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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
coming up on today's show, we discussed whether the run we have seen in big tech stocks can continue. Jennifer Martin from T. Rowe Price will give her thoughts. TD Securities Bart Melek is going to give us his view on whether Gold will build on its recent record highs.
Plus MoneyTalk's Anthony Okolie's going to have a look at a new TD Economics report on why the Canadian housing market has not picked up despite those rate cuts from the Bank of Canada. And in today's WebBroker education segment, Ryan Massad is going to show us where we can find analyst research on the platform.
Before we get all that, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
Interesting dynamics at play. Across the board, we are seeing at metals rallying but oil pulling back. The TSX Composite Index back above 24,000. A breach that lion for the first time earlier this week and it's holding it now, almost a 200 point gain or one full percent. Beneath the surface, interesting moves. We are seeing copper, gold, platinum, palladium, silver all up across the board, lifting the minors. Hudbay Minerals is up fairly substantially, almost 9% at $12.83. But we also have reports that Saudi Arabia wants to increase production later this year.
This is weighing on the oil trade. A significant pullback in West Texas intermediate crude, down to about 68 bucks per barrel, the American benchmark is breaking down a lot of the big energy names in Toronto. $3.91 per share for Baytex, down 4%. I could have shown you any of the majors right now to illustrate that point.
South of the border, we got some movement in the big tech names again, some solid economic data out of the states. Put it all together, up 24 points, we will rounded up, 25 points to the upside for the S&P 500, good for almost half a percent. The tech heavy NASDAQ, as I said, a lot of the two plays are working today, Europe 60 points or about one third of a percent. Micron Technology, we will tell you more later in the show, but it's at the centre of all this, coming out with not only its quarterly but forecast going forward. The street likes it. The stock is up almost 14%, and that's your market update.
The rally in big US tech stocks has pushed markets record highs that south of the border, but can I continue? Jennifer Martin, global equity portfolio specialist had T. Rowe Price during the earlier this year.
>> I would say AI has been one of those themes you had to responsibly navigate and capture that also for clients. Right now, if you think about AI, we think it has the potential to be the biggest productivity enhancer since electricity. We are very constructive on this next generation technology and we feel that we still have room to go. But let me break down where we kind of see the areas of opportunity. You have to kind of understand where you are in the cycle. We know that we are right now in a very large infrastructure build.
One of the things that we looked at over the last year and 1/2 is the tremendous amount of capex for those large hyper scalars, that they have spent on their AI infrastructure. The insight for us is appreciating the motivation of that's been. They want to produce some really great applications. It's offensive. It's also defensive because DP use create contestable markets. For the first time, we are talking about could there be a competitor to, for example, Google search?
We have to responsibly navigate where we are.
One of the areas where we are looking for our guidepost is where are we at in capital expenditures and what we are seeing is that we may be nearing peak year-over-year growth, absolute growth will still be quite large year-over-year but that year-over-year deceleration might start happening and so that means that you have to be a little bit more selective maybe in the next period of time for infrastructure.
I would say we are still at the beginning of the AI cycle and one thing that most of us are really thinking about is one of the killer applications, what that is. And I would say we are still looking for those right now. But I will pause there but I would say that that's kind of our summary.
We still feel it's a very defining technology paradigm, and we know where we are in the infrastructure build. We are really excited to find out what's next. As you know I want to talk to you about the potential for killer apps because there's a huge amount of expenditure. It's not just have a really cool roomful of computers saying it's filled with all kinds of crazy chips, they want to produce something in the end. Is that the next like this, someone comes up with the killer app and everyone says, I have to have this?
>> I definitely think the killer apps are on the horizon. I always like to remind individuals though that when Apple launched the iPhone, none of us knew what the killer app was. I laugh now, I reflect, I never thought in a million years I'd be in the back of someone's Honda going to the airport and I think we're going to have that moment with an AI app. I would say the debate around AI, particularly related to the infrastructure cycle, is the idea, what's that return on investment? And I think we have a few tangible examples already. One area I would point you to is just the engagement uplift in the social media platforms, whether it is Meta or Alphabet.
In the other area that's really easy to look at is in Microsoft or copilot, I know that in our firms, our developers have very high productivity. I recently got copilot for Microsoft teams, it summarizes some of the chats, it's incredible. So I think these killer apps might actually be evolving into more table stakes for existing applications and then the killer up further on the horizon but we don't know what it is.
>> The hardware spent has been big, looking for the killer app down the horizon. You have talked about the growth cycles. We imagine-- they're still going to be demand, but we don't think they are done building?
>> I think the infrastructure cycle, you are correct. We are estimating-- the Budget for the four largest hyper scalars has gone from 100 billion to 200 billion at the end of this year and it's probably growing again in 2025. Not the same growth rate but absolutely going higher so that will benefit the chip ecosystem. But the interesting thing about the cycle, particularly for chips since you brought that up, Nvidia, just because of large numbers, will see some deceleration in revenue but all of these other companies that we own in our portfolios related to semis archer offing on fundamentals. A good example is AMD. There is CPU is bottoming you and that's the and market of PC coming out of that COVID normalization.
You are also seeing possibly some next-generation AI chips, MI 360 chips, and then you get the added bonus possibly of some market share names with the challenges that Intel-- >> Does it have to be all Nvidia all the time?
>> Particularly on the fundamentals, I would expand that to other parts of technology. ASML is really frothing on orders. We see those accelerating and 25.
And there's a lot of areas particularly in analog semiconductors where they sell into the end market of industrials. Those archer offing and Ho-Seung Lee have improving fundamental. Those are interesting areas that since you mentioned at the hardware side that still shows some life.
>> AI has been the big macro theme for the space but in the here and now, in the world, lots has happened including a US presidential election. What impact could not have?
>> One thing that we have been sharing with our clients is that regardless of who wins the US election, we don't think austerity is in the plan.
And what I mean by that is both parties likely will continue to spend, and so that will be the backdrop and that benefits and industry building redundancy and supply chains. The other area both parties seem to be coalescing on is being a little bit more a coalition of protectionist vis-à-vis China.
That won't change.
Some have conjectured that under Harris, it could be more of the same. Particularly from a regulatory standpoint. That would actually benefit large Tech. Some have conjectured under trump with less regulation that could benefit small and mid-cap stocks, potentially small and mid-cap technology. That would maybe spur a little bit more either innovation or MNA. So it depends but regardless, we don't think spending is going to happen and both are generally supportive of protecting US technology.
>> That was Jennifer Martin, global equity portfolio specialist at T Rowe Price. Come up later in the show, Bart Melek will give us is the one whether gold will build on its record highs, we will hear from TD Asset Management's Michael O'Brien on how the TSX may perform passing 24,000 for the first time this week, holding it today.
Plus MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on why the Canadian housing market is not picking up despite three rate cuts already from the Bank of Canada.
First, let's get you updated some of the top stories in the world of business and take a look at how the markets are trading.
Let's check in on those shares of Micron Technology, most definitely on the move today, up almost 14%.
The chipmakers forecasting record revenue for its current quarter on strong AI demand.
Microchips are used in the AI processors that are designed by Nvidia, nice to see the full picture, right? And the sales forecast appears to be getting a boost to the broader semiconductor space today, renewed excitement about AI. Just talking with Jennifer, some doubts out there on with that the rally can continue. The rallies on today.
