Market Insights

[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. Coming up on today show, we are going to hear from TD Asset Management's Michael O'Brien on whether the move higher in the markets we've been saying has a little more room to run or if this is just a false dawn for investors. TD Securities Robert Both will give us his take on this week's Canadian inflation report and what it means for the future path of interest rates. And Peter Hodson from 5i Research's gonna tell us why he doesn't think we are headed for a 2008 style market turmoil event. Plus, in today's WebBroker education segment, Nugwa Haruna is going to show us the asset allocation tools available to you on WebBroker. Before he gets all that, let's get you an update on the markets. A little bit of a bouncy ride this week and today, not a lot of activity. We are seeing a bit of upside on the TSX Composite Index to 19,936, jumping 51 points. About 1/4 of a percent. We are seeing crude oil having its worst week since the spring. First, we will show you a gain or, at least it was last time I checked on the TSX Composite Index, Sun Life financial, but it's pretty modest, 6232, up a little bit more than half a percent. As we said, we have crude, the American benchmark, below 80 bucks a barrel, having its worst track week since the spring. That is putting downward pressure on some of the big energy names, including Suncor, at 47 bucks and change, it's out about 2 1/2%. South of the border, let's check in on the S&P 500. It's been a choppy trading week, these markets really reactive to every piece of information that gets fed as there. Right now, there's a modest gain a little shy of nine points or alter quarter of a percent. The tech heavy NASDAQ, watching this one bounce around, today it's on the downside of the breakeven line. And 22 point deficit, benefits of a percent. Some money moving in the direction of United Health, it was earlier. Holding onto those gains at 532 bucks and change per share, United Health up a little bit more than 3%. And that's your market update. Of course, we know you track the markets as closely as we do here at MoneyTalk Live. It's been a choppy week and a lot of reactions. Anthony Okolie's been digging into it all and he joins us with more. Yet another one of those weeks where little bits of information can really move the trading. >> Yeah, I mean, I think the markets have really been looking for some signs as to the passive interest rates. And we got some tamer inflation readings. We got earlier this week slower producer price index from the US which again added to the inflation outlook. That is very positive for the markets, but I think the comments by the Fed officials dampened enthusiasm. We have seen a lot of volatility this week as a result. >> As interesting to write, because it is a very careful time. Many of the guys on the program don't fight the Fed. Particularly what they are doing right now, everyone just waits to readmit the output, we've had some regional Fed speakers. One slaver was, we've got a long way to go in fighting inflation. We haven't made much of a dent yet. Them again another fed speaker today saying, we have to be careful, I think we have to beCareful. We can tame inflation announce in the economy over the cliff. This is the big fear, everything the banks been doing this year leading to recession extra. >> I think that's a big fear, the feds pushing the economy into a recession. as you mentioned, the comments from some of theFed officials this week have been more to the hawkish side. We heard from James Bullard who said on Thursday that rate hikes have only limited effects on inflation so far and he warned that the fight to tame inflation is not over and I think that puts a damper on investor enthusiasm for risk assets, at least this week. >> I think on the side of the border how important the oil and energy trade is to a big part of the TSX. I'm looking at oil on my screen, the American benchmark is at 7862, down another three bucks, almost 4%, been a bit of a rough week for oil. We are seeing a play on some energy names. China becomes a big part of that story, right? Will he fully reopen? Will they keep COVID restriction in place? What is going to mean for demand on commodities? >> I think that's a big question. Are they going to do a big pivot on the COVID policy? If they do lighten those restrictions,there would be a big change. Up until now, it's put a big pressure on energy stocks in Canada. Again, there are a lot of balls up in the air and that's great a lot of volatility for investors. >> No shortage of moving pieces to keep our eyes on. Thanks, Anthony. >> My pleasure. >> Anthony is going to join us later on the show to look at a new TD Securities report outlining their view on where interest rates are headed in 2023. Of course, the market had been building in recent days through the choppiness of some of the momentum we've had. But after a tough year, many investors may be wondering whether stocks have much more room to run. Michael O'Brien, portly manager at TD Asset Management joined me earlier to discuss what's driving sentiment right now. >>It's very evident that investors are cuing off of inflation trends. As you were mentioning just a second ago, when we get a few of these indications