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[music] >> Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Coming up on today's show: we will hear from MorningStar's chief US market strategist David Sekera on what signs of inflation gradually easing mean for the markets. TD Asset Management's head of asset-allocation Michael Craig will discuss why there may be some more volatility ahead for these markets and Michael O'Brien will give us his take on why it may be short-term pain long-term gain for investors.
Plus in today's education segment, Bryan Rogers will show us how you can keep on top of economic and corporate news releases using WebBroker.
Before we get to all that let's get you an update on the market.
A bit of a mixed session here on Bay Street with the TSX Composite Index up a little more than 1/3 of a percent. We are seeing some firmness in the price of crude it today, not a big reaction to some of the energy majors but some of the miners are performing fairly well.
Alamos gold… Up a little more than 2%.
Algonquin power continues under pressure this week. We call that a couple of days ago, slashing their dividend by 40%.
South of the border, Anthony Okolie joins us with a little more on that.
It's been a bit of a mixed session. Right now down modestly about 13 points we will call that at a broader read of the market.
The tech heavy NASDAQ pacing the broader market down the 30% as well and J.P. Morgan among those names, getting a reaction on the street right now, actually in positive territory.
Up 1/2%. And that's your market update.
Those U.S. Bank earnings are weighing on market sentiment today giving investors something to think about and more so about the path forward for us this year.
Our Anthony Okolie has been digging in and joins us now with more.
>> Thanks so much Greg. We did get some strong profits in the fourth quarter as you mentioned, J.P. Morgan and Bank of America topping, low growth expansion in the fourth quarter, that offset some of the declines in investment banking fees.
But again, the thing rattling stock markets is the warning of recession. J.P. Morgan said a recession as their base case of the Bank of America CEO warning that the economic environment is increasingly slowing.
Warning investors.
>> Presumably they will start putting aside more cash just in case things do transpire to the downside.
>> Exactly. You know, we did see some banks already taking stockpiled money to prepare against the backdrop of a weaker economy.
Certainly credit can start to weaken and they want to make sure they have enough cash on hand to manage those bad loans when they do come.
>> Of course, US banks will kick off earnings season as is the custom.
Our banks used to come at the end of our earnings season so it'll be a while before we hear from Canada's banks but we actually heard from the CEOs, interestingly enough, earlier this week, Michael O'Brien will bring that conversation later the program.
Basically what he was hearing was pretty much across the board is that Canada's big banks expect some rough times this year but I think they are in pretty good shape. Not that concerned of the moment.
>> Yeah. I mean I think as you mentioned, they are not too concerned right now.
The job market is still fairly strong and so I think that's probably not gonna bring as much concern about credit going forward. But certainly if you do see a slowing economy, we can see a reversal in the job markets and I can be a concern particularly for big banks as they, again, look to increase their stockpiles for those bad loans down the road.
>> We will try to figure out what the year ahead looks like but we always enjoy hearing from CEOs of the big financial institutions to get that bird's eye view. So it's always interesting.
>> Exactly. I think going into this, of course, not just the banks but other companies are optimistic about earnings going into this quarter versus one year ago.
So I think the big question for investors is "how are companies, corporations going to increase the revenues and increase the profits down the road, particularly against the backdrop of a slowing economy?" So that will be a question going forward.
>> Our thanks to Anthony Okolie and he will be back later on the show. He is a fresh call from TD Securities on the US dollar.
Of course this week, we also the latest US inflation report, showing that consumer prices gradually decline south of the border. Earlier, I spoke with David Sekera, chief US market strategist at MorningStar research to discuss what that means for the market.
>> We titled that near-term turbulence with clear skies ahead and what I'm thinking is this year it's going to be a tale of two halves. We will see a lot of volatility in the first half of this year but then by the second half of the year, a lot of the headwinds will be noted in 2022.
Probably start turning into a couple of tailwinds and I think that will help the market start to recover towards what we think long-term intrinsic evaluations are for the markets today.