Closer to home, we have shares of Lightspeed Commerce in the spotlight, they pop yesterday. Building on it today, more modest, up about 3 1/2% today. The Montréal-based payments firm is conducting a strategic review of the business with a view to quote realizing its full potential.
The company made that statement following media reports that Lightspeed is reviewing a number of options, including a possible sale of the business.
Southwest Airlines is also on the move today. The air carrier is raising its revenue forecast for the summer quarter, announced a $2.5 billion share buyback program, and it's making a number of changes to its business model. All that put together has the stock up almost 10%.
All these moves, amid pressure from activist investor Elliot Investment Management.
Quick check in on the markets, starting here at home, the TSX is up 24,000. Across that barrier earlier in the week, fell back under the close, right now holding as the above, of three quarters of a percent, 171 points. It's a real mix between strength and mining stocks and substantial weakness based on the price of crude in energy names.
South of the border, the US economy still looking strong. You've still got a Fed that's committed to starting to ease, gave us 50 basis point cut last week. Put that all together, your thinking soft landing.
Europe 19 points on the S&P 500, about one third of a percent.
Let's talk about the price of gold that has been running up to record levels in recent trading, but as the Fed begins its rate cutting cycle, people are wondering, will that really continue?
Bart Melek, managing Dir. and global head of commodity strategy at TD Securities join me earlier to discuss.
>> I think we should probably start back some 12 months ago, where we had the Federal Reserve-- at that time, no one was really imagining a 50 basis points cut like we saw last Wednesday. But what we did witness is very robust central bank buying, and that's on the back of a record level of central bank purchases in 2022/2023.
This year started off fairly robustly as well.
It has slowed down. But that was one of the elements, along with strong physical markets in Asia and other parts of the world, that prevented gold from troughing in a material way, even as rates were on the way up, or certainly real rates anyway, as inflation fell and we saw the Fed funds at 550 basis points.
So there was already a robust market. And the economy started slowing a little bit.
China underperformed. And the narrative shifted towards cuts. And of course on Wednesday, the Federal Reserve delivered a 50 basis points cut and a dovish narrative.
But ahead of that, the markets were expecting it for the most part. And we've seen very, very robust proprietary trader or discretionary trader positions. We at some point thought it was maybe a little bit too much too soon. And that helped to move gold to the record levels we've seen-- robust, speculative purchases and the start of ETF buying.
We haven't really seen the market go firing on all cylinders. And in our view, we still think there's some upside to go as we move into early 2025.
>> So we've seen that strong demand from central banks.
You're seeing ETF holdings starting to rise and a 50 basis point cut from the Fed.
I imagine the gold bulls like all of these components. Is it more complicated than that?
>> Yes.
[laughing] >> It's always more complicated. If life was simple, we would all be minted.
>> Well, central banks since then have slowed down a bit. I think the People's Bank, after almost two years of very aggressive buying, slowed down for the last five months or so. But we suspect that central banks may be interested again. I think the hope on their part was that we could see a bit of moderation because, as I said, it looked like there was maybe too much positioning on the long end.
But now, I think central banks may be in it again. And I think the generalists and institutional investors in the Western world may develop an appetite for gold again. And with a 50 basis points cut, even though we had very hefty positions, we really didn't see, last week in the CFTC data, that would indicate a lack of appetite.
In fact, long positions grew much more than short positions. So length increases were still pretty hefty in terms of positioning, which represents a risk. But I suspect this particular Fed is very much tilted towards the second element of its mandate, which is maximum employment.
The Federal Reserve, unlike, let's say, the Bank of Canada, targets two policies or two things they want to accomplish simultaneously. They want to have price stability, which is controlling inflation, and they want max employment-- maximum employment.
And I think Mr. Powell, starting back in August at Jackson Hole, I think with very little ambiguity told the market that he doesn't want the labor market to weaken much more.
The rest of the economy, in many ways, has slowed down. There are disinflationary pressures-- not deflation, but inflation has decelerated a great deal.
And the Fed now is quite comfortable, I think, with the idea that we are going to move to their 2% target. And that, of course, takes time. But at the same time, the Fed wants to reduce the restrictive aspect of monetary policy to facilitate a little bit more economic activity so we don't see a very sharp downturn in labor.
So they're trying to hit two things at the same time. Historically, that didn't end well, because through much of the history, it ended up in a significant slowdown and even recession. This time we're hoping that we're going to have more of a soft landing as this Federal Reserve starts cutting rates. And we're hoping that things stimulate and we get the best of both worlds-- low inflation and decent growth.
>> There's a lot of consensus around this idea that they can stick the soft landing.
What if they don't?
What if it ends up being a hard landing, you get a recession, and a rather painful one-- what would happen to gold?
>> Well, gold seems to be a winner under most scenarios here.
If there is a very sharp downturn, one we don't expect, then the Federal Reserve's response would be more monetary easing, even lower real interest rates.
There are some rigidities on the price side.
It's unlikely that we're going to get deflation, de facto.
So you could very much envision a world where the economy slows down much more than the Fed anticipated. And I think the reaction function would be to aggressively cut rates. And for gold, that's pretty good.
One, you're protecting against the deterioration in real rates as the Fed cuts.
And also, gold tends to have an inverse relationship to risk assets, like equities, for example, or copper, or other things. So when the economy's slow, demand for industrial metals or energy doesn't tend to do well.
Earnings tend to disappoint, and then gold tends to be an outperformer as rates go down and gold is seen as being relatively stable.
>> Lastly I want to ask you, let's talk about that-- we talk about gold in the here and now and the things that have happened-- very interesting moves, as you've laid out on the show over the past couple of years.
Historically, though, what place has gold played? It's an interesting asset in that respect.
>> It is. First of all, gold is no one's liability. There is no counterparty risk.
If I own an ounce of gold, I own an ounce of gold.
I don't have to rely on any government to pay me your yield or pay me back.
There is intrinsic value in it. So far, so good.
For the last 5,000 years or so, gold has been considered valuable by humanity, a store of value.
We're assuming for the next 10 years or so, it'll be the same thing.
So it's a store of value.
It doesn't have to depend on the good graces or solvency of any government.
Second, it is a real asset that requires real resources to produce and to take out of the ground.
That includes labor. That includes capital in the form of those big mighty machines that dig stuff out, everything from water pumps, to trucks, to smelters.
And if we argue there is inflation in the world, well, then, we have to argue that the cost of labor is going to catch up and so will the cost of everything associated with getting an ounce out of the ground in terms of capital, and steel girders, and you name it.
And other third factor I think that is very important here is that the average or grade is declining over time.
We've been mining it for many, many thousands of years, and all the good stuff that's easy to get at has been pretty much mined out.
If it was easy to get out of the ground, people knew about it and tried to take it out.
Now, we're left with more troublesome assets, new assets, in particular.
Some were high up in the Andes Mountains or in geopolitically unstable parts of Africa, for example. And to the extent that price of gold has tracked the marginal cost, or we call it the 90th percentile of the cost curve, then as we move forward and if we expect inflation down the road, it's a good protector.
It gives you a real implied yield of sort.
So if labor goes up by 2% or 3% and you're going to need more labor to get that ounce because there is less of gold available, more machinery, given technology doesn't change much, then gold should deliver inflation plus that extra premium that is reflected in the difficulty of getting an ounce out of the ground.
So I think over the long run, it should be a decent reflector of aggregate prices in the world and should keep up.
So in 50 years time you should probably still have, in real terms, the same amount of purchasing power from $100,000 worth of gold today-- in 50 years, probably you will get $50,000 in real terms of purchasing power as well.