that maybe inflation is peaking, maybe inflation is starting to roll over, it gives people encouragement that the Federal Reserve in the States and the Bank of Canada here might be close to being finished with their work. And obviously, that's been a huge concern for markets this year because the magnitude of rate hikes both north and south of the border has really caught investors by surprise. One of the things that's really weighed on valuations year to date has been this constant resetting of investor expectations. Oh, they're going to have to go higher. They're going to have to stay there longer. So last week's inflation print in the US, and hopefully, we'll get something similar tomorrow here in Canada, that's one of the first signs we've had that inflation really might be peaking here. We might start to get a bit of deflation or get a little bit of an easing in those pressures. And that will hopefully allow the central banks to sort of recede to the sidelines, like you were saying. I think a lot of investors are very worried about the cumulative effect of all those rate hikes we've seen year to date. What's that going to do to growth next year? What's that going to do to earnings next year? So the faster we see inflation starting to break, the sooner, hopefully, the central banks can retreat to the sidelines. And that just reduces the risk of a really bad, really negative growth year next year. So to the extent that these signs of inflation might be peaking, take some of the pressure off central bankers, hopefully, what that means is there's a little less risk of a deep recession next year and more hope that we get a soft landing. So that's, I think, what's moving the rally here. That's what sparked the rally. I think it's got a bit of staying power. I think the next big challenge for the markets really is probably a Q1 event. When we get into the next round of corporate earnings in late January or early February, I think that'll be the next big test for the markets. But hopefully, we enjoy some of those seasonal tailwinds here. And hopefully, this has a bit of legs to it. >> Is part of that first quarter test going into the new year going to be, after the US Federal Reserve, the Bank of Canada, the central banks feel, okay, the job is done. We are pretty close to the end. And they got to the end. But of course, the whole point of raising rates, it was the tough medicine, right, to try to tame inflation and try to cool the labour market, to try to slow down the economy. we enjoy some of those seasonal tailwinds here. And hopefully, this has a bit of legs to it. >> No, you're exactly right. That is the whole point. And until the economy slows, until the overheating that we saw both north and south of the border begins to ease up, and what that translates to is until we start to see labor markets loosen up a bit, the Fed's job won't be done. The Bank of Canada's job won't be done. So that's what I think we're going to be watching for as we get into late January, early February. Like I said, when Q4 earnings are reported, these companies are going to have to give us their best guess as to what 2023 holds. And clearly, if the cumulative impact of all these rate hikes means a tougher growth year next year, it's going to be hard for companies to avoid that discussion. So that's why I say that's going to be a real test because I don't think we can realistically expect inflation to stay down if we have full employment, if the economy is growing gangbusters. Like, the two don't go together. We need to have both. And so we're sort of seeing maybe inflation is easing. But to your point, the reason it's easing is because, presumably, we're going to see some lessening of demand, some loosening up in the labor market. And that's the next shoe to drop, effectively. >> Last time we heard from Fed Chair Powell, he seemed to be laying the groundwork to say we might end up at an endpoint, that terminal rate where we're going to stop may be a little bit higher. So the market has been focused on, will they slow the pace-- stop with the 75s or the 50s. Eventually, maybe get back down to-- 25 seems so quaint, doesn't it, in either direction. That's what we used to be used to. But then we've had a few other Fed speakers in recent days. And they seem to be trying to drive that point home. They're saying don't get hung up on the size of the next increase, whether it's as big or whether we're sealing off a. . . But getting to that end game, is that the new nuance now, where do we end up? >> Yeah, exactly. The central bankers are trying to message that-- I think what they're trying to do is say to investors, don't get so fixated on the cadence. In other words, whether it's 25, 50, 75, focus more on the destination, which is, is it the terminal rate, as you say? Is it 4%, 4.5%, 5%? They don't want investors to get ahead of themselves and misread a slowdown in the pace of rates for any sort of lack of determination to get where they need to be. And at the end of the day, where they need to be is in a position that will slow the economy. That is what they're attempting to do. And that is what they will do. So they're trying to warn investors. I think we'd be well to listen to them. Don't fight the Fed. It hasn't gone out of style, you know, that old