Market Insights

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Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing.

coming up on today's show.

Td Chief Economist Beata Karen she will give us serve you on whether central banks will push us into a recession next year.

Will also hear from TD Asset Management's Marisa Jones on the outlook for the utility sector and how it's handling rising costs.

And we will also discuss what you should be thinking about when it comes to your personal finances as we head into a new year with Nicole Ewing, Director of Tax and Estate Planning at TD Wealth to bring us some insight on that front.

Class in today's WebBroker education segment, Caitlin Cormier will take us through how to make a mock portfolio using the tracker tool on the platform. But first let's get you an update on the markets. That rally we were hoping for, heading into the holidays, that seemed to show up yesterday has reversed itself.

We have read on the screen on both sides of the border starting here at home with the TSX Composite Index down 258 points, about 1 1/3%.

Definitely not a risk on sentiment today, seeing some weakness on both sides of the border including Shopify.

Those shares at 46, 58 down about five and half percent. Some of the miners got in that rally again with Kinross Gold at five bucks and $0.60 a share down a little more than 2%. South of the border, we had some economic data suggesting the US labour market pretty resilient. Of course the whole point of all these aggressive rate hikes from our central bank, the US Federal Reserve is to try to slow the economy a little bit, warning there would be pain and it would translate to the labour market but so far you see a lot of resilience out there and that renews discussions about how much further the US Federal Reserve is going to have to go before it pauses on its rate hikes.

Putting into yesterday's rally, down almost 2% right now in the S&P 500. Let's check out the tech heavy NASDAQ and how it's holding up against the broader market. Down to the tune of 2.8%. A little deeper in the hole there. Foreign under pressure in recent sessions, the automaker down for 1/2% to 11 bucks and changes share and that's your market update.

One of the big questions facing investors as we head into the new year is whether the aggressive rate hiking cycle we've seen from central banks will push us into a recession.

Or could we be in for a potential softer landing? I put the question to Beata Caranci, chief economist at TD Bank.

>>I think the challenge, especially in the US as there is too much resilience. Especially inside the job market.

So you can't really cool down wage and inflationary pressures without the job market cooling down. Central bankers always talked about pain to be felt in the coming year.

recession calls her a forecast. They are not based on data.

You get a lot of distribution in terms of timing.

Some people saying, Q1, Q2, Q3 and it spread across every quarter depending on the forecaster.

When you don't get a lot of differences in the depth.

Many still view it as something that should be mild as a recession is. It's not for those who lose their jobs but they're not perceiving it to be deep.

So something like a 2001 experience.

>> If we just get a skimming of the surface, we slow down the economy enough to bring down inflation, will that be enough to bring down inflation?

I think the reason people keep saying "oh, there's definitely going to be a recession is because you're not going to get inflation back down around that 2% target overtime unless you inflict that kind of pain." >> Even there, there is not a strong consensus. Some people still view that the supply-side factors rate, related to the war in the legacy of the pandemic is still out there. As an example, if you look at new vehicle cars, there is still a backlog of production happening with people ordering their car this year, not getting and until next year. So there's still a legacy impact coming through.

On the flipside, you are seeing used prices for cars come down pretty hard in the last few months. As some of that rotation happens.

So the big question is how much of a slowdown you need to affect the domestic drivers?

Like on things like clothing and everything else?

That's where it's perceived to be. Well, we don't really need a hard, hard landing to get those drivers to kick in.

But at the end of the day, you do need wage growth to get inflation back down to about 2%.

We are a couple of points off from that right now so it does suggest that you have to inflict some pain in the job market.

>>We did get a fresh read on that inflation in this country today. Of course we just got one on the Americans last week.

… I think we won't really see significant movements, probably until mid of next year towards the second half of next year. And that's because we need the domestic demand drivers to slow down fast enough for that to pass through the inflation drivers.

And I also think the battle is really not with inflation getting into the 3 to 4% range it's probably to get in the 2 to 3% range.

That's going to be the hard-fought territory and it depends how much of a soft landing up to have.

>> Of course you know better than I do, correct me if I'm wrong, we're going to get one more rate hike in one of those rail are 25 basis points.

>> Imagine.

>> Yeah, imagine that that we became accustomed to.