So it's not a bad asset. And unlike equities, for example, you can imagine in 50 years, technology stocks that are all the rage today may not be, because they'll be outmoded and outdated. There's no guarantee that today's technology will be around in 50 years or will there be the same companies.
So there's that element as well, which is stable, a store of value that's been around for many millennia.
>> That was Bart Melek, managing director and global head of commodity strategy add TD Securities.
As always, make sure you do your own research before making any investment decisions.
Now, let's get our educational segment of the day.
If you are looking to find what analysts are thinking about a given stock, WebBroker has tools which can help.
Joining us now to discuss is Ryan Massad, Senior client education instructor with TD Direct Investing. Always great to see you.
We are talking about the analyst Centre today.
>> We are. Analysts, they analyse all day while you and I are doing different things. We are having our coffee, they are analysing stocks. When we are doing our own research it is great to hear what they have to say.
In web broker, we have a great way of doing that. Let's hop into a broker and I will show you how. In wet broker, under the research tab, we are going to click on analyst Centre below the column that is markets. And in this section here, we are going to get a general perspective of a bunch of analysts and what they think of various different stocks. We've got this button here that says most recent, those of the most recent changes in a buy, hold or sell rating. We are going to go to this trending stocks because it's exactly that.
How many analysts have put their two cents into or thoughts on these types of stocks?
You can see the ones that are trending right now. You can see the name of the company, the symbol, how many say body, how many say hold, how many analysts say that. What is the upside that they believe?
As I scroll down, Jennifer was talking about it before, a lot of technology and talk of technology. Those are the ones that are trending.
If you wanted to filter this out to what you are looking for, you can go to the left here and filter some criteria.
If you are actually only looking for technology, sector technology, you can click on this box and filter for only technology stocks. Or if you were may be more interested in what Bart had to say today, if you are looking at gold or at silver, basic materials, you can filter for that and bring them companies that are doing exactly that. In addition to filtering like that, you can filter by best rated, the period, the lost amount of time, whether it's Canada or the US or how big the company is hereby market capitalization. There are a lot of ways to find out what's going on, what are analysts really talking about these days here on the markets.
>> We started our journey in the analyst Centre.
If someone finds a stock that they are interested in, what other information is available on web broker?
>> If you find a stock that you like in the list or even just in general and you want to know what analysts are thinking about it, and web broker, if you are looking at a stock, then under the stocks overview page and web broker, you're going to get an overall look, let's say we have Apple.
We have the price, the movement, we can add it to a watchlist. We can look at a whole bunch of other things. If we want to know what analysts are thinking, we will go to the analysts tab within the symbol here and we will find out what analysts are saying on Apple exactly.
It will give you a preview of what they feel in the next 12 months the price projection will be, the average, the low, whether they are buy, hold or sell of this particular stock. And then as I scroll down, I can see with the individual analysts think in this case of Apple, whether it is a buy rating, when they made that rating, what is their price target and if I want to know a little bit more about each of these analysts, and please notice these analysts are from all across the industry, not just TD. If I want to know more about Amit, I can click here, see how he is doing on his pics. I can click on his profile and get more information about what he is looking at in general about the last ratings he has made. I can go in here to find out a little bit more about what these analysts are talking about, with their thinking and it can really add to your stock searches.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Ryan Massad, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre on web broker, or use this QR code to navigate to TD Direct Investing's Instagram page. There, you're gonna find more informative videos.
We have seen three rate cuts from our central bank since June. Despite the act and the expectation that we are going to get a few more before the years out, we have not really seen a revival in the housing market. So what's going on?
Anthony Okolie joins us now is a new TD Economics report on just that.
>> They say there are two factors that kind of holding back housing market activity, that's why it's not picking up.
One is affordability. It continues to be a big problem for homebuyers. Despite the recent drop we have seen in rates, these rates are still at levels lusting around 15 years ago so the effect of the rate cuts will likely not be felt for some time. The second factor is messaging from the Bank of Canada that rates are still set to fall even further.
What's happening is that that's keeping potential buyers on the sidelines, they are waiting for more cuts before they jump into the housing market. TD Economics says that the subdued market is not going to last long. They believe that economic growth is likely to regain traction going forward.
They mention that changes to mortgage rules to support home building and homebuying at the year end, for example, first time home buyers can now access 30 year amortization's instead of 25 years, which will lower monthly mortgage prices.
The qualification to acquire mortgage insurgents was raised.
They should lead to gains in housing market activity in Canada in the first half of 2025, according to TD economics.
If we break down their outlook, regionally going forward, they believe that both BC and Ontario, these are where homes cost between 1 to 1 1/2 million dollars, that these two provinces will benefit the most from the federal government's measures.
Average home prices should also benefit from the strongest sales gains in the country as pent up demand continues to drive up recovery activity from low levels. They also believe that affordability will remain a challenge for those provinces and that will restrain price growth in the near term. Taking a look at some of the other provinces, the prairies for example they expect outperformance. For a couple of reasons.
One, tight market, strong population over there should also help demand. Solid report ability conditions as well as economic performance in the prairies should help housing activity there. In Québec and the Atlantic provinces, they believe that tight supply and demand balances should keep prices rising but a decline in affordability will prevent stronger gains.
They also note that slowing interprovincial migration to the Atlantic provinces will also continue to weigh on demand.
>> Interesting forecast there. There are risks to everything. Were the risks here?
>> To point to the uncertainty around these new federal policies about housing.
They believe that housing could react more aggressively than they predicted, especially in a falling rate environment, so that could be a risk to their outlook.
Also unknowns about the federal government's efforts to curb population growth, that could impact housing demand as well. They also point to restrictive policy rates both here in Canada and the United States that could cause economic growth as well as the job market to be weaker than expected and finally they also touch on the US election, which is a bit of a wild card for both the US and Canadian economies.
>> Interesting stuff. Thanks for breaking it down.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the malfunction, and I assume the market movers. The TSX Composite Index is firmly above 24,000.
We were there earlier this week but faded back. We are at record highs now. What's going on beneath the surface? It's an interesting day. You can see strengthen the financials, big banks, life insurers up firmly. That's a lot of points on the top line of the TSX Composite Index number. We are seeing a rally in metals across the board. My screen is telling me that silver is now in a 12 year high.
Making some pretty sizable moves. Tech is up more than 6%, First Quantum up more than seven, but there is pain in the energy trade today. You got West Texas intermediate American benchmark crew just about 60 bucks per barrel, pulling back on reports that the Saudi's do intend to raise production by the end of the year.
This is enough to get the price of crude on the move and you can see how it's affecting the energy space. CNQ down 3%.
Cenovus down almost 4%.
South of the border, their signs that the US economy is pretty firm while the Fed is on an easing cycle. They began last week.
50 basis point last week. So long ago.
This is interesting if you take a look at the S&P 100 you can see some of the banks moving, some other things but if we go to the S&P 500, we've got to interesting stories at play that don't get reflected when we are talking about, just a little bit higher my friend, you got probably three tics above you there. There you go.
Micron is M you. We told you about earlier on the show, saying the AI demand is strong for the memory chips that go into Nvidia's processors but SM CIA, this is an interesting story as well. This is super microcomputer. That stock is down almost 15% at this hour due to a report from the Wall Street Journal that the Justice Department has opened a probe into them out on the heels of a report that came out that question their practices.
Those reports have that stock under considerable pressure.