moniker. So I think we should take them at their word. There will be some slowdown next year. It's a question of how deft a touch the central bankers have and how quickly inflation does wane. >> Now, they warned us about pain, right, that there will be pain to come. But the labor market is still strong. The economy is hanging in. I mean, we've seen the pain in our portfolios. But the pain is sort of like the real world-- your job, your finances, and other areas. Once the recession comes, you'd expect that pain to be a little more widespread. Do the banks have to live through a period of pain? ? I mean, traditionally, a central bank would then say, wow, the economy's slowing down. Let's lower borrowing costs and get the economy moving. And this feels like a different kind of situation. >> Well, I think you've hit on an important point, Greg, which is I think a lot of investors earlier in the year had thought the central banks would raise rates to a restrictive level. But then they backtracked pretty quickly and started actually reducing rates. The moment any sort of weakness appeared in the economy, the central banks were going to ride in and save us and alleviate it with some rate cuts. I think the central bankers have made it very clear that's not their playbook. I think what we should expect is once they get to this terminal rate sometime in early 2023, that's likely to be there for a while. And the reason it's going to be there for a while is they need to be good and sure that inflation not just goes down but stays down. And so this is the tricky part. I think we've forgotten a little bit about this. I think we all knew that there were elements of this inflationary burst we've had that were transitory. And that was a very overused word last year, transitory inflation. But there are elements that clearly were distorted by supply chain disruptions. >> And you can build a deck again now at the back of your house without taking an extra mortgage. >> Yeah, exactly, or used car prices went through the roof because you couldn't get them. Like, clearly, those are going to normalize. So I think what we might be in for here in the next couple months is what I would call the easy disinflation stage where a lot of these more temporary or artificial or transitory drivers of inflation start to finally roll off. And that's going to feel good as investors. And that's why I say maybe this rally has some legs here. But I think at some point as we get into 2023, the low-hanging fruit will have been grabbed. And we're going to get into a stickier situation where, OK, inflation has come off. It's no longer 6%, 7%, 8%. Maybe it's 3%, 4% or 5%. But that next 1% or 2% lower to get to the 2% target is going to be really tough. And that's where the grind sets in. And that's why I think we should expect wherever the central bankers land here, whether it's 4 or 4.5, 5, we're going to be there for a while. And so that's going to be the grinding phase in 2023 where it just gradually takes a bit of the oomph out of the economy. And so the faster that those more lasting elements of inflation-- like I say, the labor market's such an important focus-- the trajectory of wage gains as we get into 2023, that's really going to determine when the central bankers feel it's safe to finally take-- to finally go to the sidelines and stay there or to think about rate cuts. If we see inflation remaining sticky in that sort of 3% to 4%, which is uncomfortably above their targets, they're not going to relent. So that's the key to 2023 is some of these more lasting elements, , and particularly the labor market, particularly wages, how do they respond to the constraints or the restraint that's already been put in place by these rate hikes we've seen this year. >> That was Michael O'Brien, portfolio manager at TD Asset Management. Now, let's get you updated on some of the top stories in the world of business today and take a look at how the markets are trading. We have shares of Foot Locker in the spotlight today, that as the retailer boosts its full-year forecast on the heels of an earnings beat in its most recent quarter. Foot Locker reported surprise rise in sales for the quarter at stores open for more than 12 months, although it does expect full-year sales to be lower compared to 2021. Those shares up 7% at this time. Another US retailers reporting a bead on the top and bottom lines, gap Inc. pointing to steady demand from customers as the return to work has shoppers buying moreoffice attire and fewer shorts and T-shirts. The companies Banana Republic banners on a percent jump in sales, while the Old Navy brand reported a more modest 2% increase. Applied Materials providing a revenue forecast that's ahead of the streets expectations. The maker of semiconductor manufacturing equipment is posting stronger than expected sales for the most recent quarter. And that's despite warnings from chipmakers about soft demand for chip hungry devices such as smart phones and personal computers. The stock at a modest gain right now of $0.42 per share. Let's check in on the trading on Bay Street and Wall Street. We'll start with the TSX Composite Index. It is modestly in positive territory on this last trading day of the week, up about 30 points or 1/5 of a percent. Seeing quite a