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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss whether better days are ahead for the industrial stocks. And some of the big trends we will be watching this year, a reversal from working down inventories to restocking inventories. TD Asset Management's Juliana Faircloth joined us.
Anthony Okolie is going to look at a new report on whether the BOC and the federal divergent paths when it comes to interest rate. And on today's education segment, Hiren Amin is going to show us how to use conditional orders on Advanced Dashboard.
And here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We will start with the TSX Composite Index, it's down 1/3 of a percent. One of the most actively traded names at this hour includes Baytex energy. Natural gas prices are getting support. We will talk about that later in the show. Right now some oil and gas plays are getting a bid.
This one up 3 1/3%.
I want to take a look at Manulife, giving back modestly some recent gains. The stock is been on an upward trajectory in past weeks. You are down about 1 1/2%.
South of the border, it's interesting, wait and see. We are getting fed minutes later today but it's and Vidya earnings after the closing bell.
This stock has been on a tear on the past year and 1/2. Investors are getting a little nervous ahead of that.
Nvidia was down 4% yesterday. You're down a modest 10th of a percent on the S&P 500.
The NASDAQ is a little bit more to the downside. Waiting to see what happens at 4 o'clock with Nvidia. You're down about half a percent. Nvidia is the star attraction of the day as we await the earnings. Yesterday I pulled back 4% and today are down about 2 1/4. And that's your market update.
The global shipping industry was hit by a freight recession in 2023 as our customers work downloaded inventories and shipped fewer goods as a result. We are well into a new year and our future guest is keeping an eye on potential catalyst for the industry, including a trend towards restocking. Joining us now to discuss his Juliana Faircloth, VP for portfolio research at TD Asset Management.
This year, as companies have been working down inventories, is it time to start building the backup?
>> It's an interesting topic.
These inflection points can present opportunities for investors.
It's an interesting topic to think about, particularly in the context of the US economy has been growing pretty well over the last three years.
But under the surface, we have been in a freight recession. We have seen waves of destocking and changes under the hood that have had a lot of implications for different industries like retail, like freight.
I brought a couple charts to illustrate what has been going on.
The first one, I believe, is a US real personal consumption is. You can see there that the green line reflects consumption of goods. There was a huge surge through 2020 and 2021.
We were all at home, we were ordering computers and athleisure. As you look through two 2023, that destocking took place, we heard about that from Walmart and Target having to wind down there inventories. We also saw this across the industrial side of the economy. Another chart which looks similar shows US manufacturing new orders. Again, that spike through 2020 into 2021 and then contraction through 2022 and 2023.
An exciting moment right at the end of that chart at the beginning of 2024.
>> That take up at the end.
>> It's above the 50 level which represents an expansion, so that's the interesting potential restocking thesis that might mark an inflection point that investors should be paying attention to.
>> Your restocking with goods, raw materials, whatever your businesses. Let's talk about what it means for the global shipping industry.
If we start breaking it down by sectors, we talk a lot about rail, but there are a lot of ways that goods get to us.
>> Within freight, the interesting examples to think I would be rails and trucking. To start with rails, it was a tough year through 2023 for the rails.
Almost all of the class one rails reported and earnings decline.
That was as they moved fewer and fewer volumes across their large asset base and we know that that can have a really big impact on profitability.
Looking ahead, the outlook looks more interesting. In Q4 of 2023, which the rails reported earnings just a few weeks ago, all of the large North American class one rails reported growth and that's the first time that's happened in a while.
The outlook is pretty interesting for a re-acceleration of earnings growth through 2024, driven by volumes and that positive operating leverage story as the economy kind of restocks.
>> What about the trucks on the road?
>> Trucking, another industry very impacted.
We saw a large, pretty high-profile bankruptcy last year, a company called yellow in the US went bankrupt through this quite tough operating and volume environment for the trucking industry. The hope for 2024 is looking forward that we have some volume benefit from restocking.
You may have some capacity rationalization in the industry was a large player no longer present in the industry and so that creates an interesting set up for earnings acceleration through 2024.
I think that stands out potentially in the context of the broader industrial landscape.
You've got rails and trucks said to possibly see their earnings accelerate through 2024 and if I contrast that with a couple of other pockets of industrial and markets, say airlines or construction, there we are starting to see earnings rollover and slow down as the peak of their demand is starting to normalize from a very high level.
>> These things that you and I buy it expect to show up on her doorstep magically, obviously freight and trucking is a big part of it. But there isn't train or transport truck showing up in front of my house.
When it comes to me, it's UPS or FedEx.
Let's talk about those companies.
>> Those name brands that we know that bring packages to our house, it's been a really interesting. From a stock perspective for FedEx and UPS. Both have been challenged by the operating environment we've talked about and by that destocking theme but the stock's performance really diverge. FedEx has materially outperformed UPS over the last year and I think what's been driving that is a focus on we know that volumes are pretty weak for these companies.
But let's narrow in on the cost side and see what these companies are doing from a cost perspective.
So FedEx stock has really benefited from a huge cost cutting and restructuring plan that they announced over a year ago, where is UPS has been muddling through the operating environment in a different way.
Looking to 2024, I think it will be important for both of these companies to demonstrate that they can bring on volumes and handle some of this restocking tailwind without taking on too much additional cost.
>> Let's talk about some of the risk. The thesis we are laying out is we went through a freight recession, companies have worked through those bloated inventories as a result of our shifting habits coming out of the pandemic, restocking could mean some good things.
What could be the risks to this thesis?
>> This inflection is an exciting potential opportunity for investors, but of course there are risks.
One big risk that I would highlight is global supply chains are still quite fragile. So to the extent that we rely on ocean shipping to bring freight into North America that can move across rails and come on a UPS truck to the front of their house, that's a pocket of potential risk.
Right now, we are seeing geopolitical conflict in the Red Sea, there are droughts in the Panama Canal, this is having a huge impact on ocean shipping.
We saw ocean freight rates spike over 100% since October when the Red Sea crisis started. That could be a difficult environment in terms of cost and the time it takes for products and goods to move from point A to point B. The other interesting implication to highlight I would say from this theme is that if we have surging ocean freight rates and higher transportation costs and a lot of demand for some of these transportation needs, that sounds a little bit inflationary.
>> That takes me back to 2021, 2022, when they were saying don't worry, it's transitory.
>> It does sound inflationary and I think we will have to watch that closely because as we know central bankers are keenly focused on keeping a lid on inflation.
>> Fascinating stuff and a great start to the program. We are going to get your questions about industrial stocks for Juliana Faircloth in just a moment.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Let's take a look at shares of Palo Alto Networks, under some pressure today, to say the least. Losing about 1/4 of their value, down almost 27%.