Of course, the headlines have been dominated by the rally that we have seen in US equities, but the Canadian market, we were just talking about, achieving record highs and 24,000. Michael O'Brien joined us earlier this week to talk about it, managing Dir. and head of the core Canadian equity team at TD Asset Management. We discussed whether the run can continue.
>> Yeah, well, I mean, it's a typically Canadian approach. Understated and getting the job done.
So, yes, it's been a really good year for Canadian equities.
And when you look across, you know, where did that come from, a whole bunch of different sectors have really contributed over the course of the year. Earlier in the year, the oil and gas stocks did very well. They were kind of leadership in Q1.
That trade's cooled off a little bit.
People are a little less certain about where oil prices are going.
But they kind of handed the baton off to some of the different sectors. So you've seen your insurers have a very solid year.
The banks have really come to life lately as people are getting a little more confidence around the upside towards loan losses potentially not being as bad as feared.
You've seen the gold stocks just on fire.
So a lot of the different parts of the market.
And then the most recent-- I would say, most recent participants or most recent leaders have been those interest-sensitive names benefiting from the beginning of the rate cut cycle, both in Canada and south of the border with the Fed cutting 50 last week. So your traditional yield sectors have really been strong the last month or two. So it's been a pretty broad swath of the market that's kind of been leadership in any given day.
>> If we compare that to the run that we've seen in US equities, obviously, the big part of the story was about the tech names. Has there been a broadening out in the States, too, or is our rally a different composition than theirs?
>> Yeah, well, I think there has been a bit of a broadening out in the States. I mean, the S&P is still making new highs.
But if you look at the Mag 7 or what has been viewed as leadership there, the Nvidias, the Microsofts, the Amazons, all of those stocks are still below their year to date highs. So, clearly, there's been a broadening out in that market as well.
I think it's just more pronounced in the Canadian market because we've got less of the Mag 7 and much more of all the other stuff. So I think it's a North American phenomenon, but it has a bigger punch here in Canada just by the composition of the market.
>> Well, you mentioned the three rate cuts we've already seen from the Bank of Canada.
They started in June. The Fed finally got in on the game, as well, last week and come right out of the gate with 50 basis points. We put that kind of activity together and the expectation of more, what could this mean for the market?
>> Well, clearly, I mean, that's one of the reasons the markets are at highs today is that market investors have been expecting this. Investors have been anticipating it. They've been salivating, waiting for these rate cuts. They finally come.
So now, it's almost one of those situations where the dog has finally caught the car.
Now, what's he going to do with it? So going forward from here, we've got the rate cut cycle. That debate's over.
In my opinion, I think the next leg higher, if there's going to be continued gains in the market, it has to be from confirmation that we are, in fact, going to get a soft landing, in other words, bringing it back to your basics, bringing it back to fundamentals, I think the next leg higher from here has to be driven by good, old-fashioned earnings growth.
And so we need to see economic data giving us comfort, not so much that things are great today but that they're not going to get worse and that those rate cuts will have time to kick in and really stimulate the economy. And if that happens, then we can start looking forward to the back half of 2025, into 2026, and feel better about the earnings prospects for all of these companies as, hopefully, these rate cuts begin to bolster the economy.
>> Bolstering the economy but also-- and the argument that's been made. And you and I have talked about this through the year as we waited for those rate cuts that, once you start to see the Bank of Canada trimming its trend-setting rate, then maybe some of these yield plays-- and I think this is already starting to happen-- start to look more attractive to investors. We're not going to get the yield that they were getting in savings products or in GICs.
>> Yeah. No, you're absolutely right. And this clearly is something that investors have been anticipating as well. There are a whole legion of people-- I would count myself among them-- that you had a few thousand bucks or whatever it is you had a year, year and a half ago, put it into a nice, juicy GIC yielding 5%, 6%, no risk.
No shame in doing that. I think a lot of people have done that.
So I think the view is there's quite a bit of money parked in those types of short-term, high-yielding, cash-like vehicles.
What's going to happen-- and again, people are anticipating this with a lot of excitement, I think-- is that GCI that you took out a year ago at 5.5%, the next time you go to renew it, it's going to be maybe 3.5% or 3% or 2.5%.
I think a natural home for that type of investor isn't necessarily to buy the sexy tech stock south of the border.
It's more to buy one of those good, old-fashioned regulated utilities or pipeline companies-- >> But they're still looking for the yield. They're still looking for the dividends.
>> --the telcos. And they want relatively safe yield. And so I think that's an opportunity from a funds flow perspective.
There could be a fair bit of money coming in over the next year, year and a half, as long as this rate cut cycle continues, that could be finding a new home in some of these higher yielding, more stable parts of the equity market.
>> And that takes us back to a comment you were making earlier, while these plays, because of the yields, might look a little more attractive, when I think about who are the yield payers, they're either the telcos, the banks, some of the other sectors. They're very economically sensitive. So there's sort of like a we've got to have that-- we've got to stick that soft landing for all of this sort of to work together hand in hand.
>> Yeah. And now, I mean, it's interesting if you sort of carve up the different parts of the TSX composite in terms of what we would consider the interest sensitives. There's one group, which is the single biggest basket in the TSX composite, which is your financials, your banks and your insurers. They're very rate sensitive, but they're also more playing offense.
They need a good economy. They need that soft landing to stop the loan loss cycle from continuing, re-accelerate earnings growth. So there's that basket. And then there's the more traditionally defensive basket, like your REITs, your pipelines, your regulated utilities, which, traditionally, investors have viewed them as a good option in a risk off market, more defensive posturing.
They both benefit from this same theme of rates coming down and potential fund flows out of these GIC-like instruments. But it really depends. Do you want to put your foot on the gas or put it on the brakes?
There's a bit of a flavor for both, depending on how you want to approach that.
>> Now, this is hard to say, but we've had the quiet run. The US makes new highs. We make new highs. Is there a case for Canadian outperformance in the near term?
>> Well, I think what Canada has going for it is-- I mean, what Canada has had going for it all year is, from a contrarian perspective, the attention hasn't been on us. The attention has been south of the border, like you mentioned earlier. Much more exciting stories there, that type of thing.
>> AI chips, this and that-- >> Yeah, exactly. That's where-- >> --cars driving themselves, the future.
>> Exactly. So that's where the market focus has been on. And so that, what I would call, very subdued sentiment towards Canadian equities, from a contrarian perspective, that's what you love to see because it means they're under-owned, room for upside. So I think that is still the case today, if you look at valuations south of the border and compare them to the TSX composite.
You know, investors are far less demanding of the stocks and the TSX composite here.
In order to sort of fulfill that hope of Canada outperforming the US, I think the Canadian market expectations are lower, but it's also a more traditionally cyclical market. When you look at the heart of it, your banks, your insurers, your resource complex, your energy producers, your miners, you need a good backdrop economically in order to make those sectors work sustainably.
So we've kind of had that. The first leg of the trade was valuations going from very low levels to what I would characterize as reasonably priced. The next level has to be driven by earnings growth, and that's going to come with an improvement in the economic backdrop.
>> That was Michael O'Brien, managing Dir.
and head of the core Canadian equity team at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show.
Were just a few weeks away from the US presidential election. We will hear how the race is shaping up and what it could mean for policy and the markets.
Chris Krueger from Washington Research Group at TD Cowen will be here, we will get his thoughts on that. That's all the time we have for the show today.
Thanks for watching, we will see you tomorrow.