downdraft in crude prices this week, on track in West Texas for its toughest week since the spring and that's keeping us move better showing, some energy names under pressure. South of the border, the S&P 500, the broader read of the American market, it's been a bit of a choppy week and right now they are up a very modest four points were 1/10 of a percent. This week's Canadian CPI report shows that while inflation remains at elevated levels, it held steady in October at 6.9%. Robert Both, macro strategist at TD Security says the data we saw this week gives ammunition both to the Hawks and doves. He joined me earlier to explain. > It was in line with the market consensus at 6.9%. Prices rose by 0.7% month over month and I think there are a couple of important takeaways from this. the first is that was a six point 9 Inflation Rate in October, we are probably tracking somewhere below where the Bank of Canada had predicted inflation would be in Q4. So their last monetary policy report had a 7.1 projection for the fourth quarter. With today's data, we think that could come in somewhere between 6.9 and 7%. While that still very high, it does speak to things moving in the right direction. The second point is that inflation is just still far too high for comfort here, especially with the core inflation measures taking higher from September. The two that the Bank of Canada looks most closely at are the trimmed mean and weighted median inflation measures. And those both rose by 1/10 of a percent. So while things are moving in the right direction, perhaps they are not moving as quickly as we'd like to see. And that core inflation rate does suggest that inflation could remain a little more sticky, and that it might take a little more time to see headline move materially lower. There were a couple other promising elements of the report though. The services inflation registered a fairly small month over month increase. >> And this is been a big concern, right? It's one thing for these volatile elements, like energy and food, which can shift pretty quickly. But the fear was once he gets into the services part of the economy, that's going to be harder sustained. So walk us through the services part. >> That's correct. So what we are seeing in services a bit of an offset from some of the other pressures coming through the shelter component. So within shelter, you have two subcomponents that are sensitive to house prices versus the homeowner replacement cost, which simply track the cost of new construct in Canada. And then, there is another one called the other owned accommodation expense. That includes things like the closing cost on a new house. And as a result of that, it attracts house prices more broadly. Those are offsetting some of the other, more inflation report to the service sector. Together, they do point was flowing rate of change, though. And also, DX food and energy measure, which is what the US uses for their primary core inflation, that registered one of its smaller increases since last year. So overall, you're seeing a bit of a mixed signal from this one. So as you said, there is something for the Hawks and the doves. >> Depending on how you see the world, you can find what you want in this report. When it comes to Bank of Canada, obviously, the last time you heard from them, they took their foot off the gas a little bit. I mean, it's been a year of supersized retakes. So they pulled it off just a little bit. How does the set them up for the December meeting? >> So it's a very interesting backdrop to the December meeting. Right now, the market is priced for roughly halfway between a 25 basis point rate hike and a 50 basis point rate hike. That didn't change after today's CPI decision. So we're sort of sitting on the fence here from the markets perspective was a hawkish and dovish elements. The increase the Bank of Canada's core measures versus the month over month change in services, and that X food and energy, it allows people to sort of pick their narrative. And as a result, the market more or less looked past this one. We find ourselves in the camp that a 25 basis point rate hike is more prudent for the December BOC meeting. Even after the 50 basis point hike last month, in October, that was smaller than expected. Rates are still well into restrictive territory here. We are seeing signs of slowdown in other parts of the economy, those interest sensitive parts that Gov. Macklem has referenced. So I think the risk reward approach does favour a more cautious path forward. We look for a 25 Basis Point Rate Hike in December and one more 25 Basis Point Hike in January to top things out at 4.25%. >> Is there a sense of there now, too, that the Bank of Canada and maybe even the Fed, they are trying to be a little more forward-looking? They realize that monetary policy works they leg. They've done a lot so far. They need to start thinking about where inflation is a year from now, 18 months now, where the economy is further. So does that make the backward -looking data points not as important as perhaps they were in summer? Because you really jumped every time we got any kind of data point. And the date is always backward looking to a certain degree. >> Yeah, I think that's a fair point to make. You know, the Bank of Canada has been talking