>> So with inflation, we did see that read and you see the gradual pullback. It does sound, as you are laying out your case for this year, a longer-term play. Not a dramatic shift overnight. Just whittling away at it.
>> Yeah. So you know, in 2022, we thought last year the markets were overvalued.
We think things have just swung too far to the downside of the market is actually not significantly undervalued. There were headwinds the market had to contend with last year. We think two out of four are starting to… The increase of long-term interest rates can be expected is behind us at this point and we also noted that we thought inflation had peaked a number of months ago and this would continue to come down. We are looking at 2.9% average inflation for this year and in fact, you can get it down below 2% next year.
So really, the two things I'm watching for the first half of this year are the US economy and the Federal Reserve. Now, as far as the US economy goes, the fourth quarter for 2022 shaped up to be kind of okay. We do think the economy is going to be software for the next two quarters.
Pretty stagnant.
Even as we start to re-accelerate in the second half of the year and that as far as the Federal Reserve goes it looks like we will have at least one more or if not to rate hikes before they pause.
Now part of the reason we think things will start to look better in the second half of the year is that we do think that with the reserve, really starting to pause under hiking, they can actually start shifting their focus back towards their dual mandates.
So not just inflation but also maximizing the economy to be able to get to full employment. And so, in the second half of the year, with inflation continuing to decline with the economy being stagnant in the first half, that actually would give them the reason to actually pave it and the second half of the year turned to an easy policy.
>> That's the great debate it seems at the start of this year. What the Fed and other central banks are saying.
Saying "we got maybe a little more ahead of us and that we will stay at that level for a while." But the bottom market is saying "I don't think so, we will be covering the second half…" > The bond market is always calling the 800 pound gorilla in the room so you certainly have to pay attention to what the bond market is price again.
As far as long-term interest rates, we think we are pretty much at the average of what we are expecting this year, about 3 1/2%. Having said that, with inflation coming down especially in the second half of this year and into next year, we do think there's actually room for long-term interest rates to rally.
We are looking at a 2 1/2% rate for 2024.
So I think the bond market, last year was essentially the worst year ever we saw in terms of fixed income but things are certainly looking much better especially in the second half of this year for fixed income investors.
>> So hopefully things will pan out in the second half of the year.
How bumpy could the ride between now and then be?
Thinking about the volatility… >> That's always hard to know. It does look like the markets probably put in here in the US, October of last year. So I would assume that probably should hold.
Now having said that, I think we can easily see a couple of percent swings in day-to-day prices up 5%, down 5%… Probably a trading range for the next couple of months. So I think the market will be very very focused on the economic indicators and that over the next couple of weeks we do have earnings season here starting and I think people will be focused on what 2023 guidance with the company's especially the banks coming up tomorrow,, depending on how that guidance shakes up we could see people reevaluate what their valuations are based on those EPS numbers.
>> Let's talk a bit about that because obviously people of the morning and perhaps a more bullish argument, I mean the more bearish argument rather for this market is that we haven't seen the companies fully coming out and saying "okay, here's the state of the economy and here's the change that we've seen in consumer activity rising rates. Here's what it will be for the bottom line.
We have a fully priced that in yet".
Is there any merit to that argument?
>> There is certainly merit but you also have to think about whether you are a tray door or an investor.
So looking at the market technicals, we can see a lot of volatility whether you are a trader or an investor rather. If you take a step back and really think of what companies can generate over the long-term and think about this kind of cash flow model here, we are really trying to figure out what the intrinsic value of the company's worth is based on the long slow long-term cash flow.
So even if you have short-term volatility earnings, when you think about how much that should change the intrinsic value of the company, usually in earnings you might see a 3 to 5% movement in intrinsic value if it's different than what we expected. But really we are looking for those changes in the underlying business over the long-term and whether or not those projections are in our forecast.
So again, we will be watching and listening for that with the first half of this year the guidance numbers.