While the cybersecurity firm handed in a quarterly earnings fee, it's lowering the full-year sales and billing forecast. Palo Alto says the shift of focusing on AI strategies is behind the reduced guidance.
It's unique to hear AI as a reason for business pullback in this environment.
That is what Palo Alto Networks is telling us. The stock is down to 267 per share.
Closer to home, Gildan Activewear is among the the best performing stocks on the TSX Composite Index today. It they are up about 3 1/2%. They are raising their quarterly dividend after growing its consolidated sales by almost 9% year-over-year.
We have been reading about building for other reasons in the news. They have been the focus of some drama in the C suite, with a group of investors looking to reinstate the founder of the company, Glenn Chamandy, to the top job.
Natural gas prices are getting a boost.
Chesapeake energy saying it will/production levels this year's bird by weak natural gas prices in the face of mild weather. Chesapeake says it will reduce capital spending by some 20%.
Chesapeake is up 7% on the news.
Last I checked on natural gas, it was getting quite a pop to the upside as well.
Let's look at the TSX Composite Index. We are down 70 points or 1/3 of a percent.
South of the border, we saw selloff Intact yesterday led by some chipmakers including Nvidia. Nvidia is reporting after the close today.
There is concern. Nvidia lifted many boats in the tech sector and overall market due to the excitement around AI. When it comes to earnings, the stock's price to perfection. It will be interesting after the close.
The S&P 500 is down one 1/4 of a percent.
We will get back to your questions now with Juliana Faircloth.
What's the outlook for airline stocks? Is the post-pandemic travel boom still going?
>> I think travel demand remains pretty resilient. It is perhaps normalizing a bit faster in domestic markets but international travel demand is still really strong.
Airfares are still pretty elevated. We are hoping for them to come down from a personal perspective.
And costs are starting to moderate and have been moderating for the airlines.
Fuel cost is a huge expense for airlines and that has been normalizing.
On the flipside, travel is a highly discretionary expense, depending on the path of the economy and how the consumer holds up, that could be a difficult place to be looking.
There are still a lot of elevated costs out there, labour is quite a bit more expensive, so if you considerations to think about for airline.
>> The recession what is interesting because we have been living under its threat for about a year and 1/2.
The US economy has been quite strong. The Canadian economy a little more tepid but still, we did not get the recession.
But as you said, people had a demand for trouble.
They say I don't care what you're saying about the path of the economy, I'm going somewhere. Does that dynamic start to shift if we can get that recession fear away from us?
>> It may.
I think it's quite a discretionary aid, almost a luxury to be able to travel and to travel internationally especially.
If we get to a point where unemployment starts to take up materially, that will be a tougher environment for travel and for the airlines. So it is quite economically sensitive.
>> Another part of the airline story that was fascinating coming out of the pandemic, we understand people want to travel, the business travel component is pretty lucrative for airlines. As that picking up? Anecdotally when I talk to people at TD they are travelling.
>> Business travel recovered pretty nicely. I would say it has more or less plateaued. A lot of companies across the board have a lid on expenses heading into 2024, whether that's in technology where they've been on a cost-cutting mission, a lot of that coming from headcount, but a lot of companies have been working on cost control to improve profitability of the business.
Business travel has held up well and I think an interesting trend there has been kind of a structural shift for some higher and consumers to almost always travel in business or even that premium economy level that Canada has with a focus on comfort, they have a little bit more space from a health and safety perspective, people enjoy that.
So that has been holding up quite well.
>> My long legs appreciate that. When I get a bump up into premium economy, it makes all the difference.
The problems of being tall. Another question from the audience.
Our defence talks interesting with all the geopolitical issues globally?
>> Defence stocks, a lot of what drives the sector aside from idiosyncratic stock by stock factors is the threat environment or the perceived threat environment. I would say that still probably elevated in terms of where we are at today so that's positive for the defence stocks and it's positive for the budget outlook for US defence spending, defence spending across NATO allies, that's all quite positive.
It can be a touchy sector to look at during an election year. It's obviously topical, politically.
Interestingly, the data would tell you that over the last 10 election years, defence stocks have outperformed 7/10 times.
That's the setup you are looking for defence for the year.
>> I guess the risk in the space, it's terrible to frame it this way, but peace breaks out globally. We hope these conflicts either de-escalate or get resolved but in terms of defence, I guess you have a thesis heading into these stocks about the state of the world.
>> For sure.
A cease-fire in any of the conflicts that are currently underway would be on the day of negative for defence stocks.
The other thing I think investors are looking at is the state of, the state and pace of outlays from the US government.
They have been working through budget negotiations for quite a while.
We've had a few continuing resolution.
That's slows down the pace of spending and the flow of money to defence companies.
That has been tough and the supply chain has been difficult for defence companies.
It's taking a long time to ramp back up to full production capacity and capabilities for the defence companies.
>> An interesting space to keep an eye on.
This is an interesting question. I haven't had you on the show since Boeing has had some problems. Your view on Boeing after these recent problems?
>> The saga with Boeing continues. I'm sure you will recall, a couple of weeks ago, part of a panel… >> The panel blue.
>> Yes, on the side of an Alaska Airlines flight.
Terrible situation.
Everyone on the flight was unharmed luckily. But what that resulted for Boeing was the writing of the 737. The FAA has announced that they will not be approving any a step up in production plans until these quality control issues have been managed. It's a tough situation for Boeing when they are trying to ramp up capacity and get some deliveries of their very large backlog out the door and that slowing delivery pace could have an impact on their free cash flow projections.
Demand for their products is still strong.
They continue to receive orders.
Thai airlines made in order the other day.
The order book continues to grow and the long-term visibility is there but in the near term, some of these disruptions can be quite challenging.
>> When we look at how management is addressing it, it sounds like the customers are still ordering the planes.
It's just gonna get the markets confidence back.
>> I think you've got to get the market confidence back in the name and importantly the FAA's confidence back in Boeing as a producer.
I think that those will go hand-in-hand, the market sentiment along with the FAA's confidence in their production capabilities and their quality control capabilities. Those will perhaps line up whenever that may happen.
>> As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Juliana Faircloth on industrial stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
You may consider using conditional orders during times of market volatility.
Hiren Amin, Senior client education instructor with TD Direct Investing has this look at how to set up a conditional trade on the Advanced Dashboard platform.
>> Hello and welcome to today's education hit.
We are going to be talking about our platform Advanced Dashboard.
We are going to look at how to place conditional orders on the platform.
We are going to look at how to do profit taking orders and how you can limit losses. Conditional orders in general at a certain level of automation to traders for their trading and helps them execute on those trading plans and state discipline.
But it also helps us take out a motion for trading and we all know we can get caught up in those especially when it comes to money.
Let's hop into Advanced Dashboard and show you how to go about doing this.