Then we will be done. But "done" doesn't mean a reversal in policy. Were going to have to stay there for a while to keep waging this fight.

>> Yeah so for that, that's the Bank of Canada call for getting to about 4.5%.

Now, we did build in cuts in the fourth quarter, and that's because-- fourth quarter of next year. And that's because the debt service ratio of Canadians, the proportion of income that they're dedicating to paying interest, is going to be at a historic high.

* And every quarter that rolls in, more and more people are going to be renewing their mortgages at this higher level and eating up their disposable income, which means you're not going to be able to spend in other areas. That's the dynamic we are anticipating in Canada to really drive down consumer spending into contraction territory for Canada. That we think will allow the Bank of Canada to step back a little bit and put some relief in.

Having said that, if you're 4.5% you drop rates to 3.5%, 3.75%, that is still high relative to what the Bank of Canada deems the neutral rate.

The rate that the economy is in the Goldilocks phase.

So you're still in restrictive territory. It's not as if it's gonna feel that great at that stage.

>> Is our debt sensitivity in this country a wildcard for us?

If things play out the way we think they're going to play out, it makes a lot of sense that, as we start to renew mortgages, or people with floating rates have already seen it, and by the time we get to the end of the cycle, it's like, wow, my floating rate mortgage got more than 400 basis points in the course of a year.

Is the wild card that that hits harder than we're anticipating for those households?

* Yeah. It's a big wild card for Canada. It's not for the US. It's because we haven't really gone through a deliver Ridge cycle in quite some time, going back to the 80s.

So the US had this experience in 2008 and 2009, and what we could observe from them is it's not a quick experience. It does last for several years, in terms of not just cautiousness on consumer spending, but the recovery of the of the psychology of housing.

So, we don't know if Canadians are going to be reacting in the same way and we also know that the leverage today is higher than what you saw in the US during that crisis. Now the underwriting of the loans is significantly better.

Nothing to compare there. However, at the end of the day, people are going to have to extend on amortization, pay more money on their debt. That's going to take away from the consumer cycle and we don't really have a good historical gauge of what that's going to look like.

>> We mentioned pain a bit earlier. I want to get bit more on that topic because it sorta fascinating to me.

The central banks of said "look what were doing, trying to tame inflation, there's going to be some pain. It's necessary.

" What does that look like when the full onslaught of that pain hits? What does that look like for the Canadian economy?

>> To me, I think of it really-- bucketed in two areas.

One is the share of your income dedicated to paying for debt, which is fine if you say, oh, I have got extra disposable income. I have extra savings, and so you dedicate that savings to that payment. That's not the majority. Many people will have to be making a sacrifice in other areas of spending. So that's a direct impact.

The other impact is what happens to the job market in an environment where you have very high interest rates, and this deliberate braking of the economy in terms of hitting the brakes. And so we anticipate in our forecast about 100,000 job losses however could be more because were not quite certain how these dynamics and debt service ratio and how households absorb it.

The one factor that Canada has in terms of elevated risks, we had a lot of job hiring coming out of the pandemic. More so than what you saw in the US. Which might say "oh great, there is higher incomes across the country".

But it may at the same time, mean that firms do more and scaling back workers then because if it's not lean.

The labour markets is not as lean as what you're looking at in the US. Where employers may be more incentive to hoard and to hold onto labour. We see more movement on that site in Canada. So it's a bit of a risk in an odd way.

>> That was Beata Caranci Chief Economist at TD Bank.

Now let's get you updated on some of the top stories in the world of business until the markets are trading.

More signs today have sought demand for electronics taking a toll on the microchip industry.

Micron posted a wider than expected loss in its more recent quarter. The semiconductor company also says it will cut some 10% of its workforce soaring inflation has shifted consumer dollars towards essentials such as food and energy and away from electronics in recent months.

Shares of used car retailer Carmax are in the spotlight today. That after the company missed sales and profits estimates for its most recent quarter.

Used cars were high in demand during the pandemic amid a microchip shortage but higher borrowing costs are making big ticket items like cars more expensive for consumers.

Propane distributor superior plus is making a billion-dollar plant and natural gas and hydrogen.

The company has a deal to acquire privately owned Certarus for 1.05 billion dollars including debt.