But based on what we are expecting right now, we do think the markets are pretty significantly undervalued and in fact, if you look at our valuations going back to 2010, as far as how much the US markets are trading at a discount, compared to where it's been in the past… I'll get a lot of volatility here in the short term but for those investors with a longer-term focus that can whether this period of volatility, I do think that things will look much brighter in the second half of this year and going and 2024.
>> Longer-term horizon looking very bullish, I will ask you what can trip up that thesis?
>> Again that it will be stagnant and potentially recessionary and at this point our US economic schema saying "hey, the potential for a recession is 30 to 50%." If that recession does come about I know their base case is that it will be short and shallow. So if we would have a much deeper recession or a recession that lasts more than the next couple of quarters, that's going to put a lot of downward pressure on earnings and certainly downward pressure on our valuations as well.
The other part to the could be a wild card is we do think the preponderance of long-term interest rate increases is behind us.
If we were to see the tenure really start to make a move up again and yields, that certainly could play how the growth stocks see a lot of downward pressure and growth MegaCap stocks.
Again because there is such a large market Percentage of the overall market, that could bring market valuations down as well.
>> That was David Sekera chief US market strategist with MorningStar research.
And now let's get you updated on some of the top stories.
Corus Entertainment is warning investors it expects continued weakness in TV advertising revenue this year.
In light of the tough and add environment course says it will not renew its share buyback program and its differing its decision on declaring the March dividend.
Cortisol both sales and profit fall in its most recent quarter compared to the same period last year.
Tesla shares are in the spotlight today.
That on reports the electric vehicle maker is cutting prices on its vehicles in the US and Europe.
Based on prices listed on its website. Tesla fell short of vehicle delivery target last year and the move is being seen as an attempt to stoke demand.
Oil is set to close out a moneymaking week as investors way China's economic reopening and the impact on demand.
The recent weakness in the US dollar has also been supportive of crude oil and some other commodities.
Let's check in on the main benchmark indices here at home with the TSX Composite Index up a fairly healthy 92 points, almost half a percent right now building on some of the gains in the morning.
South of the border you the big US bank earnings that we've discussed with Anthony at the top of the show.
More about some of these big bankers on Wall Street saying they are pretty much baking in a recession, albeit a mild one as part of their plan for this year.
So sort of digesting all of that.
Not too dramatic.
We'll call that a little shy of 10 points about 1/4 of a percent.
The widely divergent views on where the markets are headed may spell more volatility. Let's ask Michael Craig who I spoke to head of TDS allocation. He joined the earlier to explain.
>>… Stocks are at a miserable level in 2022.
Data is showing that we are seeing continued slowdown across various indicators in terms of activity.
So that's fine in terms of this year… I say there is a pretty, I mean the question right now that is on top of I think most people's minds is the bond market versus central banks. Bond markets pricing and cuts in the second half of this year. Central banks are still in very much hike mode. They are looking to hike more. I think this is where kind of the battle will be.
This will drive a lot of volatility because for either side to kind of win on this and be correct we will have need for further asset classes.
>> Does not spell volatility with every data point and investors saying "this means this, this means that… Therefore you get the swings?
>> It's actually kind of crazy because you have, half the time they get revised anyway. It's really about the strain of economic data and momentum.
So you might miss modestly but the overall direction, you have a big reaction last week.
You had a daily luge of fairly negative data, jobs numbers were okay and both the bonds and stock markets were euphoric.
And that's the, kind of poor economic data shouldn't necessarily be positive for risk assets. I don't think the central banks are actually looking at that growth in terms of their decisions on cutting.
But you get these overshoots in the market and I think in any given day, people try to explain things away about why it's happening and you have to step back and look at that kind of broader, longer term.
A minimum quarter picture and short-term rise and longer-term incentive.
>> So you're talking about the bond market not fully believing in the central banks in the Fed and what they're saying about what they wanted with rates and how long they want to keep them there? How would if you take a look at the bulls and the bears let's say for the S&P 500? I think there's a pretty wide divergence here between where the bulls and bears think we will end up too.
>> Not to sound like a two-handed strategist but they both could be right.