[theme music]
coming up on today's show, we discussed whether the run we have seen in big tech stocks can continue. Jennifer Martin from T. Rowe Price will give her thoughts. TD Securities Bart Melek is going to give us his view on whether Gold will build on its recent record highs.
Plus MoneyTalk's Anthony Okolie's going to have a look at a new TD Economics report on why the Canadian housing market has not picked up despite those rate cuts from the Bank of Canada. And in today's WebBroker education segment, Ryan Massad is going to show us where we can find analyst research on the platform.
Before we get all that, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
Interesting dynamics at play. Across the board, we are seeing at metals rallying but oil pulling back. The TSX Composite Index back above 24,000. A breach that lion for the first time earlier this week and it's holding it now, almost a 200 point gain or one full percent. Beneath the surface, interesting moves. We are seeing copper, gold, platinum, palladium, silver all up across the board, lifting the minors. Hudbay Minerals is up fairly substantially, almost 9% at $12.83. But we also have reports that Saudi Arabia wants to increase production later this year.
This is weighing on the oil trade. A significant pullback in West Texas intermediate crude, down to about 68 bucks per barrel, the American benchmark is breaking down a lot of the big energy names in Toronto. $3.91 per share for Baytex, down 4%. I could have shown you any of the majors right now to illustrate that point.
South of the border, we got some movement in the big tech names again, some solid economic data out of the states. Put it all together, up 24 points, we will rounded up, 25 points to the upside for the S&P 500, good for almost half a percent. The tech heavy NASDAQ, as I said, a lot of the two plays are working today, Europe 60 points or about one third of a percent. Micron Technology, we will tell you more later in the show, but it's at the centre of all this, coming out with not only its quarterly but forecast going forward. The street likes it. The stock is up almost 14%, and that's your market update.
The rally in big US tech stocks has pushed markets record highs that south of the border, but can I continue? Jennifer Martin, global equity portfolio specialist had T. Rowe Price during the earlier this year.
>> I would say AI has been one of those themes you had to responsibly navigate and capture that also for clients. Right now, if you think about AI, we think it has the potential to be the biggest productivity enhancer since electricity. We are very constructive on this next generation technology and we feel that we still have room to go. But let me break down where we kind of see the areas of opportunity. You have to kind of understand where you are in the cycle. We know that we are right now in a very large infrastructure build.
One of the things that we looked at over the last year and 1/2 is the tremendous amount of capex for those large hyper scalars, that they have spent on their AI infrastructure. The insight for us is appreciating the motivation of that's been. They want to produce some really great applications. It's offensive. It's also defensive because DP use create contestable markets. For the first time, we are talking about could there be a competitor to, for example, Google search?
We have to responsibly navigate where we are.
One of the areas where we are looking for our guidepost is where are we at in capital expenditures and what we are seeing is that we may be nearing peak year-over-year growth, absolute growth will still be quite large year-over-year but that year-over-year deceleration might start happening and so that means that you have to be a little bit more selective maybe in the next period of time for infrastructure.
I would say we are still at the beginning of the AI cycle and one thing that most of us are really thinking about is one of the killer applications, what that is. And I would say we are still looking for those right now. But I will pause there but I would say that that's kind of our summary.
We still feel it's a very defining technology paradigm, and we know where we are in the infrastructure build. We are really excited to find out what's next. As you know I want to talk to you about the potential for killer apps because there's a huge amount of expenditure. It's not just have a really cool roomful of computers saying it's filled with all kinds of crazy chips, they want to produce something in the end. Is that the next like this, someone comes up with the killer app and everyone says, I have to have this?
>> I definitely think the killer apps are on the horizon. I always like to remind individuals though that when Apple launched the iPhone, none of us knew what the killer app was. I laugh now, I reflect, I never thought in a million years I'd be in the back of someone's Honda going to the airport and I think we're going to have that moment with an AI app. I would say the debate around AI, particularly related to the infrastructure cycle, is the idea, what's that return on investment? And I think we have a few tangible examples already. One area I would point you to is just the engagement uplift in the social media platforms, whether it is Meta or Alphabet.
In the other area that's really easy to look at is in Microsoft or copilot, I know that in our firms, our developers have very high productivity. I recently got copilot for Microsoft teams, it summarizes some of the chats, it's incredible. So I think these killer apps might actually be evolving into more table stakes for existing applications and then the killer up further on the horizon but we don't know what it is.
>> The hardware spent has been big, looking for the killer app down the horizon. You have talked about the growth cycles. We imagine-- they're still going to be demand, but we don't think they are done building?
>> I think the infrastructure cycle, you are correct. We are estimating-- the Budget for the four largest hyper scalars has gone from 100 billion to 200 billion at the end of this year and it's probably growing again in 2025. Not the same growth rate but absolutely going higher so that will benefit the chip ecosystem. But the interesting thing about the cycle, particularly for chips since you brought that up, Nvidia, just because of large numbers, will see some deceleration in revenue but all of these other companies that we own in our portfolios related to semis archer offing on fundamentals. A good example is AMD. There is CPU is bottoming you and that's the and market of PC coming out of that COVID normalization.
You are also seeing possibly some next-generation AI chips, MI 360 chips, and then you get the added bonus possibly of some market share names with the challenges that Intel-- >> Does it have to be all Nvidia all the time?
>> Particularly on the fundamentals, I would expand that to other parts of technology. ASML is really frothing on orders. We see those accelerating and 25.
And there's a lot of areas particularly in analog semiconductors where they sell into the end market of industrials. Those archer offing and Ho-Seung Lee have improving fundamental. Those are interesting areas that since you mentioned at the hardware side that still shows some life.
>> AI has been the big macro theme for the space but in the here and now, in the world, lots has happened including a US presidential election. What impact could not have?
>> One thing that we have been sharing with our clients is that regardless of who wins the US election, we don't think austerity is in the plan.
And what I mean by that is both parties likely will continue to spend, and so that will be the backdrop and that benefits and industry building redundancy and supply chains. The other area both parties seem to be coalescing on is being a little bit more a coalition of protectionist vis-à-vis China.
That won't change.
Some have conjectured that under Harris, it could be more of the same. Particularly from a regulatory standpoint. That would actually benefit large Tech. Some have conjectured under trump with less regulation that could benefit small and mid-cap stocks, potentially small and mid-cap technology. That would maybe spur a little bit more either innovation or MNA. So it depends but regardless, we don't think spending is going to happen and both are generally supportive of protecting US technology.
>> That was Jennifer Martin, global equity portfolio specialist at T Rowe Price. Come up later in the show, Bart Melek will give us is the one whether gold will build on its record highs, we will hear from TD Asset Management's Michael O'Brien on how the TSX may perform passing 24,000 for the first time this week, holding it today.
Plus MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on why the Canadian housing market is not picking up despite three rate cuts already from the Bank of Canada.
First, let's get you updated some of the top stories in the world of business and take a look at how the markets are trading.
Let's check in on those shares of Micron Technology, most definitely on the move today, up almost 14%.
The chipmakers forecasting record revenue for its current quarter on strong AI demand.
Microchips are used in the AI processors that are designed by Nvidia, nice to see the full picture, right? And the sales forecast appears to be getting a boost to the broader semiconductor space today, renewed excitement about AI. Just talking with Jennifer, some doubts out there on with that the rally can continue. The rallies on today.