I've got Advanced Dashboard pulled up.
You could be on any screen.
For me to get to the order entry, I'm going to pick a security.
I'm on the markets tab. You can see all the major indices we have.
I'm going to focus on one of the Dow 30 companies. You can see the Dow Jones here.
We are going to expand that list to populate the companies.
We are going to go with Nike.
Let's open up the bubble over here and enter our by order.
With this order set up, I'm just going to minimize the index as well so we can focus on the order entry box, what we are going to do here is we want to add both the profit-taking order as well as a loss minimizing order. We can do either or and I will show you how to do that.
First of all, we are looking to buy Nike.
We will queue this down to 10 shares and put a limit price of $100 if he gets to that price.
Then you will notice a function here that says attach profit loss exits.
Let's click on that. Once you do that, it will open additional sets of orders you can input. It's up to you to decide whether you just want to do a profit-taking order and just click the top half or click the bottom half to minimize losses or you can do both. Let's show you how you can do just the one first.
We call this a one triggers another order.
Let's assume we also by our Nike at 100 bucks and we want to sell that at a profit so maybe I will say if I can get it out 100, let's see if we can run up to 110, we want to take our profits and take the $10 off the table there.
By the same token, we are going to do what we call a first triggers another order which will trigger a stop loss.
So then we need to first get the stock bought and then it will either get our profit-taking order or stop loss. The way stoploss works is we are going to set a trigger limit price.
So in case the stock falls, to $90, alert me or get this order activated and at the very least i.e.
I want to get at least a price of price of $89.
Which ever price Nike goes to first, if it goes up, we will take our profits, if it goes south, we will get out of the stock and lock in our losses at the $11 threshold.
And that is a look at how you can make these profit-taking and loss minimizing orders on the platform.
Traders should consider this especially during a heightened market volatility or to give you that peace of mind if you happen to be away, relaxing on a sunny beach, to know these orders will be taking care of you when you are taking some time off the markets.
>> Our thanks to Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before we get back to your questions about industrial stocks for Juliana Faircloth, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with Juliana Faircloth, taking your questions about industrial stocks.
This one just coming in. Do you foresee reshoring manufacturing to North America being a significant factor in the near term and if so, where can one invested take advantage of this movement?
>> Reshoring is an interesting trend in a big industrial theme that I think industrial focused investors try to spend a good amount of time on. I would say that in terms of will we see that in the near term, part of that we have seen fuelled partly by the CHIPS Act we've seen a lot of Chinese manufacturing make its way back to North America. That has been a huge benefit for automation companies within that type of field.
There have been benefits for general manufacturing equipment.
I think over the long term, the trend is in that direction, whether it's reshoring or nearshoring or more manufacturing moving to Mexico, that will all probably be positive for the North American economy as a whole.
There are a few different ways to play that. One would be perhaps automation companies. There tends to be some cyclicality with the orders in those businesses so that's something to be aware of. The rails may benefit over the long term as we think about more manufactured products moving its way through North America rather than coming via ocean freight, so that's a potential, that could be a longer tail on that.
A few different ways to think about reshoring and the benefits within industrial.
>> These trends take a long time to play out. You don't just open a factory overnight and shut it down the next day.
We did see the world shipped over the decades towards manufacturing overseas because it was cheaper.
Now with the problems we are having, bringing it closer to home.
I can't imagine this trend would unwind overnight?
>> Certainly not. It takes a long time to play out.
It will probably be playing out over the next several decades.
What I would say we have seen from a manufacturing perspective more so than I am going to close down my operations in China and completely reshore everything to Mexico, it's been okay.
We are now at a point where we need 5% more capacity and instead of building up a facility in Southeast Asia, we are going to build that in Mexico and work from there. That is more of the trend that's been happening rather than an outright shutdown of global supply chains. So it should be sort of a longer trend to watch it play out.
>> Another question from the audience, this one about electric vehicles. Is the slowdown in EV sales a risk to the big automakers? Will the trend continue? There have been a lot of shifts in strategy over past months.
>> There have been a lot of shifts in strategy from the legacy OEMs. We have seen push outs of EV production schedules from GM, from Ford.
We have seen some pricing cuts on electric models from these companies. Tesla has cut prices a couple of times.
So it has been a challenging time for that EV thematic. We have also see that play out across lithium markets, companies that supply into the EV production and manufacturing space have also been challenged. It has been a difficult time for the EV thesis. I would say, I think a lot of people would probably agree that EVs are still the future. The path and rate of change toward that may be a little bit altered from what we thought it would be.
I think the direction of travel is still towards EVs.
>> When I think about the automakers, I can't remember if it was Ford or GM, if they merge, we would call it George, but they are separate entities for now, big multibillion-dollar losses in their EV division that are more than offset by the demand that we are still seeing for gas powered vehicles and trucks and minivans.
There is still a robust market there.
>> Definitely.
That's the biggest part of all these companies business and that's where they already have the expertise, they have the end markets, they have the distribution, so that's really the bread-and-butter for some of these companies and a transition for any business is always difficult.
We will have to navigate that one as EVs start to take hold.
>> Another question from the audience, this one about office real estate.
We are going to bring it back to industrial. How are the issues around office real estate and housing impacting construction firms?
>> That's a great question. With this hybrid model that we are living in, office real estate is receiving a big impact.
Other pockets of commercial real estate have definitely been challenged.
From a real estate perspective, that has been tough. I would say on the construction side, and as this relates to industrials, that weakness has been more than offset by strength in other parts of the market.
So industrial related construction and real estate has been really strong.
There has been a lot of strength in data centres and manufacturing capacity all tied in with that reshoring type of theme has been really strong. Construction has been benefiting from that offset you office real estate weakness and some other pockets of commercial weakness.
With the election cycles we get big promises about infrastructures. In North America, in particular, infrastructure is old. I think it's a theme that gets people excited about construction companies but on the other side of elections, it turns out there isn't much money. Is that a frustration in the space?
>> I think it can be. We are coming out of its time with a lot of fiscal policy and support that has been funnelled into industrial and markets, whether it's been infrastructure, 70 manufacturing facilities, whether it's the IRA funds towards electrification and energy efficiency. A lot of that has really benefited the industrial economy. And so we have seen that play out through some positive data for construction related companies. Some of the engineering consulting companies have had a huge benefit. And then to your point, in an election year, that's when things can become a little bit touchy, some of these policies, so there is some potential headline noise and some of these pockets.
>> Another question, this one about the makers of machines, Caterpillar and deer.
They are in the same space but CAT is performing much better, how come?
>> Those two often get lumped together as big machinery heavyweights in the S&P 500.
They have been performing very differently.
That's because they are exposed to very different cycles and and markets.
Caterpillar is very construction and North America focus.