What I mean by that is when you look at the actual S&P, you take out the kind of MegaCap top six names, market is now only 7% below its highs. It's been a pretty material recovery in smaller companies.
Where you continue to see a lot of pressure, not so much today but a lot of pressure is in the things that have kind of gone stratospheric and are still kind of deflating.
So you have your MegaCap attack on one side but then you have other parts of the stock market that have done quite well. Energy did very well Esther. Healthcare define lustre.
So you know, it's more of a stockbrokers market it's a world where you a lot of confluences and there will be some certain asset classes that will be a prolonged bear market and somewhere you can probably do okay the next couple years.
Because valuations are actually quite attractive in certain areas.
> After the year we had, all the volatility that we saw, some portfolios performing the way investors want them to, you don't have to look far if you want some of the reinforce your negative viewpoint you have to look far. Is that a bit overdone at this stage?
>> I think the sentiment, in a bull market is fine.
It's really important because it's a very good short-term measure. When you're in a bear market recession, it tends to be bad and it's not really a contra indicator.
On a given day trading around, the sentiment is important but I would be a little wary of getting to contrary and right now because people are, you know bitter and not happy.
You look at CAO rather CEO surveys quite bearish right now.
A lot of the soft ads telling you that people are quite negative.
Employment is still quite strong for example. So again, there's a lot of crosscurrents right now. You have to step back and look at, on, we have these major economic forces at play.
Dead, much higher cost of borrowing. Ultimately that's gonna drive economic progress in the next medium term and I think those are two things you have to watch for and be mindful that that's can be driving things for some time and that's where the risk is in our opinion.
>> So obviously, it depends where you look at opportunities. What about fixed income? That was a tough year as well because the central banks are so aggressive with super sizing rate hikes.
That was not good for the bond portfolio. Could there be some opportunity this year?
>> We think so.
Last year was one of total misery.
In fixed income land.
You know, I think ultimately, in terms of inflation, there are some aspects that are transitory but it's just nobody ever defined what transitory was whether it's a month, 1/4 or two years.
With finishing right now as you look at the market expectations for inflation… They are actually there are traitors in the market that trade off inflation data… Sub 2% by June.
People realize that's aggressive.
If that's remotely accurate than the bond market provides relatively interesting value, we've been in an era of financial depression were bond yields have been well below inflation or just touching it now.
We are in an era where there still below headline inflation but expectations of inflation is actually yielding much above. So right now, anyone who tells you this can happen this year, forget it.
You have to be open to a pretty wide range of outcomes and think about almost in your head, wargame, what you want to do with those outcomes.
Our approach right now as we can step back a bit, hold duration, yields higher than they have been for a long time and see how things play out for we get committed to risking if you will. I think there are places where equities do okay but I would have a higher Commission in the fixed income markets right now.
Not so much the value but certainly the long and were we think inflation will moderate this year.
>> Given the fact that we are not out of the woods yet and could have some volatility, is it really about your timeline or what you want to do here?
You're probably not expecting great things in short order… >> By definition, equities provide far better value than they did a year ago. You should always be looking at equities as a source of long-term wealth creation, not a something to trade around. I know people do trade and that's fine.
It's a really hard way to make a living. Identical four. In a previous role. But if you're thinking on a five-year horizon, there are certainly areas where you look back in five years, 3 to 5 years and say "that worked out quite well." So over the next 12 months, we might be flat.
We may not go anywhere.
With a lot of volatility.
But that's ultimately how I would think about right now, they are not nearly as vulnerable as they were 12 months ago. I think some of the growth parts of the market, if you don't see earnings, for growth stocks with no earnings, I think they're still at risk there.
But other parts of the market we are making good money, yeah. It's not a bad time to start looking at that but you have to have of you over three years.
>> That was Michael Craig, Head of Asset Allocation at TD Asset Management. Now let's get to our educational segment of the day.
Staying up-to-date on market news is important for any self-directed investor and WebBroker has tools which can help you.
Joining us now with more is Bryan Rogers, Senior Client Education Instructor with TD Direct Investing.