about frontloading this rate hike cycle. We saw that with 100 Basis Points in June. We seen 75 and 50 basis point hike since. You know, now that rates are well above their neutral range, it does make sense to put a little more weight on the forward-looking indicators. Even our latest quarterly GDP prints, that was cute too, and that feels like a very long time ago. Interest rates were much lower back then. Traditionally, rate hikes have taken anywhere between one and two years actually show up on the demand side. So I do think they'd have to take a little more of a finely balanced approach going forward he is the governor's own words. >> Of course, the big question two, whether talking about our central bank or the US Federal Reserve, is once they reached the point where they feel they can stop, how long are they going to say there? The move up has been very dramatic this year. And anyone with any kind of loan that is tied to that rate is feeling that. I guess they are probably wondering now, when does it end? And then, how long do I stay at this level? >> Right, enough depends on a few factors. First for most is the inflation outlook. So the bank is going to have to see clear signs that inflation expectations remain anchored and that inflation is well on a downward path before they look at taking back some of these rate hikes. You know, that inflation outlook, in turn, depends on developments in the local economy, some of the supply disruptions that have wreaked havoc across the goods producing sector over the last year or two, and then how the Canadian economy responds to the rate hikes that they've delivered so far. And, as I mentioned, we are starting to see evidence that those rate hikes are starting to have an effect on the labour market, uncertain industries on the GDP side. So we are looking at, when CPI returns to the 3% area, it inflation expectations remain anchored, we think the Bank of Canada can begin bringing rates back to a neutral stance, so not actually providing accommodation but just taking their foot off the brake a little bit. We think that's unlikely to occur until the first quarter of 2024. So we think will be at that 4.25% rate for about 12 months. >> That was Robert Both, macro strategist at TD Securities. Now, let's get our educational segment. if you are looking to diversify your holdings, WebBroker has tools which can help. Nugwa Haruna, Senior client education instructor at TD Direct Investing has more. >> So for an investor who is looking to reach their investment goal by creating an investment portfolio, they may consider asset allocation as well as diversification. The idea behind utilizing asset allocation and diversification, it's a way that would help investors manage the risk when it comes to investing. Now, let's go into WebBroker and will show you how investors can find the different asset classes that they could potentially utilize when creating their investment for polio. Now, under accounts, investors are able to click on asset allocation. And the idea behind this being the different asset classes tend to respond in different ways to different market conditions, so that investors once again will try to manage their risk and look of volatility in their portfolio, they can consider asset allocation. Investors will be able to see what the breakdown is in terms of equities, fixed income as well as cash and cash equivalents in their accounts. Now, investors who want to have a better understandingof how these investments work may be able to do that by clicking on the help buttonand what this does is it gives investors a breakdown of these different asset classes as well as how they tend to respond in different market cycles. Now, an investor may actually have a question and they may say, well, what if I don't have the time or the information to create a robust investment portfolio? That's what investors could potentially consider using investment funds. So there are different asset allocation investment funds that are available to investors and they can actually select these funds based on what their investor profile would be. So let's take a look at where investors can find different kinds of investment funds. Under research, under investments, investors will click on ETFs, so exchange traded funds, and what we are going to do is we are going to use the mini screener tool which lets investors who just different criteria to select different kinds of securities and under ETF category, we are going to click on this drop-down, and in this situation, let's click on exchange traded funds that have up to 50 to 70% when it comes to equities in that portfolio. And it shows us 22 matches. So I'm going to scroll down to pull up these 222 exchange traded funds here. and then investors will be brought to a page with the breakdown of these different exchange traded funds. One more thing to show you. If you want to see what exactly is each exchange traded fund holding, I'm just going to select one ETF on the screen,and once I click on it, I can actually click on summary and the idea behind this is when I actually want to see what the breakdown in the asset classes are. Once I'm on this page, I can scroll down, focusing on the left side of the screen here, and then I will start to see with that breakdown