Closer to home, we have shares of Lightspeed Commerce in the spotlight, they pop yesterday. Building on it today, more modest, up about 3 1/2% today. The Montréal-based payments firm is conducting a strategic review of the business with a view to quote realizing its full potential.
The company made that statement following media reports that Lightspeed is reviewing a number of options, including a possible sale of the business.
Southwest Airlines is also on the move today. The air carrier is raising its revenue forecast for the summer quarter, announced a $2.5 billion share buyback program, and it's making a number of changes to its business model. All that put together has the stock up almost 10%.
All these moves, amid pressure from activist investor Elliot Investment Management.
Quick check in on the markets, starting here at home, the TSX is up 24,000. Across that barrier earlier in the week, fell back under the close, right now holding as the above, of three quarters of a percent, 171 points. It's a real mix between strength and mining stocks and substantial weakness based on the price of crude in energy names.
South of the border, the US economy still looking strong. You've still got a Fed that's committed to starting to ease, gave us 50 basis point cut last week. Put that all together, your thinking soft landing.
Europe 19 points on the S&P 500, about one third of a percent.
Let's talk about the price of gold that has been running up to record levels in recent trading, but as the Fed begins its rate cutting cycle, people are wondering, will that really continue?
Bart Melek, managing Dir. and global head of commodity strategy at TD Securities join me earlier to discuss.
>> I think we should probably start back some 12 months ago, where we had the Federal Reserve-- at that time, no one was really imagining a 50 basis points cut like we saw last Wednesday. But what we did witness is very robust central bank buying, and that's on the back of a record level of central bank purchases in 2022/2023.
This year started off fairly robustly as well.
It has slowed down. But that was one of the elements, along with strong physical markets in Asia and other parts of the world, that prevented gold from troughing in a material way, even as rates were on the way up, or certainly real rates anyway, as inflation fell and we saw the Fed funds at 550 basis points.
So there was already a robust market. And the economy started slowing a little bit.
China underperformed. And the narrative shifted towards cuts. And of course on Wednesday, the Federal Reserve delivered a 50 basis points cut and a dovish narrative.
But ahead of that, the markets were expecting it for the most part. And we've seen very, very robust proprietary trader or discretionary trader positions. We at some point thought it was maybe a little bit too much too soon. And that helped to move gold to the record levels we've seen-- robust, speculative purchases and the start of ETF buying.
We haven't really seen the market go firing on all cylinders. And in our view, we still think there's some upside to go as we move into early 2025.
>> So we've seen that strong demand from central banks.
You're seeing ETF holdings starting to rise and a 50 basis point cut from the Fed.
I imagine the gold bulls like all of these components. Is it more complicated than that?
>> Yes.
[laughing] >> It's always more complicated. If life was simple, we would all be minted.
>> Well, central banks since then have slowed down a bit. I think the People's Bank, after almost two years of very aggressive buying, slowed down for the last five months or so. But we suspect that central banks may be interested again. I think the hope on their part was that we could see a bit of moderation because, as I said, it looked like there was maybe too much positioning on the long end.
But now, I think central banks may be in it again. And I think the generalists and institutional investors in the Western world may develop an appetite for gold again. And with a 50 basis points cut, even though we had very hefty positions, we really didn't see, last week in the CFTC data, that would indicate a lack of appetite.
In fact, long positions grew much more than short positions. So length increases were still pretty hefty in terms of positioning, which represents a risk. But I suspect this particular Fed is very much tilted towards the second element of its mandate, which is maximum employment.
The Federal Reserve, unlike, let's say, the Bank of Canada, targets two policies or two things they want to accomplish simultaneously. They want to have price stability, which is controlling inflation, and they want max employment-- maximum employment.
And I think Mr. Powell, starting back in August at Jackson Hole, I think with very little ambiguity told the market that he doesn't want the labor market to weaken much more.
The rest of the economy, in many ways, has slowed down. There are disinflationary pressures-- not deflation, but inflation has decelerated a great deal.
And the Fed now is quite comfortable, I think, with the idea that we are going to move to their 2% target. And that, of course, takes time. But at the same time, the Fed wants to reduce the restrictive aspect of monetary policy to facilitate a little bit more economic activity so we don't see a very sharp downturn in labor.
So they're trying to hit two things at the same time. Historically, that didn't end well, because through much of the history, it ended up in a significant slowdown and even recession. This time we're hoping that we're going to have more of a soft landing as this Federal Reserve starts cutting rates. And we're hoping that things stimulate and we get the best of both worlds-- low inflation and decent growth.
>> There's a lot of consensus around this idea that they can stick the soft landing.
What if they don't?
What if it ends up being a hard landing, you get a recession, and a rather painful one-- what would happen to gold?
>> Well, gold seems to be a winner under most scenarios here.
If there is a very sharp downturn, one we don't expect, then the Federal Reserve's response would be more monetary easing, even lower real interest rates.
There are some rigidities on the price side.
It's unlikely that we're going to get deflation, de facto.
So you could very much envision a world where the economy slows down much more than the Fed anticipated. And I think the reaction function would be to aggressively cut rates. And for gold, that's pretty good.
One, you're protecting against the deterioration in real rates as the Fed cuts.
And also, gold tends to have an inverse relationship to risk assets, like equities, for example, or copper, or other things. So when the economy's slow, demand for industrial metals or energy doesn't tend to do well.
Earnings tend to disappoint, and then gold tends to be an outperformer as rates go down and gold is seen as being relatively stable.
>> Lastly I want to ask you, let's talk about that-- we talk about gold in the here and now and the things that have happened-- very interesting moves, as you've laid out on the show over the past couple of years.
Historically, though, what place has gold played? It's an interesting asset in that respect.
>> It is. First of all, gold is no one's liability. There is no counterparty risk.
If I own an ounce of gold, I own an ounce of gold.
I don't have to rely on any government to pay me your yield or pay me back.
There is intrinsic value in it. So far, so good.
For the last 5,000 years or so, gold has been considered valuable by humanity, a store of value.
We're assuming for the next 10 years or so, it'll be the same thing.
So it's a store of value.
It doesn't have to depend on the good graces or solvency of any government.
Second, it is a real asset that requires real resources to produce and to take out of the ground.
That includes labor. That includes capital in the form of those big mighty machines that dig stuff out, everything from water pumps, to trucks, to smelters.
And if we argue there is inflation in the world, well, then, we have to argue that the cost of labor is going to catch up and so will the cost of everything associated with getting an ounce out of the ground in terms of capital, and steel girders, and you name it.
And other third factor I think that is very important here is that the average or grade is declining over time.
We've been mining it for many, many thousands of years, and all the good stuff that's easy to get at has been pretty much mined out.
If it was easy to get out of the ground, people knew about it and tried to take it out.
Now, we're left with more troublesome assets, new assets, in particular.
Some were high up in the Andes Mountains or in geopolitically unstable parts of Africa, for example. And to the extent that price of gold has tracked the marginal cost, or we call it the 90th percentile of the cost curve, then as we move forward and if we expect inflation down the road, it's a good protector.
It gives you a real implied yield of sort.
So if labor goes up by 2% or 3% and you're going to need more labor to get that ounce because there is less of gold available, more machinery, given technology doesn't change much, then gold should deliver inflation plus that extra premium that is reflected in the difficulty of getting an ounce out of the ground.
So I think over the long run, it should be a decent reflector of aggregate prices in the world and should keep up.
So in 50 years time you should probably still have, in real terms, the same amount of purchasing power from $100,000 worth of gold today-- in 50 years, probably you will get $50,000 in real terms of purchasing power as well.