Great to see you as always. Take us through WebBroker.
>> Greg, obviously we have our MoneyTalk Live sources but within WebBroker there's lots of great options for accessing market news within WebBroker platform itself.
Specifically, there's a tremendous amount of current information available under "news and commentary" so I want to jump there really quick and show everyone.
There is a number of places you can get your news but if you like to just jump in and go directly to the news, you can click on "research" and you want to go to news and commentary under this markets tab. It will take you to the screen that actually shows you global news and commentary. You will see the latest news and you can actually see the timing where it comes from as well.
One hour ago, two hours ago… If you scroll down you can see a number of different areas that are available in the left-hand side here. Business news is a category if you're looking for that.
You can see all along, you can enter a keyword search.
If you're looking for news on China or something about commodities or gold… They specifically even have a commodities section if you scroll down.
Past the business news and keep scrolling down further you can see it as a commodity new section at the bottom. So all along the left, you can see the different times as you're going if you're looking for something that the little bit older.
And as I said, you can put in that keyword search, see if you can find what you're looking for. It may not always be exactly what you're looking for but if there is something related to that keyword search, scroll down for all the sections and see if there's an article about what you're looking for.
Then on the right-hand side with the video commentary, if you're someone who likes to watch more videos, we have videos of money talk and other contributors like MorningStar also the Globe and Mail as you scroll down further on the right-hand side.
Articles from key people like Scott Barlow and… Etc. so you have other articles that you can read. One of the parts I really like is you can do a keyword search you're also you can also see if there are some trading ideas that they have available for you.
Like a story about Albertsons here… Or Microsoft so to give you some ideas on your trading. One other quick aspect Edmonton too, Greg, is you can actually filter this in a way just by the region you're looking for. If you're more of a US-based investor, this is already filtered by the US flag.
You can see this is checked off right away.
If you want the stories coming through to be just a Canadian slant you connection up at the Canadian flag and you will notice that some of the headlines will change based on whether you are looking for more Canadian content. So just a member you have these little flags at the top here as well.
>> Clearly a wealth of content there for people of the platform.
But at the same time, sometimes you just want to filtered through the things that you really want to focus on. So talk about filtering through all the stuff.
>> Yeah.
There is a section that you can actually look for a specific category.
So if you're looking for commodities or a certain type of commodity as we mentioned our certain sector or just even market news in general and so on… Let's jump back into WebBroker: this might be something that will save you from that it's something I've had to do over the years and finally figured out that there is a section where I can look more to specific category. In that same location under the "research" and that global news and commentary, we also do have live briefs as well. I didn't mention that earlier.
That's something you can look at for just that quick hit of live briefs that might be available.
You have that as well on this section.
But if we are looking for a specific category, go in the categories tab and now you can search by any of these categories available so you just want to click on the top if you want to select the specific category for example by going to "market summary" or you can view news. I can see down here all the news stories related to the market summary.
Or if you want to get a bit more specific, I will uncheck this and go to commodities.
Here you can actually look for energy only or all three, metals and agriculture… Especially as Canadian investors. We can click on "view news" in all the stories related to that and you can look at say, the financial sector and view the news for those stories as you go.
So whatever you're looking for, you'll be able to find it. You have to go through a giant stack of newspapers and put it out of the recycling Greg. You've got your one stop shop for your news.
>> That's an important point for the people who take out the recycling of the house. Bryan Rogers thanks as always.
I was Bryan Rogers senior Client Education Instructor at TD Direct Investing. Make sure to check out the Learning Center and WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Investors were hoping for better returns this year may have to exercise in patience.
Michael O'Brien, Portfolio Manager at TD Asset Management join me earlier to discuss.
>> Obviously last year, what got us all by surprise was just how rapidly and how high interest rates were raised by central banks. The good news is we are getting closer to the end of that story. But now, the trick for 2023, when you think about it, is how can we get inflation back closer to the 2% target that central bankers are really clear that they want to see.
How can we do that without a big impact on company earnings?