We have talked a lot about how much spend has gone into manufacturing construction, infrastructure projects, industrial construction, that's been positive for CAT. Their business is also exposed to mining and energy, those markets have been really strong. Deere is much more agriculture focus. There was quite a benefit for agriculture in North America when the Brushy Ukraine war broke out.
That has moderated.
Ag stock tends to be correlated with the price of corn, for example. If we pulled up a chart on the price of corn, it's looking lacklustre so it's not overly surprising to see Deere languishing relative to CAT from that perspective.
>> What benefits one doesn't necessarily benefit the other.
>> These stocks move with the cycles of their various and markets. Once you start to see improvement in farmer profitability, that's when they start to spend more money on equipment from Deere if they are making more money, what flows through to that is better crop prices, perhaps lower input cost, flipside with Caterpillar, if you start to see construction markets really roll over, it can be a tough time to own CAT.
>> They are called the mighty machines!
That's show that my kids watch when they were little. It was trucks doing fun stuff.
We will get back your questions for Juliana Faircloth in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
As investors, we have been watching the central banks, wondering when they will deliver rate cuts. The BOC has been preaching patients.
Whether it's inflation of the overall health of the economy, the central banks could be on different paths.
Anthony Okolie is looking at a TD Economics report on this.
>> TD Economics took a look at how the Bank of Canada and the Fed are viewing their divergent outcomes or potential policy pass. The key obstacle is inflation. In the US, the Fed's preferred core inflation measure, the core PCE, has shown more progress versus its CEPI counterpart which partly reflect the larger waiting on falling goods prices. TD Economics forecasted core PCE in the US is going to continue to fall to the lower bid 2% year-over-year range over the next few inflation reports.
Falling inflation is coming when the US economy is accelerating.
It is nowhere near excess conditions. Fed chair Jerome Powell has communicated that a strong economy may not stand in their way if inflation continues its downward trend. TD Economics expects that those rate cuts to begin midyear. In Canada, we are seeing the opposite dynamics. The Canadian economy struggled to tread water since last spring.
The job market has slowed considerably.
Even with the weak domestic picture, the BOC is most box stained with core inflation suck above 3%.
When we look at a three month basis, the BOC's preferred inflation rates are running more than double the US's. At the Bank of Canada's biggest problems are housing, shelter inflation accounts for over half of the overall inflation rate, becoming the biggest hurdle to the BOC in cutting rates.
TD Economics owns the couch leading Canadian inflation using the same weights as the feds preferred metric, Canada's inflation would just be 2.1%.
Now despite these differences between the situations facing both the Fed and the Bank of Canada, both have been communicating a similar outlook for policy with markets expecting fewer codes due to secure inflation.
TD Economics judges that 100 basis points in cuts in the US is possible by the end of the year if the economy continues to cooperate.
The BOC has to look at how much policy can lead again shelter costs. They also have to look at risks like high household debt to and slowing consumption which TD Economics says could see it Canadians absorbing a bumpier landing.
>> We hear a lot about shelter when it comes to inflation being sticky. What risks you shelter does inflation pose?
>> Shelter inflation is not going away no matter how quickly the BOC decides to cut.
As the chart shows, combining the impacts of BOC policy on mortgage costs and rent, shelter inflation will still average close to 6% over 2024.
This is problematic because you shelter inflation remains roughly around 6%, the rest of the inflation basket must have close to zero price growth for the Bank of Canada to get total inflation down to 2% and that is highly unlikely outside of a significant recession. TD argues that the longer the BOC continues to look at inflation through his current lines, the longer Canadians will have to bear the weight of heavily restrictive policy rates.
>> Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, PlatForm designed for active traders available through TD Direct Investing.
This is the heat map function, giving us a view of the market movers. We are going to use screen it through the TSX 60 by Price and volume. Chesapeake energy, a major producer South of the border, is cutting back on natural gas production. That is supporting the price of natural gas which is up to 12% today.
A competitors up 12%. The rest of the energy space showing strength as well.
Notable in the weakness box is WPM, Wheaton Precious Metals. The street is taking issue with their kind going forward with the stock down almost 10%.
Let's check in on the S&P 100. We are waiting on Nvidia after the closing bells.
They are was a rally in the past year or so in equities led by the Magnificent Seven, a lot of excitement.
Nvidia pulled back yesterday and today.
The street is expecting big numbers out of Nvidia but the question is, will it be enough? I read an article this morning about the options activity around Nvidia suggesting the price moves could be wild after the closing bells depending on what the report is. You can get more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back now with Juliana Faircloth from TD Asset Management, talking industrial stocks.
How could the US election affect the industrial sector?
>> We cover defendants as potentially being impacted from a headline perspective with the election. In the last few weeks, there has been a building base of headlines around the potential walk back of the IRA, the inflation reduction act, under a Republican administration.
That could be a challenging headline for companies relating to electrification, electric vehicles that all benefited from the IRA policies within that space.
That could be a potential story to watch for industrial investors.
I think interestingly a lot of the industries and end markets that the IRA has supported and is expected to benefit find themselves in red leaning state so we will see what happens, whether that really kind of comes to fruition of the walk back and of course the political means of doing that is difficult and involved itself, but that would be a headline risk I would say from an election standpoint.
>> We will squeeze in one more question before the end of the show. What is your take on the waste management firms?
>> Sure.
Waste, I would say, unlike other parts of industrials, tends to be less cyclical. We always are producing garbage.
I would say the long-term story for waste management companies is unchanged. You've got a few players rolling that up in a market where density really matters. If you can drive around and pick up 10 houses worth of garbage instead of two, that's a benefit for your company.
The pricing power is still very strong for the waste companies. They typically generate a couple percentage points and pricing every year and volumes tend to grow in lying with GDP. We produce as much waste as we consume it would seem.
The long-term thesis is interesting out there for waste.
>> Economically sensitive in any way?
Obviously, good times, bad times, you need to throw stuff away.
What would be the biggest concern of the industry?
>> Their pockets with the waste management business that can be cyclical.
>> Like service offices?
>> Or last year was a tough environment with a lot of the recycled commodities, pricing for recycled commodities dropped I can't recall the amount but a large magnitude last year and that was a big hit to the recycling businesses for those companies.
Certain dynamics can ebb and flow. These companies are transitioning and investing in renewable natural gas projects. They have all taken their own sort of approach to investing in some of those projects but that is a X-band that those companies are working through in sort of a new edge technology and industry that they are forging into which could present some risk.
>> Always fascinating stuff. Appreciate you being here.
Our thanks to Juliana Faircloth, VP for portfolio research at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Daniel Ghali, Senior commodity strategist the TD Securities will be our guest. He wants to take your questions about commodities.
You can get a Headstart with your questions for Daniel. Just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching.