Certarus is a distributor of natural gas renewable natural gas and hydrogen.

And now the main point benchmark index in Canada is trading… You are down, we will call that 2% in that broader rate of the American market, the S&P 500.

The utility sector often seen as a defensive play in times of market uncertainty. But with rising inflation, does that still hold true?

Earlier I was joined by Marisa Jones, Utilities Credit Analyst at TD Asset Management to discuss.

>> >> As most investors we know it is a defensive segment.

. But beyond the essential nature of utilities, I think we have to look at the fact that the regulated utilities are very defensive in terms of being able to absorb higher costs.

This is because the rate regimes around the regulation actually allows the utilities to pass-through rising costs. So the rate structure should allow either higher fuel inputs, bond pricing, whether it be through interest rates, so forth like that. To be passed ultimately, to the end consumer. And this allows the sector, not only to be a defensive sector but it allows it to have more defensive real return for investors.

So I think looking forward into 2023, you may not expect the same returns or benefit versus the market, as we saw in 2022. But I think if you're thinking as I am and as you mentioned in your intro remarks that we're at least expecting an economic slowdown. Maybe it's a recession. In that situation, I think that for the reasons I mentioned, I think utilities will still fare well in 2023.

>>As you mentioned, of course, it's a regulated space.

You were able to pass on cost increases to the consumer. Is there a risk, as politicians hear more and more from the electorate that they're struggling with not only soaring inflation and consumer costs but the higher rates that are meant to combat that? It's getting pretty tough for households. Is there a danger that you could get political pressure on some of these utilities to say, hey, can you give these people a break?

>>Absolutely. And this is a few of the things I watch for for my companies. So firstly, I mentioned that it is a defensive sector. However, there's three areas that I'm watching, and one is affordability, as you mentioned. One would be energy security. And one would be sustainability, so how utilities do through the energy transition and environmental policies.

so, on the affordability front which is front and centre now, we sought in 2022, and I expected to continue to play out, the different, whether it be the regulators or governments are playing a role in helping their populations deal with these rising costs.

So what were starting to see is that different areas, and your seeing it almost in every jurisdiction I look at, the government is coming in with some sort of plans to help with affordability.

The risk is that who bears the costs of it… So whether it be the government, we are seeing this in a lot of areas. The government is actually giving direct monetary support to customers or to some utilities I've seen. This is actually a net positive that the government will say, you might have… Were seeing this in, for example, New York.

60 day day arrears are quite high. So we're going to give the utilities some money directly for those customers who are at the lowest affordability, so help them erase their arrears.

so it's helping the customer and it's helping the utility manage through those kinds of risks.

So there are positives, but then the negatives, and we've seen a few examples where the governments or the regulator will look to ways that they can say, what can we do that the utility shares in some of these supportive measures? Often, utilities are- and they've had plans before 2022, where they help their customers with affordability and with paying their bills. So there have been plans.

But now what I worry about is if a regulator says, OK, well, we allow you to have a certain return, are we?

Maybe instead of having a 10%, for example, maybe it should be 9.5%. So that could affect cash flows That could affect the equity pricing for some of these utilities.

The other example is very, I would say, rare, uncommon, but where we saw in Nova Scotia where the government actually came in and jumped over the regulatory process. Nova Scotia Power was in front of it's regulator with rates hearing, and the government came in and passed legislation saying "where going to The nonfuel costs for the next two years, regardless of the outcome of the rate hearing.

" And this, you can look at it from a financial perspective, it's not necessarily a huge negative for Nova Scotia Power. It's not negative in terms of credit metrics much.

But where it is very negative is sentiment investors, so I mean fixed income analysts.

>> So you're hearing this from the market? Our market participants taking notice of these actions?

>> Absolutely. S&P, the rating agency downgraded Nova Scotia Power two notches on the back of that which is significant and ironically, ends up, over the long run, raising the debt financing cost of the utility which ends up being borne by the ratepayer. Ultimately.

But also on the equity side, definitely equity investors invest in Emera which holds Nova Scotia Power, and there's a big question as to what kind of overhang is there for Emera, and could there be further political influence or disruption for the utility?

So both sides are looking at this and what can they do?