That's a pretty tricky, you know, path to navigate.
And so, being realistic, I think there's reasons to be optimistic, inflation has been a sort of coming off the peak.
It's moving in the right direction.
I'm just saying, I think we should be prepared for some bumps on the road here in 2023 because it's not an easy task to soft land and economy. It's not an easy task to bring inflation down without sending on employment up.
So I think we just have to expect that there is good to be some trade-offs as we go through this journey and, you know, I guess put another way, I have not seen the "all clear sign" to back up the truck and load and the markets here.
We still need to be very discerning, pick our spots and be disciplined about what we want to do.
The good part of this though, I guess if you want to sort of put a little bit of positive spin on things is you know, the next 6 to 12 months will be tricky.
If I'm thinking at longer-term, 3 to 5 years, when I look at today's starting point where the Canadian market specifically sits, historically the market should trade between 15 to 16 times. That's the norm.
Now today we are trading at 12 1/2.
You think about the big, the biggest part of our Index, the banks is a great example.
Historically, they trade 11 to 12 times earnings and today they are trading below 10.
So what I see and that is with today as a starting point with a little patience, over the next three, four, five years, I think we can have a pretty positive you overwork Canadian equities are going. It's just in the short term there are still work to be done. The central banks are not finished with their task. At some point, there will be some ugly headlines in the newspaper about unemployment rate taking higher or whatnot.
So we just need to be ready for that.
>> The work that needs to be done perhaps they haven't arrived yet those headlines.
Is that surprising? I'm thinking of the labour report we just got out of Canada.
After all of those supersized rate hikes of last year, the labour markets still very resilient.
What's happening there?
>> It's interesting you hit on that. I think a lot of investors are scratching their heads.
We all came into 2023 collectively with a similar playbook. The early part of the year will be difficult as interest rates increase and hit the economy. But things get better in the back half.
That was kind of the consensus view. Now, I think were all looking around each other saying "100000 Jobs in Canada in December… What was the US number, three and a thousand or something?" Recession does not seem imminent. This is pretty resilient. So now I think were kind of realizing that this might take a little longer to play out so it's not this convenient first six months difficult, next six months great. This could extend a little further. So the glass half full spin on this is I think we are seeing both in Canada and the US, consumers, households are much more resilient than we give them credit for. The glass half empty is this resilience, this potentially forcing central bankers to be more aggressive than they otherwise would be.
Maybe forces rates higher than they otherwise would need to go in order to create the same end result. So in other words, it could be a little higher interest rate environment for a little bit longer that brings us to the eventual destination.
>> So clearly, the big story of last year was inflation. The fight against inflation.
What to do if the economy dominated all the markets in our conversation, clearly moving into this year, still sort of the dominant force.
Do we get to a point in 2023 were we are looking at other things? I just these big macro challenges that we will just have to sort of wade through for the next while?
>> I think we had an unprecedented boom in 2020 and 2021 in terms of the stimulus. It will take more than just nine or 12 months for that to dissipate.
So I think there is still a little bit of payback to come. But yes, I think there is a good, there are lots of reasons to believe that inflation may have already peaked. It's trending in the right direction. I think there's lots of good reasons to believe that the peak in the central bank rate hike cycles is pretty imminent.
You know, maybe not too many more hikes to go. It's just, you know, we aren't there yet. Once we get there then it will be a whole new set. A whole new wall to climb. But I think in the short term people will be glued to every inflationary report. Glued to every comment out of a central bankers mouth, whether in Sweden or wherever they are. That's good to drive the market in the short term.
But yeah, I think we can look forward to a new set of issues to worry about.
>> I was looking for a new set of things to celebrate but there's always things to worry about.
haha you talk about sharpening pencils for investors and all that stuff.
Is it about patients? How does it play in the market?
Not so much sitting on the sidelines with picking your moments?
>> I think it's about picking your moments and also understanding what it is you're trying to accomplish.
I guess what I always try to tell myself is don't try to outsmart myself.