is. So I can see that this particular ETF has this percent of US stock in equity is, some non-US equities, it also has a holding of preferred shares over 20%, they are between stocks and fixed income secured, as well as some US bonds and some non-US bonds. Investors can see the different sectors, see what the ETF is invested in. They can see the geographic region and finally investors are able to see what the top 10 holdings that the fund managers holding in this ETF. So once again, investors are able to utilize these tools when they are looking to have some type of diversification in their portfolio as a way to potentially help them manage the risks of investing in the markets. >> Our thanks to Nugwa Haruna. Make sure to check out the Learning Center in WebBroker for even more educational videos, live, interactive master classes and upcoming webinars. It's been a rough ride for the markets throughout this year, rising fears about a possible recession. But according to Peter Hodson, founder and head of research at 5i Research, Despite all the negativity, he doesn't think we are headed for 2008 style market turmoil event. He joined me earlier to discuss. >> I think if we have a recession, it'll be a normal type of recession, which means it is shallow and short. The average recession is about 11 months these days. Everyone is concerned about 08. If you were sleeping for 20 years and came out and looked at the stock markets today, you'd say oh my gosh, we are in so much trouble, the stock market's so horrible. But in 08, I couldn't wake up in the morning without a bank going out of business or an auto manufacturer going out of business or a house collapse. And, you know, credit's collapsing everywhere. Credit seized up, earnings were horrible and the US was losing 400,000 jobs a month. And so now we've got a situation, the worst thing that happens right now is your company, instead of growing at 20%, is growing at 10% or 15%. And investors are going, Oh, that's horrible, sell everything. You've got 200,000 jobs being created each month instead of losing jobs. And so it's just one of those situations where you had the selling that fed upon itself. You had this fear of interest rate hikes and fear of inflation. But if you look at almost every cycle in the past, higher interest rates are not that bad for the market. And the reason for that is higher interest rates come with a strong economy. So here we are, strong economy, higher interest rates. It's economics 101. It really is. But for some reason, this year, people have gone in full panic mode and the world's ending and it's not going to end. I just don't know when this pain's going to end. Last week was great, but doesn't... Two days doesn't make a trend. But I think what will happen is people will start relaxing and they'll start focusing on earnings again instead of everything else. It's been a tough year for managers because corporates... Corporate earnings don't matter. It's all about the Fed and what the macro picture does. But we'll get back to basics one of these days. >> Getting back to basics, then, that would lead me to believe that we have been spoiled as investors, spoiled as consumers really for a long time because the cost of funds, the cost of borrowing was so very low. But you get back to a point. Could we get back to a point where you just sort of like, well, this is sort of what it costs to borrow money. This is normal. And an economy can handle that kind of cost. >> It really can. And this is where the jobs picture is really quite important. I mean, there's 10 million jobs available right now in North America. So in 08, people are losing their jobs and they were underwater in their houses and they would just hand the key back to the bank and then the bank would have excess supply and house prices would collapse. So if you've got a job right now, you're going to keep paying your mortgage. Yes. You are going to have $1,000 less per month if you're on a variable rate mortgage. But it costs money to borrow money. And we did have it easy and that's why we had a huge ramp up. Now we're just getting back to normal. A lot of companies that were trading at 50 to 60 times sales, they're not going to be around. Companies have negative cash flow. Watch out for those. But you've got companies with lots of cash and lots of cash flow at cheap valuations and you really just have to buy stocks that are going to be here in two years because I think it's going to be changed in two years. We'll be back to normal and maybe we'll have a bull market one of these days. No one expects that. But you know what? This is not going to last forever. Just make sure your stocks are here when when the party starts. >> It speaks to, I think, of not only removing emotion to a certain degree. And this has been a very emotional year. It's been an emotional couple of years, given everything that's going on in the world, but also having a longer term thesis. And if you have that longer term thesis, you stand by it because it's day to day and I fall prey to those too. I get a little emotional about what's happening and you realize you got to step back and say, wait a minute, why did I why did I do these things in the first place and what's the end goal? >> Absolutely. And then the thing that sort of