If it actually does reduce cash flows, do they have to maybe raise equity or something like that or sell assets? There's a potentially larger impact down the road.

>> That's fascinating stuff.

Definitely things to be aware of as an investor in this space. Also, just energy security, a huge theme this year.

We start thinking about utilities and their role in all this.

How does that play into it? Or is there somewhere else a problem?

>>* No, no, no, it's absolutely everywhere because it's brought home what's going on, geopolitics globally, especially in Europe and with the Russian invasion is everyone is looking and saying, well, we need that security here, and whether it be in Canada, US, North America. But also, what opportunities are there for us as a producer of natural gas, for example, to export it to Europe and to other areas to reinforce security of the production?

So we're seeing that everywhere. What that's doing in terms of pricing is hard to say this year, but it is an important thing that we, I think of his as investors have to look at two.

> That was Marisa Jones, Utilities Credit Analyst a TD Asset Management. Now let's get to our educational segment of the day.

There are plenty of options for investors in the market and if you're looking for ways to assess whether a strategy will work for you, WebBroker as tools which can help. Joining us now with more is Caitlin Cormier, Client Education Instructor at TD Direct Investing.

How can WebBroker help investors test out their investing strategies?

When it comes to investments, maybe we have some ideas, some thoughts.

Maybe a trend we want to jump into. But maybe a little too nervous to take the gamble with our own money.

So we have a great tool to do that.

Before we jump completely into that side, we will start with our watchlist. To pick out the different Securities that we actually want to watch.

We will start with clicking on watchlist in WebBroker.

I have a blank watchlist here so I can go ahead and add up to 10 Securities on this watchlist.

I can also have up to 10 different watchlist. So lots of flexibility with how much I want to see there.

I can add stocks and ETF's. Mutual funds or indices.

It's very easy to go ahead and data security. So for example, I can type in either the name or the symbol for the security that I want to add.

There we go. We will go to Apple Inc.

I'm going to add a few different companies. Canadian and US. What else can we add on there?

Yet Enbridge on they are… So we have a couple of Securities there. I will put too many. But we have at least a few.

We can see a little bit of information as far as the pricing and some volume information on the security here on the screen.

We can also click the little button here on the side to get a chart on this particular security to see how it's performed. This is showing us a one year timeframe.

We can do one day, five days, one month, lots of time frames to choose. We can change the type of charts.

Just to pending on how we want to see that. Over on the side here, we have the ex dividend date, the dividend payment date, a ton of information. Not a ton but some of the vital information, I should say, about the fundamentals for the company as well as the analyst rating.

If I want to hop in and see more information about this company, down here below the chart on the left-hand side, there's overview news, chart or option change so I can jump right in and get additional information at the company.

So that's how we can actually build the watchlist, build a portfolio stocks that we might need for watching. Maybe we want to kind of get into. So that's definitely the first step in building this tracker.

>> So you build a watchlist.

You have a bunch of names that you might be interested in. That will show you, day-to-day how things are going but what if you actually want to test out how you would be doing if you had gone ahead and bought those things?

>> Absolutely. So that's where the tractor comes in. So we see along the top, the third option here is the "tracker" function. We will click on that.

This will show us the market value, the book cost and the gain and loss for investment.

In order to add these to a mock portfolio, essentially all I have to do is to just click under "quantity". You get a little box that pops up and I can say "okay, for Apple I want to buy 100 shares and let's just assume I bought it at that last price that we can see there". So I'll just click that and click "save".

It's actually going to automatically update and show me what's going on in the market with that particular security already.

So even with the enter button, I've Artie lost four dollars as you can see.

With Telus, I can see all of the additional information but it can click here and say I want to buy 75 shares of Telus. Again, I will just put the last price in here for the purposes of this illustration.

I will click save.

Again, it's going to show me the performance of that stock. If I want to keep updating it, I can just click this little "refresh" button and every time I hit it, I'm losing more and more money. But it will automatically update and keep track of the market value, the book cost and any gain or loss on investments.

So it's a really kind of quick and easy way to build a portfolio of Securities that maybe you are kind of looking to research a bit more.

Test out some of your ideas before you go ahead and buy them and they will stay. You can come back at any time and check on them, and see how your mock portfolio is doing and then make a decision from there as to whether you trust yourself to do your own investing or not.