We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss whether better days are ahead for the industrial stocks. And some of the big trends we will be watching this year, a reversal from working down inventories to restocking inventories. TD Asset Management's Juliana Faircloth joined us.
Anthony Okolie is going to look at a new report on whether the BOC and the federal divergent paths when it comes to interest rate. And on today's education segment, Hiren Amin is going to show us how to use conditional orders on Advanced Dashboard.
And here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We will start with the TSX Composite Index, it's down 1/3 of a percent. One of the most actively traded names at this hour includes Baytex energy. Natural gas prices are getting support. We will talk about that later in the show. Right now some oil and gas plays are getting a bid.
This one up 3 1/3%.
I want to take a look at Manulife, giving back modestly some recent gains. The stock is been on an upward trajectory in past weeks. You are down about 1 1/2%.
South of the border, it's interesting, wait and see. We are getting fed minutes later today but it's and Vidya earnings after the closing bell.
This stock has been on a tear on the past year and 1/2. Investors are getting a little nervous ahead of that.
Nvidia was down 4% yesterday. You're down a modest 10th of a percent on the S&P 500.
The NASDAQ is a little bit more to the downside. Waiting to see what happens at 4 o'clock with Nvidia. You're down about half a percent. Nvidia is the star attraction of the day as we await the earnings. Yesterday I pulled back 4% and today are down about 2 1/4. And that's your market update.
The global shipping industry was hit by a freight recession in 2023 as our customers work downloaded inventories and shipped fewer goods as a result. We are well into a new year and our future guest is keeping an eye on potential catalyst for the industry, including a trend towards restocking. Joining us now to discuss his Juliana Faircloth, VP for portfolio research at TD Asset Management.
This year, as companies have been working down inventories, is it time to start building the backup?
>> It's an interesting topic.
These inflection points can present opportunities for investors.
It's an interesting topic to think about, particularly in the context of the US economy has been growing pretty well over the last three years.
But under the surface, we have been in a freight recession. We have seen waves of destocking and changes under the hood that have had a lot of implications for different industries like retail, like freight.
I brought a couple charts to illustrate what has been going on.
The first one, I believe, is a US real personal consumption is. You can see there that the green line reflects consumption of goods. There was a huge surge through 2020 and 2021.
We were all at home, we were ordering computers and athleisure. As you look through two 2023, that destocking took place, we heard about that from Walmart and Target having to wind down there inventories. We also saw this across the industrial side of the economy. Another chart which looks similar shows US manufacturing new orders. Again, that spike through 2020 into 2021 and then contraction through 2022 and 2023.
An exciting moment right at the end of that chart at the beginning of 2024.
>> That take up at the end.
>> It's above the 50 level which represents an expansion, so that's the interesting potential restocking thesis that might mark an inflection point that investors should be paying attention to.
>> Your restocking with goods, raw materials, whatever your businesses. Let's talk about what it means for the global shipping industry.
If we start breaking it down by sectors, we talk a lot about rail, but there are a lot of ways that goods get to us.
>> Within freight, the interesting examples to think I would be rails and trucking. To start with rails, it was a tough year through 2023 for the rails.
Almost all of the class one rails reported and earnings decline.
That was as they moved fewer and fewer volumes across their large asset base and we know that that can have a really big impact on profitability.
Looking ahead, the outlook looks more interesting. In Q4 of 2023, which the rails reported earnings just a few weeks ago, all of the large North American class one rails reported growth and that's the first time that's happened in a while.
The outlook is pretty interesting for a re-acceleration of earnings growth through 2024, driven by volumes and that positive operating leverage story as the economy kind of restocks.
>> What about the trucks on the road?
>> Trucking, another industry very impacted.
We saw a large, pretty high-profile bankruptcy last year, a company called yellow in the US went bankrupt through this quite tough operating and volume environment for the trucking industry. The hope for 2024 is looking forward that we have some volume benefit from restocking.
You may have some capacity rationalization in the industry was a large player no longer present in the industry and so that creates an interesting set up for earnings acceleration through 2024.
I think that stands out potentially in the context of the broader industrial landscape.
You've got rails and trucks said to possibly see their earnings accelerate through 2024 and if I contrast that with a couple of other pockets of industrial and markets, say airlines or construction, there we are starting to see earnings rollover and slow down as the peak of their demand is starting to normalize from a very high level.
>> These things that you and I buy it expect to show up on her doorstep magically, obviously freight and trucking is a big part of it. But there isn't train or transport truck showing up in front of my house.
When it comes to me, it's UPS or FedEx.
Let's talk about those companies.
>> Those name brands that we know that bring packages to our house, it's been a really interesting. From a stock perspective for FedEx and UPS. Both have been challenged by the operating environment we've talked about and by that destocking theme but the stock's performance really diverge. FedEx has materially outperformed UPS over the last year and I think what's been driving that is a focus on we know that volumes are pretty weak for these companies.
But let's narrow in on the cost side and see what these companies are doing from a cost perspective.
So FedEx stock has really benefited from a huge cost cutting and restructuring plan that they announced over a year ago, where is UPS has been muddling through the operating environment in a different way.
Looking to 2024, I think it will be important for both of these companies to demonstrate that they can bring on volumes and handle some of this restocking tailwind without taking on too much additional cost.
>> Let's talk about some of the risk. The thesis we are laying out is we went through a freight recession, companies have worked through those bloated inventories as a result of our shifting habits coming out of the pandemic, restocking could mean some good things.
What could be the risks to this thesis?
>> This inflection is an exciting potential opportunity for investors, but of course there are risks.
One big risk that I would highlight is global supply chains are still quite fragile. So to the extent that we rely on ocean shipping to bring freight into North America that can move across rails and come on a UPS truck to the front of their house, that's a pocket of potential risk.
Right now, we are seeing geopolitical conflict in the Red Sea, there are droughts in the Panama Canal, this is having a huge impact on ocean shipping.
We saw ocean freight rates spike over 100% since October when the Red Sea crisis started. That could be a difficult environment in terms of cost and the time it takes for products and goods to move from point A to point B. The other interesting implication to highlight I would say from this theme is that if we have surging ocean freight rates and higher transportation costs and a lot of demand for some of these transportation needs, that sounds a little bit inflationary.
>> That takes me back to 2021, 2022, when they were saying don't worry, it's transitory.
>> It does sound inflationary and I think we will have to watch that closely because as we know central bankers are keenly focused on keeping a lid on inflation.
>> Fascinating stuff and a great start to the program. We are going to get your questions about industrial stocks for Juliana Faircloth in just a moment.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Let's take a look at shares of Palo Alto Networks, under some pressure today, to say the least. Losing about 1/4 of their value, down almost 27%.