helps us out a little bit is each day, if you own a profitable company, then your company has more money today than it had yesterday. And, you know, most companies are operating 24/7. So even on the weekends, you've got, you know, three days more money today than you had on Friday. And if the stock's going down, then your risk return ratio just keeps getting better and better because you've got a cheaper stock price and you've got more cash. Eventually, people will realize that the world's okay for most companies. Sure, as always, some companies are going to be in trouble, but as always, some companies are just going to knock it out of the park. And that's what we're looking for. >> Now, in the short and the medium term, obviously, we can solve it, as you said, probably have a lot more volatility ahead. Even the fact that I was talking about well over the weekend, we heard from Mr. Waller and he had this to say about Fed policy, the vice chair Brenner, coming out today. And we're still in a reading the tea leaves kind of thing. That seems to be the situation as we try to read those tea leaves and wait for every inflation report and every jobs report that we can see some wild swings still in our future. >> Absolutely. I mean, there's, we're not quite completely like, you know, clear sailing right now. But if I can go back maybe over the past decade when I was a portfolio manager, I can't remember looking at inflation for 15 years. I didn't care. Nobody cared. They cared about jobs and corporate profits. So now we've got a new something new to worry about. But as that sort of settles in, like unless, you know, a lot of people are saying, oh, we're going to get into a Venezuela type of million percent inflation scenario. If you buy into that, then you shouldn't own anything, of course. But I think you'll get back to a normal situation. Maybe you don't get 9% inflation, maybe you get six or five, rates go up, the economy slows down and everybody adjusts to that. So certainly there's volatile days ahead, but historically, you have to be there on the good days. You have to be on those, you know, last Thursday. You have to be there to get long term performance. If you miss the best 20 days of the market over ten years, you almost lose money. You have to be there on those great days. >> Now we have an engaged audience listening to our conversation, actually, someone sending in a question. I'm going to wait for the question, period. So I think it's sort of germane to what we're speaking about here. We have a viewer basically saying, okay, you're talking about a strong economy, but they feel like we have unnatural inflation, a global pandemic sort of changed the rules. Are the normal rules gone, given what we've lived through since the spring of 2020? >> Well, there's a lot of talk about how globalization is going to fade away because of what happened with the supply chains. And that may cause some additional inflationary pressure as everybody brings things in house. Absolutely. There was a labor shortage when everybody's sick, you've got production, you've got semiconductors closing factories. So absolutely, there's was a short term impact. And the question is, as the world gets back to normal, how does that change? And this is where maybe the Fed and central banks are not doing it properly. They're trying to stop demand, whereas reality you need to improve supply, again, basic economics 101. As long as you got a supply issue, you're going to have pressure on prices. But again, greed is a great solution because companies will realize this. They'll ramp up domestic capacity and prices will go down as that ramps up because they don't want to have the issue with globalization causing problems like it did in the pandemic and with the war. So there's going to be a lot of changes, but it doesn't necessarily mean things are going to be bad. You know, as a company increases production to meet demand, they'll do pretty well. And then prices will naturally level off. >> If a mild recession, which seems to be what everyone is baking into their forecast for the most part, becomes a deep recession, how much longer could it be before we play out this thesis of getting the world back to normal? Getting the economy back to normal? >> Yeah. I mean, I think it's one of the situations where the deeper the recession is, the faster it'll change, the deeper the recession, you'll have a deflationary problem instead of an inflationary problem. But certainly from a stock market point of view, I think investors right now are expecting not that bad of a recession. It's hard to say because the market's been so bad in certain areas. But I think the common theme is inflation will get under control. Eventually, rates will peak, eventually corporate profits will dip, but not that much. And so this, that's the big variable. So right now, most analysts are expecting profits to rise next year, year over year. That could change. And that could be maybe a year of stock market volatility. But as you know, the market looks forward. So maybe if it's a year, they sort of say, okay, it's time to buy in six months. So we might have six months more of pain, maybe nine months if things get really bad. But again, if you're a long term investor, which you should be, nine months is