>> Great stuff as always Caitlin. Thank you.

>> Thank you very much.

>> Our thanks to Kaylyn Cormier, Client Education Instructor at TD Direct Investing.

Make sure to check at the learning centre in WebBroker for more videos, live master classes and upcoming webinars.

With 2023 almost upon us, the holidays can be a good time for families to assess their household finances and perhaps position themselves for the year ahead.

Nicole Ewing, Director of Tax and Estate Planning at TD Wealth, joined me earlier to discuss what should be top of mind heading into the new year.

>> Reflecting on whether or not we have executed on that plan this year.

And what we can do to put ourselves in a better position for next year.

So a couple of things that really stand out right now.

, we are coming up to the last two days of December.

And December 31 is the deadline for a number of our strategies that we might want to put in place or some of the plans. So RESPs, for example, these are our registered education savings plans, they have time limits on this.

* And so we want to, for those who might not be aware, you have the opportunity to contribute up to $50,000 for the education of your child or grandchild or other family member. And there are government grants that come along with that. So we make our contributions each year and the government will match or give us a grant of up to 20% of $2500. So if you have not yet contributed to your $2500 minimum this year, I recommend going ahead and doing that. If the beneficiary that were talking about turn 15 this year, that's a really critical date. So if they haven't created a plan before, 15 is the year that you need to make the contribution in order to get those grants at play.

If you are 17, if they turned 17 this year, than December 31 is going to be the last opportunity again, to get that grant in place.

So just thinking about what you might want to do there.

And then on the withdrawal side, you'll want to reflect on what your beneficiary's income is for the year. So if they are in school and you're accessing some of these funds, you want to see if there's an opportunity to pull out as much income as you can from the education assistance amounts and ensure that those are taxed in the lower rate of the beneficiary. So December 31 sort of a key date for RESPs.

Other things-- we know, deadlines for TFSAs, the end of the year, December 31, you can get your money in and that will trigger again in January 1 with an additional amount.

Tax loss selling, December 31 is the deadline for that.

So a number of things we want to be thinking about.

>> When it comes to the tax free savings account, I want to dig a little deeper. Because perhaps people who haven't availed themselves of that vehicle are sometimes confused by the name savings account it's much more than that-- and sometimes don't realize what contribution room that they might have, particularly if they have never used the vehicle.

>> Yes. No, it's an incredible opportunity, really, frankly, one of the best we have in Canada to grow our savings and grow our investments. And it is tax-free savings account, but it's intended to be used for both short-term and long-term goals. And we have the opportunity to invest in securities, ETFs, all those sorts of money-making vehicles. And you have then the opportunity to have that income growing tax-free in the account. And when you pull that money out it is also tax-free.

So quite significant. This year was $6,000 is the annual limit, which brings us to if you have been qualified since the beginning, when this account was first introduced, you would now have contribution room of $81,500, going up again next year, $6,500 of additional room, which will bring us to $88,000.

so I know in the early days when these accounts were first out, they didn't necessarily get the attention of people because it seemed like a modest amount.

But certainly when were over $80,000 of room and you think of that invested in growing tax-free, that's a great opportunity to really grow your investments in a very effective way.

>> This is also the time of year, of course, when you think about charitable giving. If you been doing well, then pass it along.

We have some deadlines for tax purposes on that front?

> We do. So December 31 is the deadline for charitable donations as well.

Now be mindful that when we come up to the end of the year, if you're thinking about contributing Securities, which again, is a very effective, tax effective way of making a charitable donation, you'll want to be reaching out to those charities very, very quickly.

Because they do have time frames in place where they're able to accommodate the transfer in those Securities in kind.

And were really pushing up against it.

May have missed that mark.

But certainly worthwhile to reach out, contact those charities directly's and see if that's still an option.

otherwise we can make our charitable donations up until December for 31st but I would recommend it leaving that late. Do today.

>> You mentioned tax loss selling as well. Obviously this is been a year where people may have some losses in their portfolio. Based on the performance of the broader market, what we need to be mindful of their as we tick down to 2023?