So it's not a bad asset. And unlike equities, for example, you can imagine in 50 years, technology stocks that are all the rage today may not be, because they'll be outmoded and outdated. There's no guarantee that today's technology will be around in 50 years or will there be the same companies.
So there's that element as well, which is stable, a store of value that's been around for many millennia.
>> That was Bart Melek, managing director and global head of commodity strategy add TD Securities.
As always, make sure you do your own research before making any investment decisions.
Now, let's get our educational segment of the day.
If you are looking to find what analysts are thinking about a given stock, WebBroker has tools which can help.
Joining us now to discuss is Ryan Massad, Senior client education instructor with TD Direct Investing. Always great to see you.
We are talking about the analyst Centre today.
>> We are. Analysts, they analyse all day while you and I are doing different things. We are having our coffee, they are analysing stocks. When we are doing our own research it is great to hear what they have to say.
In web broker, we have a great way of doing that. Let's hop into a broker and I will show you how. In wet broker, under the research tab, we are going to click on analyst Centre below the column that is markets. And in this section here, we are going to get a general perspective of a bunch of analysts and what they think of various different stocks. We've got this button here that says most recent, those of the most recent changes in a buy, hold or sell rating. We are going to go to this trending stocks because it's exactly that.
How many analysts have put their two cents into or thoughts on these types of stocks?
You can see the ones that are trending right now. You can see the name of the company, the symbol, how many say body, how many say hold, how many analysts say that. What is the upside that they believe?
As I scroll down, Jennifer was talking about it before, a lot of technology and talk of technology. Those are the ones that are trending.
If you wanted to filter this out to what you are looking for, you can go to the left here and filter some criteria.
If you are actually only looking for technology, sector technology, you can click on this box and filter for only technology stocks. Or if you were may be more interested in what Bart had to say today, if you are looking at gold or at silver, basic materials, you can filter for that and bring them companies that are doing exactly that. In addition to filtering like that, you can filter by best rated, the period, the lost amount of time, whether it's Canada or the US or how big the company is hereby market capitalization. There are a lot of ways to find out what's going on, what are analysts really talking about these days here on the markets.
>> We started our journey in the analyst Centre.
If someone finds a stock that they are interested in, what other information is available on web broker?
>> If you find a stock that you like in the list or even just in general and you want to know what analysts are thinking about it, and web broker, if you are looking at a stock, then under the stocks overview page and web broker, you're going to get an overall look, let's say we have Apple.
We have the price, the movement, we can add it to a watchlist. We can look at a whole bunch of other things. If we want to know what analysts are thinking, we will go to the analysts tab within the symbol here and we will find out what analysts are saying on Apple exactly.
It will give you a preview of what they feel in the next 12 months the price projection will be, the average, the low, whether they are buy, hold or sell of this particular stock. And then as I scroll down, I can see with the individual analysts think in this case of Apple, whether it is a buy rating, when they made that rating, what is their price target and if I want to know a little bit more about each of these analysts, and please notice these analysts are from all across the industry, not just TD. If I want to know more about Amit, I can click here, see how he is doing on his pics. I can click on his profile and get more information about what he is looking at in general about the last ratings he has made. I can go in here to find out a little bit more about what these analysts are talking about, with their thinking and it can really add to your stock searches.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Ryan Massad, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre on web broker, or use this QR code to navigate to TD Direct Investing's Instagram page. There, you're gonna find more informative videos.
We have seen three rate cuts from our central bank since June. Despite the act and the expectation that we are going to get a few more before the years out, we have not really seen a revival in the housing market. So what's going on?
Anthony Okolie joins us now is a new TD Economics report on just that.
>> They say there are two factors that kind of holding back housing market activity, that's why it's not picking up.
One is affordability. It continues to be a big problem for homebuyers. Despite the recent drop we have seen in rates, these rates are still at levels lusting around 15 years ago so the effect of the rate cuts will likely not be felt for some time. The second factor is messaging from the Bank of Canada that rates are still set to fall even further.
What's happening is that that's keeping potential buyers on the sidelines, they are waiting for more cuts before they jump into the housing market. TD Economics says that the subdued market is not going to last long. They believe that economic growth is likely to regain traction going forward.
They mention that changes to mortgage rules to support home building and homebuying at the year end, for example, first time home buyers can now access 30 year amortization's instead of 25 years, which will lower monthly mortgage prices.
The qualification to acquire mortgage insurgents was raised.
They should lead to gains in housing market activity in Canada in the first half of 2025, according to TD economics.
If we break down their outlook, regionally going forward, they believe that both BC and Ontario, these are where homes cost between 1 to 1 1/2 million dollars, that these two provinces will benefit the most from the federal government's measures.
Average home prices should also benefit from the strongest sales gains in the country as pent up demand continues to drive up recovery activity from low levels. They also believe that affordability will remain a challenge for those provinces and that will restrain price growth in the near term. Taking a look at some of the other provinces, the prairies for example they expect outperformance. For a couple of reasons.
One, tight market, strong population over there should also help demand. Solid report ability conditions as well as economic performance in the prairies should help housing activity there. In Québec and the Atlantic provinces, they believe that tight supply and demand balances should keep prices rising but a decline in affordability will prevent stronger gains.
They also note that slowing interprovincial migration to the Atlantic provinces will also continue to weigh on demand.
>> Interesting forecast there. There are risks to everything. Were the risks here?
>> To point to the uncertainty around these new federal policies about housing.
They believe that housing could react more aggressively than they predicted, especially in a falling rate environment, so that could be a risk to their outlook.
Also unknowns about the federal government's efforts to curb population growth, that could impact housing demand as well. They also point to restrictive policy rates both here in Canada and the United States that could cause economic growth as well as the job market to be weaker than expected and finally they also touch on the US election, which is a bit of a wild card for both the US and Canadian economies.
>> Interesting stuff. Thanks for breaking it down.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the malfunction, and I assume the market movers. The TSX Composite Index is firmly above 24,000.
We were there earlier this week but faded back. We are at record highs now. What's going on beneath the surface? It's an interesting day. You can see strengthen the financials, big banks, life insurers up firmly. That's a lot of points on the top line of the TSX Composite Index number. We are seeing a rally in metals across the board. My screen is telling me that silver is now in a 12 year high.
Making some pretty sizable moves. Tech is up more than 6%, First Quantum up more than seven, but there is pain in the energy trade today. You got West Texas intermediate American benchmark crew just about 60 bucks per barrel, pulling back on reports that the Saudi's do intend to raise production by the end of the year.
This is enough to get the price of crude on the move and you can see how it's affecting the energy space. CNQ down 3%.
Cenovus down almost 4%.
South of the border, their signs that the US economy is pretty firm while the Fed is on an easing cycle. They began last week.
50 basis point last week. So long ago.
This is interesting if you take a look at the S&P 100 you can see some of the banks moving, some other things but if we go to the S&P 500, we've got to interesting stories at play that don't get reflected when we are talking about, just a little bit higher my friend, you got probably three tics above you there. There you go.
Micron is M you. We told you about earlier on the show, saying the AI demand is strong for the memory chips that go into Nvidia's processors but SM CIA, this is an interesting story as well. This is super microcomputer. That stock is down almost 15% at this hour due to a report from the Wall Street Journal that the Justice Department has opened a probe into them out on the heels of a report that came out that question their practices.
Those reports have that stock under considerable pressure.