While the cybersecurity firm handed in a quarterly earnings fee, it's lowering the full-year sales and billing forecast. Palo Alto says the shift of focusing on AI strategies is behind the reduced guidance.
It's unique to hear AI as a reason for business pullback in this environment.
That is what Palo Alto Networks is telling us. The stock is down to 267 per share.
Closer to home, Gildan Activewear is among the the best performing stocks on the TSX Composite Index today. It they are up about 3 1/2%. They are raising their quarterly dividend after growing its consolidated sales by almost 9% year-over-year.
We have been reading about building for other reasons in the news. They have been the focus of some drama in the C suite, with a group of investors looking to reinstate the founder of the company, Glenn Chamandy, to the top job.
Natural gas prices are getting a boost.
Chesapeake energy saying it will/production levels this year's bird by weak natural gas prices in the face of mild weather. Chesapeake says it will reduce capital spending by some 20%.
Chesapeake is up 7% on the news.
Last I checked on natural gas, it was getting quite a pop to the upside as well.
Let's look at the TSX Composite Index. We are down 70 points or 1/3 of a percent.
South of the border, we saw selloff Intact yesterday led by some chipmakers including Nvidia. Nvidia is reporting after the close today.
There is concern. Nvidia lifted many boats in the tech sector and overall market due to the excitement around AI. When it comes to earnings, the stock's price to perfection. It will be interesting after the close.
The S&P 500 is down one 1/4 of a percent.
We will get back to your questions now with Juliana Faircloth.
What's the outlook for airline stocks? Is the post-pandemic travel boom still going?
>> I think travel demand remains pretty resilient. It is perhaps normalizing a bit faster in domestic markets but international travel demand is still really strong.
Airfares are still pretty elevated. We are hoping for them to come down from a personal perspective.
And costs are starting to moderate and have been moderating for the airlines.
Fuel cost is a huge expense for airlines and that has been normalizing.
On the flipside, travel is a highly discretionary expense, depending on the path of the economy and how the consumer holds up, that could be a difficult place to be looking.
There are still a lot of elevated costs out there, labour is quite a bit more expensive, so if you considerations to think about for airline.
>> The recession what is interesting because we have been living under its threat for about a year and 1/2.
The US economy has been quite strong. The Canadian economy a little more tepid but still, we did not get the recession.
But as you said, people had a demand for trouble.
They say I don't care what you're saying about the path of the economy, I'm going somewhere. Does that dynamic start to shift if we can get that recession fear away from us?
>> It may.
I think it's quite a discretionary aid, almost a luxury to be able to travel and to travel internationally especially.
If we get to a point where unemployment starts to take up materially, that will be a tougher environment for travel and for the airlines. So it is quite economically sensitive.
>> Another part of the airline story that was fascinating coming out of the pandemic, we understand people want to travel, the business travel component is pretty lucrative for airlines. As that picking up? Anecdotally when I talk to people at TD they are travelling.
>> Business travel recovered pretty nicely. I would say it has more or less plateaued. A lot of companies across the board have a lid on expenses heading into 2024, whether that's in technology where they've been on a cost-cutting mission, a lot of that coming from headcount, but a lot of companies have been working on cost control to improve profitability of the business.
Business travel has held up well and I think an interesting trend there has been kind of a structural shift for some higher and consumers to almost always travel in business or even that premium economy level that Canada has with a focus on comfort, they have a little bit more space from a health and safety perspective, people enjoy that.
So that has been holding up quite well.
>> My long legs appreciate that. When I get a bump up into premium economy, it makes all the difference.
The problems of being tall. Another question from the audience.
Our defence talks interesting with all the geopolitical issues globally?
>> Defence stocks, a lot of what drives the sector aside from idiosyncratic stock by stock factors is the threat environment or the perceived threat environment. I would say that still probably elevated in terms of where we are at today so that's positive for the defence stocks and it's positive for the budget outlook for US defence spending, defence spending across NATO allies, that's all quite positive.
It can be a touchy sector to look at during an election year. It's obviously topical, politically.
Interestingly, the data would tell you that over the last 10 election years, defence stocks have outperformed 7/10 times.
That's the setup you are looking for defence for the year.
>> I guess the risk in the space, it's terrible to frame it this way, but peace breaks out globally. We hope these conflicts either de-escalate or get resolved but in terms of defence, I guess you have a thesis heading into these stocks about the state of the world.
>> For sure.
A cease-fire in any of the conflicts that are currently underway would be on the day of negative for defence stocks.
The other thing I think investors are looking at is the state of, the state and pace of outlays from the US government.
They have been working through budget negotiations for quite a while.
We've had a few continuing resolution.
That's slows down the pace of spending and the flow of money to defence companies.
That has been tough and the supply chain has been difficult for defence companies.
It's taking a long time to ramp back up to full production capacity and capabilities for the defence companies.
>> An interesting space to keep an eye on.
This is an interesting question. I haven't had you on the show since Boeing has had some problems. Your view on Boeing after these recent problems?
>> The saga with Boeing continues. I'm sure you will recall, a couple of weeks ago, part of a panel… >> The panel blue.
>> Yes, on the side of an Alaska Airlines flight.
Terrible situation.
Everyone on the flight was unharmed luckily. But what that resulted for Boeing was the writing of the 737. The FAA has announced that they will not be approving any a step up in production plans until these quality control issues have been managed. It's a tough situation for Boeing when they are trying to ramp up capacity and get some deliveries of their very large backlog out the door and that slowing delivery pace could have an impact on their free cash flow projections.
Demand for their products is still strong.
They continue to receive orders.
Thai airlines made in order the other day.
The order book continues to grow and the long-term visibility is there but in the near term, some of these disruptions can be quite challenging.
>> When we look at how management is addressing it, it sounds like the customers are still ordering the planes.
It's just gonna get the markets confidence back.
>> I think you've got to get the market confidence back in the name and importantly the FAA's confidence back in Boeing as a producer.
I think that those will go hand-in-hand, the market sentiment along with the FAA's confidence in their production capabilities and their quality control capabilities. Those will perhaps line up whenever that may happen.
>> As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Juliana Faircloth on industrial stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
You may consider using conditional orders during times of market volatility.
Hiren Amin, Senior client education instructor with TD Direct Investing has this look at how to set up a conditional trade on the Advanced Dashboard platform.
>> Hello and welcome to today's education hit.
We are going to be talking about our platform Advanced Dashboard.
We are going to look at how to place conditional orders on the platform.
We are going to look at how to do profit taking orders and how you can limit losses. Conditional orders in general at a certain level of automation to traders for their trading and helps them execute on those trading plans and state discipline.
But it also helps us take out a motion for trading and we all know we can get caught up in those especially when it comes to money.
Let's hop into Advanced Dashboard and show you how to go about doing this.
I've got Advanced Dashboard pulled up.