>>Well, again, December 31 is going to be our limit to crystallize our losses for this tax year. So we want to, again, be mindful of the, yes, December 31 is the deadline for tax purposes, but we need to give our institutions the time to settle those trades and to make sure that they've gone through. So December 28, very, very, very last minute to get your losses, or to get your securities sold and get those moving so that they can settle by the end of the year.

But really, at this point, you should know what your strategy is, you should know what your gains are, how many losses that you want to crystallize. Keeping in mind, again, that if you engage in that type of selling, we want to be mindful of the superficial loss rules, not repurchasing that same security within 30 days. But we can look at that again in January and either buy that same security or you can now, if you sell a security, you can buy a similar security within that 30 days and still be safe.

But again, December 28, very last possible minute for this.

And I would encourage our viewers to really think about that today.

Again. Today is the deadline for everything according to Nicole.

>> A better time like the present. These are the hard deadlines. They are very important to keep in mind as we head into a new year. What about maybe taking some time over the holidays, although it can be a busy period to sort of think about what kind of position you want to be in next year financially?

>> This is where we really need to reflect. This is been a challenging year for a lot of people. A lot of unexpected extra expenses.

Perhaps higher payments on our debts.

And we want to put ourselves in a position as best as possible going into the new year.

That means sticking to our budget. That means not overspending during the holidays and not getting carried away with it and having a plan.

If we are going to put some of those funds, if we are going to get in debt and have some of that on our credit cards, for example, to have a plan in place.

Have it back as quickly as possible.

It's very easy to get lured by the joy of the season and particularly those of us who are last-minute shoppers to go a little bit overboard. Out of a little guilt of or or overcompensation.

But that's a poor strategy.

Just remember that your loved ones, their affection for you is not dependent on the gifts that you're getting them. To make sure you're not overstretching yourself and they are positioning yourself as best as you can.

Get together all of your records for the year.

Collect as much as you can and I will put you in a much better position to do your filings in the new year for tax purposes and to reflect on whether or not any changes need to be made to your financial plan.

Do we need to do some rebalancing?

Do we need to think about that, has this year change the way you think about risk and your risk tolerance?

For a lot of people that may have changed.

And so, looking again, taking now is an opportunity to say "okay, heading into the new year, what I need to do to put myself in a position that I want to be in at the end of the year or at the end of next year?" > That was Nicole Ewing, Director of Tax and Estate Planning at TD Wealth.

Let's check in on the markets, for those hoping for a Santa Claus rally.

We are running out of time in the trading week. We are on Thursday, yesterday we had a nice little rally our hands and we have reversed their fortunes today.

19,238, he of the TSX opposite index down more than 300 points now. 1.7% deficit. Energy prices the fallen flat.

A bit of a boost for crude oil or in the day but not much happening in that space right now.

We are seeing some weaknesses in some of the big energy names including Genova's down to the tune of 2 1/3%.

Superior plus, among the few names in front of the rallying to the upside.

Of course that acquisition we told you about, getting into some natural gas and other areas of distribution.

The street seems to like the acquisition. 10 bucks and $0.21.

You have superior plus up 4%. Among a handful of names in Toronto that are in positive territory. Now, south of the border, we did see a rally yesterday, better-than-expected results from Nike.

but today reversing.

Another read on the S&P, a lot of resilience there with the US labour market. The whole point of all these rate hikes is trying to slow the economy to bring inflation down.

When you see a resilient labour market like that, you do get some concerns in the market about how far the Fed is going to need to go with further rate hikes to try to bring inflation down. So you have the S&P 500, that brought a read of the market.

Now let's check in on the NASDAQ. Definitely a risk day. You have the tech heavy NASDAQ down to the tune of almost 3%.

I want to check on Carmax as well.

Disappointed earnings from the used car chain.

Down to the tune of 6.6% on Carmax with sort of a rough year for the name.

Of course used cars in high demand in the early innings of the pandemic.

The situation is changed.

On a programming note, MoneyTalk Live will be taking a holiday hiatus starting tomorrow.

We will be back on Monday, January 9 with Tarik Aeta, Global Health Care Analyst at TD Asset Management will be taking your questions about healthcare.

Before we sign off, all of us here the money talk to would like to thank you for tuning in for our first year of broadcast and we are looking forward to bringing you more market insights and analysis in the year ahead.

>> Happy Holidays!!!

[festive holiday music]