Of course, the headlines have been dominated by the rally that we have seen in US equities, but the Canadian market, we were just talking about, achieving record highs and 24,000. Michael O'Brien joined us earlier this week to talk about it, managing Dir. and head of the core Canadian equity team at TD Asset Management. We discussed whether the run can continue.
>> Yeah, well, I mean, it's a typically Canadian approach. Understated and getting the job done.
So, yes, it's been a really good year for Canadian equities.
And when you look across, you know, where did that come from, a whole bunch of different sectors have really contributed over the course of the year. Earlier in the year, the oil and gas stocks did very well. They were kind of leadership in Q1.
That trade's cooled off a little bit.
People are a little less certain about where oil prices are going.
But they kind of handed the baton off to some of the different sectors. So you've seen your insurers have a very solid year.
The banks have really come to life lately as people are getting a little more confidence around the upside towards loan losses potentially not being as bad as feared.
You've seen the gold stocks just on fire.
So a lot of the different parts of the market.
And then the most recent-- I would say, most recent participants or most recent leaders have been those interest-sensitive names benefiting from the beginning of the rate cut cycle, both in Canada and south of the border with the Fed cutting 50 last week. So your traditional yield sectors have really been strong the last month or two. So it's been a pretty broad swath of the market that's kind of been leadership in any given day.
>> If we compare that to the run that we've seen in US equities, obviously, the big part of the story was about the tech names. Has there been a broadening out in the States, too, or is our rally a different composition than theirs?
>> Yeah, well, I think there has been a bit of a broadening out in the States. I mean, the S&P is still making new highs.
But if you look at the Mag 7 or what has been viewed as leadership there, the Nvidias, the Microsofts, the Amazons, all of those stocks are still below their year to date highs. So, clearly, there's been a broadening out in that market as well.
I think it's just more pronounced in the Canadian market because we've got less of the Mag 7 and much more of all the other stuff. So I think it's a North American phenomenon, but it has a bigger punch here in Canada just by the composition of the market.
>> Well, you mentioned the three rate cuts we've already seen from the Bank of Canada.
They started in June. The Fed finally got in on the game, as well, last week and come right out of the gate with 50 basis points. We put that kind of activity together and the expectation of more, what could this mean for the market?
>> Well, clearly, I mean, that's one of the reasons the markets are at highs today is that market investors have been expecting this. Investors have been anticipating it. They've been salivating, waiting for these rate cuts. They finally come.
So now, it's almost one of those situations where the dog has finally caught the car.
Now, what's he going to do with it? So going forward from here, we've got the rate cut cycle. That debate's over.
In my opinion, I think the next leg higher, if there's going to be continued gains in the market, it has to be from confirmation that we are, in fact, going to get a soft landing, in other words, bringing it back to your basics, bringing it back to fundamentals, I think the next leg higher from here has to be driven by good, old-fashioned earnings growth.
And so we need to see economic data giving us comfort, not so much that things are great today but that they're not going to get worse and that those rate cuts will have time to kick in and really stimulate the economy. And if that happens, then we can start looking forward to the back half of 2025, into 2026, and feel better about the earnings prospects for all of these companies as, hopefully, these rate cuts begin to bolster the economy.
>> Bolstering the economy but also-- and the argument that's been made. And you and I have talked about this through the year as we waited for those rate cuts that, once you start to see the Bank of Canada trimming its trend-setting rate, then maybe some of these yield plays-- and I think this is already starting to happen-- start to look more attractive to investors. We're not going to get the yield that they were getting in savings products or in GICs.
>> Yeah. No, you're absolutely right. And this clearly is something that investors have been anticipating as well. There are a whole legion of people-- I would count myself among them-- that you had a few thousand bucks or whatever it is you had a year, year and a half ago, put it into a nice, juicy GIC yielding 5%, 6%, no risk.
No shame in doing that. I think a lot of people have done that.
So I think the view is there's quite a bit of money parked in those types of short-term, high-yielding, cash-like vehicles.
What's going to happen-- and again, people are anticipating this with a lot of excitement, I think-- is that GCI that you took out a year ago at 5.5%, the next time you go to renew it, it's going to be maybe 3.5% or 3% or 2.5%.
I think a natural home for that type of investor isn't necessarily to buy the sexy tech stock south of the border.
It's more to buy one of those good, old-fashioned regulated utilities or pipeline companies-- >> But they're still looking for the yield. They're still looking for the dividends.
>> --the telcos. And they want relatively safe yield. And so I think that's an opportunity from a funds flow perspective.
There could be a fair bit of money coming in over the next year, year and a half, as long as this rate cut cycle continues, that could be finding a new home in some of these higher yielding, more stable parts of the equity market.
>> And that takes us back to a comment you were making earlier, while these plays, because of the yields, might look a little more attractive, when I think about who are the yield payers, they're either the telcos, the banks, some of the other sectors. They're very economically sensitive. So there's sort of like a we've got to have that-- we've got to stick that soft landing for all of this sort of to work together hand in hand.
>> Yeah. And now, I mean, it's interesting if you sort of carve up the different parts of the TSX composite in terms of what we would consider the interest sensitives. There's one group, which is the single biggest basket in the TSX composite, which is your financials, your banks and your insurers. They're very rate sensitive, but they're also more playing offense.
They need a good economy. They need that soft landing to stop the loan loss cycle from continuing, re-accelerate earnings growth. So there's that basket. And then there's the more traditionally defensive basket, like your REITs, your pipelines, your regulated utilities, which, traditionally, investors have viewed them as a good option in a risk off market, more defensive posturing.
They both benefit from this same theme of rates coming down and potential fund flows out of these GIC-like instruments. But it really depends. Do you want to put your foot on the gas or put it on the brakes?
There's a bit of a flavor for both, depending on how you want to approach that.
>> Now, this is hard to say, but we've had the quiet run. The US makes new highs. We make new highs. Is there a case for Canadian outperformance in the near term?
>> Well, I think what Canada has going for it is-- I mean, what Canada has had going for it all year is, from a contrarian perspective, the attention hasn't been on us. The attention has been south of the border, like you mentioned earlier. Much more exciting stories there, that type of thing.
>> AI chips, this and that-- >> Yeah, exactly. That's where-- >> --cars driving themselves, the future.
>> Exactly. So that's where the market focus has been on. And so that, what I would call, very subdued sentiment towards Canadian equities, from a contrarian perspective, that's what you love to see because it means they're under-owned, room for upside. So I think that is still the case today, if you look at valuations south of the border and compare them to the TSX composite.
You know, investors are far less demanding of the stocks and the TSX composite here.
In order to sort of fulfill that hope of Canada outperforming the US, I think the Canadian market expectations are lower, but it's also a more traditionally cyclical market. When you look at the heart of it, your banks, your insurers, your resource complex, your energy producers, your miners, you need a good backdrop economically in order to make those sectors work sustainably.
So we've kind of had that. The first leg of the trade was valuations going from very low levels to what I would characterize as reasonably priced. The next level has to be driven by earnings growth, and that's going to come with an improvement in the economic backdrop.
>> That was Michael O'Brien, managing Dir.
and head of the core Canadian equity team at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show.
Were just a few weeks away from the US presidential election. We will hear how the race is shaping up and what it could mean for policy and the markets.
Chris Krueger from Washington Research Group at TD Cowen will be here, we will get his thoughts on that. That's all the time we have for the show today.
Thanks for watching, we will see you tomorrow.
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