious, at 2873, it is down a little shy of 2%. South of the border, the broader read of the American market, the S&P 500 hanging onto positive territory. It's modest but we have a big week ahead of us in terms of US news. We will take them sequentially, of course. The US midterm elections, tomorrow is boating day and by Wednesday will probably have a pretty good picture of how things shake outas votes are counted fromsome key areas, we will see what happens with Congress and what it means for the presidentslegislative agenda for the later part of his term. The tech has a VA NASDAQ, we have inflation later in the week and that might tell us something about what the Fed's future path might look like. Get some ideas about where they might be headed. Right now, they are modestly in negative territory to the tune of 1/10 of a percent. Want to check in on Apple II. Apple is now saying what had been in the rumour mill for the last few weeks. China's COVID zero policy was going to hit production of its newest high-end phones. Apples coming out and basically saying that, confirming that they may have problems meeting demand for the all-important holiday season. Stocks seem to be taking it fairly well, down only about half of a percent. We are back now with James Marple, discussing the economy and we want to talk about some of the questions coming off the platform. What about auto sales, used and new auto sales, will they come now? >> Well, we've already seen sales fall in Canada and we see them lower than where we would have expected them to be, some reflect supply-chain challenges, production is weaker than what we would have anticipated it to be. If you have an economic slowdown or an economic downturn, that's not a great market forautos. But if we were to see some of the production issues coming off the boil, and there are someautomakers not having challenges that they were earlier in the pandemic, I think we could see at least a modest increase in auto sales. Again, that is highly dependent on the overall economic outlook and the downside to the economy would be to sales as well. > This next question is interesting. Someone found out about your crystal ball. In your crystal ball, how high do you see interest rates rising? >> Well, we certainly think there is still some way to go before we are at the end point in Canada. We are at 3.79% on the overnight rate. We think we will get north of 4%. We had a view that we would get to at least 50 basis points more in hikes. I think that is sort of evolving to the point where we wouldn't be surprised if rates were to go to the 4 1/2% range in Canada on the overnight rate, and of course, we should see longer-term yields that echo that, although they probably won't get is high because eventually, the Bank of Canada is likely to reverse course, even if you have a mild economic downturn, assuming inflation starts to move closer to target. They have now moved their policy rate into a level that's restrictive, and they wouldn't want to keep it there indefinitely. So I think we will see some eventual reduction in rates but certainly in the near term, a higher probably around the 4 1/2% mark in terms of the overnight rate. >> Have time to squeeze in one more question about the state of the economy and a word that we have been using lately but we have some viewers asking, is stagflation becoming a concern again? >> Sure, stagflation usually describes an employment of high employment and high inflation. With the on employment rate at an all-time low in Canada and the US, we are not in stagflation right now. The economy still growing. It has slowed, but especially by that metric, what was often termed of the misery index, unemployment and inflation, we are definitely getting the inflation side of it but the unemployment side is very good. I think there, we have a very different situation today than we have in a stagflation environment like the 1970s in terms of just having very slow labour force growth due to population aging and demographics. And I think we are unlikely to see a harsh recession that would push the unemployment rate and, in any case, I think there will be limits because labour supplies going to be an issue and we are saying that right now. Even if the economy slows, I don't think that will completely go away. That said, I think the more you have recession risks in an environment of elevated inflation, if you are in recession and inflation is still elevated, that's stagflation. I think it would meet the definition of it. So, you know, we are definitely getting closer. I think that the premise is, and I think what will likely happen is that we have seen in the past, once there is an economic downturn, that tends to slow inflation, bringing that part of the misery index much lower. So again, yes, we will have some economic pain in order to get inflation down. I wouldn't characterize it as the is stagflation of the 1970s where you had double-digit rates of inflation and double-digit rates will implement. >> A pleasure having you here. Look forward to the next time. >> Thank you. >> Our thanks to James Marple, senior economist at TD Bank. Stay tuned, tomorrow, we are going to be talking about low volatility equities. You want to miss that program. Of course, you can get your questions in ahead of time for any of our shows, including that one. Just email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We'll see you tomorrow. [music]