Find the types of companies you want to own through the cycle and if all the noise and all the you know, concerns and worries have driven to a point where you can buy them at a fair price today, sometimes it's as simple as that.
You know, don't try to outsmart yourself. At the same time, be aware of how much risk you're taking. And so it could be a company that's very very cyclical whose earnings are highly at risk or it could be a company who is viewed as a very stable company but their valuation is very elevated. Both have to be really ready or aware of the risks are taking in the portfolio. Right now, I think that's how I'm thinking through things. It's more about "what is the balance?
The risks I'm taking at the opportunity… Where is that imbalance?
Because there are still parts of the market where it's a little bit skewed to the downside.
Too much earnings risk, paying too much for it.
But there are places in the market that you can find where,, at least a portion of the earnings risk you're taking in this type of environment has already been in the share price.
>> That was Michael O'Brien, Portfolio Manager at TD Asset Management.
The chicken on the market action right now. The TSX, making gains today.
Actual triple digit gain of 110 points. A little more than half a percent.
as for mining stocks, we do have investors reacting to production but some other minors are making gains.
Shopify was making modest gains earlier in the session.
50 bucks and $0.58, we will call that a gain of 3%.
Now, south of the border, bank earnings coming in on Wall Street.
The quarters for some of these big Wall Street banks, the CEO sort of baking and as a base case, a recession this year.
Investors turned away all that out right now. You are pretty much just flat with the S&P 500. Pretty modest about five points.
Also seeing this headline about Janet Yellin on Thursday. So we have that to worry about in terms of Washington in the ceiling.
Something else to keep an eye on.
The tech heavy NASDAQ, let's see how it's fearing in the broader market. Down about the same degree. Less than 1/10 of a percent and Tesla, apparently cutting some vehicle prices in US and Europe.
Remember they miss their delivery target for last year.
Trying to stoke some demand. That stock is down 2.7%.
Of course, the US dollar surged to record highs in 2022 against a basket of other major currencies.
Adding a two decade high in September of last year.
What will the US dollar strength last? Our Anthony Okolie joins us to discuss TD Securities 2023 outlook on the US greenback.
>> As Greg mentioned, it is coming off is a very strong year in 2022.
As this chart shows, it shows the US dollar has a tremendous run last year, peaking in September. But since then, can see, we have seen a bit of a drawdown in the currency and the big question is, TD Securities believes rather, that this recent drawdown raises the question about whether that sparks a broader downturn this year. While TD Securities expects a broader US dollar depletion this year, it's past lower will probably be a choppy one.
Driving the review of the US dollar is that they say the major themes that we heard about quite a bit in 2022 including inflation, global growth downgrades and synchronized global central bank tightening… These trends are likely to reverse this year. Albeit slowly.
TD Securities also points out that global growth downgrades sensed rising stagflation risk… A rising economy were key driver of the US dollars of performance in 2022.
Now, the US dollar update provided a great mobile stagflation hedge, offering it's relatively… Some of the global commodity shocks that we saw last year. But the key focus, again this year, should be on global disinflation according to TD Securities.
Against the back and is backed up, TD Securities says that the US dollars overvaluation has reached extremes.
That's typically associated with the turning point.
Now according to TD Securities, the US dollar certainly has declined in subsequent quarters after posting a 20% year-over-year rally. So overall, they believe the US dollar has passed its peak.
Depreciating this year. Against a basket of global currencies in 2023.
> There is the thesis.
After that big run of last year we will see a weaker US buck.
What about the risks on their thesis?
>> Absolutely. TD Securities comes to a number of risk factors that could challenge their outlook.
One of them is a poor fourth-quarter earnings season.
As well as a wobbly global growth environment. That could benefit the US dollar. Keep in mind that the US dollar has a strong correlation to risk appetite.
The US dollar weakens as risk appetite rises and vice versa.
Another factor or risk factor that they point to, China's reopening. It could be a bumpy one in the first quarter.
That increases the risk of a reversal of the US dollar weakness. But overall, TDC believes this factor should offer only short-term support for the US dollar, primarily through the first quarter.