You could be on any screen.
For me to get to the order entry, I'm going to pick a security.
I'm on the markets tab. You can see all the major indices we have.
I'm going to focus on one of the Dow 30 companies. You can see the Dow Jones here.
We are going to expand that list to populate the companies.
We are going to go with Nike.
Let's open up the bubble over here and enter our by order.
With this order set up, I'm just going to minimize the index as well so we can focus on the order entry box, what we are going to do here is we want to add both the profit-taking order as well as a loss minimizing order. We can do either or and I will show you how to do that.
First of all, we are looking to buy Nike.
We will queue this down to 10 shares and put a limit price of $100 if he gets to that price.
Then you will notice a function here that says attach profit loss exits.
Let's click on that. Once you do that, it will open additional sets of orders you can input. It's up to you to decide whether you just want to do a profit-taking order and just click the top half or click the bottom half to minimize losses or you can do both. Let's show you how you can do just the one first.
We call this a one triggers another order.
Let's assume we also by our Nike at 100 bucks and we want to sell that at a profit so maybe I will say if I can get it out 100, let's see if we can run up to 110, we want to take our profits and take the $10 off the table there.
By the same token, we are going to do what we call a first triggers another order which will trigger a stop loss.
So then we need to first get the stock bought and then it will either get our profit-taking order or stop loss. The way stoploss works is we are going to set a trigger limit price.
So in case the stock falls, to $90, alert me or get this order activated and at the very least i.e.
I want to get at least a price of price of $89.
Which ever price Nike goes to first, if it goes up, we will take our profits, if it goes south, we will get out of the stock and lock in our losses at the $11 threshold.
And that is a look at how you can make these profit-taking and loss minimizing orders on the platform.
Traders should consider this especially during a heightened market volatility or to give you that peace of mind if you happen to be away, relaxing on a sunny beach, to know these orders will be taking care of you when you are taking some time off the markets.
>> Our thanks to Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before we get back to your questions about industrial stocks for Juliana Faircloth, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with Juliana Faircloth, taking your questions about industrial stocks.
This one just coming in. Do you foresee reshoring manufacturing to North America being a significant factor in the near term and if so, where can one invested take advantage of this movement?
>> Reshoring is an interesting trend in a big industrial theme that I think industrial focused investors try to spend a good amount of time on. I would say that in terms of will we see that in the near term, part of that we have seen fuelled partly by the CHIPS Act we've seen a lot of Chinese manufacturing make its way back to North America. That has been a huge benefit for automation companies within that type of field.
There have been benefits for general manufacturing equipment.
I think over the long term, the trend is in that direction, whether it's reshoring or nearshoring or more manufacturing moving to Mexico, that will all probably be positive for the North American economy as a whole.
There are a few different ways to play that. One would be perhaps automation companies. There tends to be some cyclicality with the orders in those businesses so that's something to be aware of. The rails may benefit over the long term as we think about more manufactured products moving its way through North America rather than coming via ocean freight, so that's a potential, that could be a longer tail on that.
A few different ways to think about reshoring and the benefits within industrial.
>> These trends take a long time to play out. You don't just open a factory overnight and shut it down the next day.
We did see the world shipped over the decades towards manufacturing overseas because it was cheaper.
Now with the problems we are having, bringing it closer to home.
I can't imagine this trend would unwind overnight?
>> Certainly not. It takes a long time to play out.
It will probably be playing out over the next several decades.
What I would say we have seen from a manufacturing perspective more so than I am going to close down my operations in China and completely reshore everything to Mexico, it's been okay.
We are now at a point where we need 5% more capacity and instead of building up a facility in Southeast Asia, we are going to build that in Mexico and work from there. That is more of the trend that's been happening rather than an outright shutdown of global supply chains. So it should be sort of a longer trend to watch it play out.
>> Another question from the audience, this one about electric vehicles. Is the slowdown in EV sales a risk to the big automakers? Will the trend continue? There have been a lot of shifts in strategy over past months.
>> There have been a lot of shifts in strategy from the legacy OEMs. We have seen push outs of EV production schedules from GM, from Ford.
We have seen some pricing cuts on electric models from these companies. Tesla has cut prices a couple of times.
So it has been a challenging time for that EV thematic. We have also see that play out across lithium markets, companies that supply into the EV production and manufacturing space have also been challenged. It has been a difficult time for the EV thesis. I would say, I think a lot of people would probably agree that EVs are still the future. The path and rate of change toward that may be a little bit altered from what we thought it would be.
I think the direction of travel is still towards EVs.
>> When I think about the automakers, I can't remember if it was Ford or GM, if they merge, we would call it George, but they are separate entities for now, big multibillion-dollar losses in their EV division that are more than offset by the demand that we are still seeing for gas powered vehicles and trucks and minivans.
There is still a robust market there.
>> Definitely.
That's the biggest part of all these companies business and that's where they already have the expertise, they have the end markets, they have the distribution, so that's really the bread-and-butter for some of these companies and a transition for any business is always difficult.
We will have to navigate that one as EVs start to take hold.
>> Another question from the audience, this one about office real estate.
We are going to bring it back to industrial. How are the issues around office real estate and housing impacting construction firms?
>> That's a great question. With this hybrid model that we are living in, office real estate is receiving a big impact.
Other pockets of commercial real estate have definitely been challenged.
From a real estate perspective, that has been tough. I would say on the construction side, and as this relates to industrials, that weakness has been more than offset by strength in other parts of the market.
So industrial related construction and real estate has been really strong.
There has been a lot of strength in data centres and manufacturing capacity all tied in with that reshoring type of theme has been really strong. Construction has been benefiting from that offset you office real estate weakness and some other pockets of commercial weakness.
With the election cycles we get big promises about infrastructures. In North America, in particular, infrastructure is old. I think it's a theme that gets people excited about construction companies but on the other side of elections, it turns out there isn't much money. Is that a frustration in the space?
>> I think it can be. We are coming out of its time with a lot of fiscal policy and support that has been funnelled into industrial and markets, whether it's been infrastructure, 70 manufacturing facilities, whether it's the IRA funds towards electrification and energy efficiency. A lot of that has really benefited the industrial economy. And so we have seen that play out through some positive data for construction related companies. Some of the engineering consulting companies have had a huge benefit. And then to your point, in an election year, that's when things can become a little bit touchy, some of these policies, so there is some potential headline noise and some of these pockets.
>> Another question, this one about the makers of machines, Caterpillar and deer.
They are in the same space but CAT is performing much better, how come?
>> Those two often get lumped together as big machinery heavyweights in the S&P 500.
They have been performing very differently.
That's because they are exposed to very different cycles and and markets.
Caterpillar is very construction and North America focus.