nothing and it really isn't. It should be five years, ten years. And this will all be a little blip that we talk about down the road. And I'm really convinced that in five years, a lot of investors will say, wow, look at how cheap that stock was. And, you know, they'll say, why didn't I buy more of that at that time? But it's hard it's hard to fight that emotion and it's hard to fight the trend. And the negative momentum is, you know, keeps feeding upon itself. So we have to get through that. >> That was Peter Hodson, founder and head of research at 5i Research. Let's check in on the markets on this last trading day of the week. These have been choppy days indeed. Right now, some modest gains on Bay Street, 19,908, of 24 points on the TSX Composite Index. A little more than 1/10 of a percent. We are getting held back from a better showing because the price of crude being under pressure this week, on track for its worst week since the spring and it's affecting big energy names. Let's check on her name to the upside with some points on the table, BCE, 6307 per share, 1.8% to the upside. As we said, with the price of crude coming under pressure this week, we are seeing some of the big energy names in Canada also under some pressure. Nothing too dramatic, 10 bucks and $0.60 per share, we got Crescent Point down a little more than 2%. South of the border, let's check in on the S&P 500. As Anthony and I were talking about at the top of the show, there are some wholesale prices getting the price go higher, fed commentary, etc. Right now we are modestly to downside with this broader read of the American market, the S&P 500 down a little bit more than four points, about 1/10 of a percent. The tech heavy NASDAQ, let's check in on that one. Right now, it is starting to move more to the downside to the tune of two thirds of a percent. Foot Locker, though, showing the street better-than-expected earnings. That stock is over there at seven, almost 8% of the upside, 35 bucks and change. Of course, we have inflation a multi-decade highs in many countries and central banks have been pivoting towards tighter monetary policy. One of the prospectsIs that inflation cools off in 2023. Do you see the central banks pivoting in the other direction away from the rate hikes? Anthony Okolie eight joins us now for more. >> The big question in 2023 is will inflation allow central banks to regain focus on growth? This year, the number of central banks hiking interest rates increase dramatically in recent months as inflation rose to fresh eyes. While TD Securities has forecasted some decline in inflation in 2023, they believe it's going to be a very slow decline. I brought along a chart that kind of outlines TD Securities outlook for global interest rates. As the chart shows, the market has significantly repriced and their terminal rate across the board higher with the session of the US for next year. Start with the US. There are signs that inflation is peeking and that's a positive for everyone and I say that because the US has been really ahead of the global inflation cycle. TD Securities believes that the Fed will likely raise rates to five or 5.5% and keep them steady for some time due to this gradual decline in inflation backdrop. Here in Canada, TD Security says that the Bank of Canada likely has less runway than the Fed and they expect the BOC data terminal rate of about 4 1/4%, that's about 100 basis points below the US in early 2023. Turning to Europe, TD Securities believes that the outlook for rates there will be equally challenging in 2023. They expect policy mistakes are more likely to be visible next year. They see the EC BD, European Central Bank, to loosely follow the Fed's trajectory and hit a terminal rate of about 2 1/4% by the first half of next year, that's well below the market expectations of the terminal rate of about 3% by mid next year. Finally the UK, after a roller coaster ride in 2022, theyour exciting terminal rate of 4.6% next year. TD Securities sees terminal rate of about 4 1/4% in March next year. The mine and inflation will likely be slow next year. Right? >> Questions we've had on MoneyTalk Live from our audience has been, okay, you had the terminal rate. How long you stay there? And then, when do you start seeing some interest rate cuts? What's the be there? >> Yeah, so looking at, TD Securities thinks that the market is really underpricing the potential rate cuts in 2024. They expect the Fed to begin cutting rates by as early as December of next year. TD Securities sees the Bank of Canada pressing the brakes on rates in 2024, so a little bit later than the US. They don't think that you see BC easing cycle will be as aggressive as the feds. They expect the EU, UK, Royal Bank of Australia and New Zealand to begin cutting rates by sometime in 2024. >> Interesting stuff of the big question obviously on everyone's minds. Thanks, Anthony. That's my pleasure. >> Anthony Okolie of MoneyTalk. On Monday, Rishi Sondhi, economist at TD Bank, will be our guest, taking your questions about the real estate market. You can get a head start with your questions by emailing moneytalklive@td.com. That's all the time we have for the show. On behalf of me, Anthony and the MoneyTalk Live team, thanks for watching. We will see you next week. [music]