We have talked a lot about how much spend has gone into manufacturing construction, infrastructure projects, industrial construction, that's been positive for CAT. Their business is also exposed to mining and energy, those markets have been really strong. Deere is much more agriculture focus. There was quite a benefit for agriculture in North America when the Brushy Ukraine war broke out.
That has moderated.
Ag stock tends to be correlated with the price of corn, for example. If we pulled up a chart on the price of corn, it's looking lacklustre so it's not overly surprising to see Deere languishing relative to CAT from that perspective.
>> What benefits one doesn't necessarily benefit the other.
>> These stocks move with the cycles of their various and markets. Once you start to see improvement in farmer profitability, that's when they start to spend more money on equipment from Deere if they are making more money, what flows through to that is better crop prices, perhaps lower input cost, flipside with Caterpillar, if you start to see construction markets really roll over, it can be a tough time to own CAT.
>> They are called the mighty machines!
That's show that my kids watch when they were little. It was trucks doing fun stuff.
We will get back your questions for Juliana Faircloth in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
As investors, we have been watching the central banks, wondering when they will deliver rate cuts. The BOC has been preaching patients.
Whether it's inflation of the overall health of the economy, the central banks could be on different paths.
Anthony Okolie is looking at a TD Economics report on this.
>> TD Economics took a look at how the Bank of Canada and the Fed are viewing their divergent outcomes or potential policy pass. The key obstacle is inflation. In the US, the Fed's preferred core inflation measure, the core PCE, has shown more progress versus its CEPI counterpart which partly reflect the larger waiting on falling goods prices. TD Economics forecasted core PCE in the US is going to continue to fall to the lower bid 2% year-over-year range over the next few inflation reports.
Falling inflation is coming when the US economy is accelerating.
It is nowhere near excess conditions. Fed chair Jerome Powell has communicated that a strong economy may not stand in their way if inflation continues its downward trend. TD Economics expects that those rate cuts to begin midyear. In Canada, we are seeing the opposite dynamics. The Canadian economy struggled to tread water since last spring.
The job market has slowed considerably.
Even with the weak domestic picture, the BOC is most box stained with core inflation suck above 3%.
When we look at a three month basis, the BOC's preferred inflation rates are running more than double the US's. At the Bank of Canada's biggest problems are housing, shelter inflation accounts for over half of the overall inflation rate, becoming the biggest hurdle to the BOC in cutting rates.
TD Economics owns the couch leading Canadian inflation using the same weights as the feds preferred metric, Canada's inflation would just be 2.1%.
Now despite these differences between the situations facing both the Fed and the Bank of Canada, both have been communicating a similar outlook for policy with markets expecting fewer codes due to secure inflation.
TD Economics judges that 100 basis points in cuts in the US is possible by the end of the year if the economy continues to cooperate.
The BOC has to look at how much policy can lead again shelter costs. They also have to look at risks like high household debt to and slowing consumption which TD Economics says could see it Canadians absorbing a bumpier landing.
>> We hear a lot about shelter when it comes to inflation being sticky. What risks you shelter does inflation pose?
>> Shelter inflation is not going away no matter how quickly the BOC decides to cut.
As the chart shows, combining the impacts of BOC policy on mortgage costs and rent, shelter inflation will still average close to 6% over 2024.
This is problematic because you shelter inflation remains roughly around 6%, the rest of the inflation basket must have close to zero price growth for the Bank of Canada to get total inflation down to 2% and that is highly unlikely outside of a significant recession. TD argues that the longer the BOC continues to look at inflation through his current lines, the longer Canadians will have to bear the weight of heavily restrictive policy rates.
>> Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, PlatForm designed for active traders available through TD Direct Investing.
This is the heat map function, giving us a view of the market movers. We are going to use screen it through the TSX 60 by Price and volume. Chesapeake energy, a major producer South of the border, is cutting back on natural gas production. That is supporting the price of natural gas which is up to 12% today.
A competitors up 12%. The rest of the energy space showing strength as well.
Notable in the weakness box is WPM, Wheaton Precious Metals. The street is taking issue with their kind going forward with the stock down almost 10%.
Let's check in on the S&P 100. We are waiting on Nvidia after the closing bells.
They are was a rally in the past year or so in equities led by the Magnificent Seven, a lot of excitement.
Nvidia pulled back yesterday and today.
The street is expecting big numbers out of Nvidia but the question is, will it be enough? I read an article this morning about the options activity around Nvidia suggesting the price moves could be wild after the closing bells depending on what the report is. You can get more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back now with Juliana Faircloth from TD Asset Management, talking industrial stocks.
How could the US election affect the industrial sector?
>> We cover defendants as potentially being impacted from a headline perspective with the election. In the last few weeks, there has been a building base of headlines around the potential walk back of the IRA, the inflation reduction act, under a Republican administration.
That could be a challenging headline for companies relating to electrification, electric vehicles that all benefited from the IRA policies within that space.
That could be a potential story to watch for industrial investors.
I think interestingly a lot of the industries and end markets that the IRA has supported and is expected to benefit find themselves in red leaning state so we will see what happens, whether that really kind of comes to fruition of the walk back and of course the political means of doing that is difficult and involved itself, but that would be a headline risk I would say from an election standpoint.
>> We will squeeze in one more question before the end of the show. What is your take on the waste management firms?
>> Sure.
Waste, I would say, unlike other parts of industrials, tends to be less cyclical. We always are producing garbage.
I would say the long-term story for waste management companies is unchanged. You've got a few players rolling that up in a market where density really matters. If you can drive around and pick up 10 houses worth of garbage instead of two, that's a benefit for your company.
The pricing power is still very strong for the waste companies. They typically generate a couple percentage points and pricing every year and volumes tend to grow in lying with GDP. We produce as much waste as we consume it would seem.
The long-term thesis is interesting out there for waste.
>> Economically sensitive in any way?
Obviously, good times, bad times, you need to throw stuff away.
What would be the biggest concern of the industry?
>> Their pockets with the waste management business that can be cyclical.
>> Like service offices?
>> Or last year was a tough environment with a lot of the recycled commodities, pricing for recycled commodities dropped I can't recall the amount but a large magnitude last year and that was a big hit to the recycling businesses for those companies.
Certain dynamics can ebb and flow. These companies are transitioning and investing in renewable natural gas projects. They have all taken their own sort of approach to investing in some of those projects but that is a X-band that those companies are working through in sort of a new edge technology and industry that they are forging into which could present some risk.
>> Always fascinating stuff. Appreciate you being here.
Our thanks to Juliana Faircloth, VP for portfolio research at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Daniel Ghali, Senior commodity strategist the TD Securities will be our guest. He wants to take your questions about commodities.
You can get a Headstart with your questions for Daniel. Just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching.
We will see you tomorrow.
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