>> Interesting stuff in a big question on the mind of investors.
Thanks Anthony.
>> My pleasure.
>> MoneyTalk Live Anthony Okolie.
You want to stay tuned to Monday shows Vitali Mossounov, Global Technology Analyst at TD Asset Management taking your questionsabout technology stocks.
And a reminder to get a head start, just email moneytalklive@td.com.
Thanks for me and Anthony that's all for our show today take care.
[music]
Coming up on today's show: we will hear from MorningStar's chief US market strategist David Sekera on what signs of inflation gradually easing mean for the markets. TD Asset Management's head of asset-allocation Michael Craig will discuss why there may be some more volatility ahead for these markets and Michael O'Brien will give us his take on why it may be short-term pain long-term gain for investors.
Plus in today's education segment, Bryan Rogers will show us how you can keep on top of economic and corporate news releases using WebBroker.
Before we get to all that let's get you an update on the market.
A bit of a mixed session here on Bay Street with the TSX Composite Index up a little more than 1/3 of a percent. We are seeing some firmness in the price of crude it today, not a big reaction to some of the energy majors but some of the miners are performing fairly well.
Alamos gold… Up a little more than 2%.
Algonquin power continues under pressure this week. We call that a couple of days ago, slashing their dividend by 40%.
South of the border, Anthony Okolie joins us with a little more on that.
It's been a bit of a mixed session. Right now down modestly about 13 points we will call that at a broader read of the market.
The tech heavy NASDAQ pacing the broader market down the 30% as well and J.P. Morgan among those names, getting a reaction on the street right now, actually in positive territory.
Up 1/2%. And that's your market update.
Those U.S. Bank earnings are weighing on market sentiment today giving investors something to think about and more so about the path forward for us this year.
Our Anthony Okolie has been digging in and joins us now with more.
>> Thanks so much Greg. We did get some strong profits in the fourth quarter as you mentioned, J.P. Morgan and Bank of America topping, low growth expansion in the fourth quarter, that offset some of the declines in investment banking fees.
But again, the thing rattling stock markets is the warning of recession. J.P. Morgan said a recession as their base case of the Bank of America CEO warning that the economic environment is increasingly slowing.
Warning investors.
>> Presumably they will start putting aside more cash just in case things do transpire to the downside.
>> Exactly. You know, we did see some banks already taking stockpiled money to prepare against the backdrop of a weaker economy.
Certainly credit can start to weaken and they want to make sure they have enough cash on hand to manage those bad loans when they do come.
>> Of course, US banks will kick off earnings season as is the custom.
Our banks used to come at the end of our earnings season so it'll be a while before we hear from Canada's banks but we actually heard from the CEOs, interestingly enough, earlier this week, Michael O'Brien will bring that conversation later the program.
Basically what he was hearing was pretty much across the board is that Canada's big banks expect some rough times this year but I think they are in pretty good shape. Not that concerned of the moment.
>> Yeah. I mean I think as you mentioned, they are not too concerned right now.
The job market is still fairly strong and so I think that's probably not gonna bring as much concern about credit going forward. But certainly if you do see a slowing economy, we can see a reversal in the job markets and I can be a concern particularly for big banks as they, again, look to increase their stockpiles for those bad loans down the road.
>> We will try to figure out what the year ahead looks like but we always enjoy hearing from CEOs of the big financial institutions to get that bird's eye view. So it's always interesting.
>> Exactly. I think going into this, of course, not just the banks but other companies are optimistic about earnings going into this quarter versus one year ago.
So I think the big question for investors is "how are companies, corporations going to increase the revenues and increase the profits down the road, particularly against the backdrop of a slowing economy?" So that will be a question going forward.
>> Our thanks to Anthony Okolie and he will be back later on the show. He is a fresh call from TD Securities on the US dollar.
Of course this week, we also the latest US inflation report, showing that consumer prices gradually decline south of the border. Earlier, I spoke with David Sekera, chief US market strategist at MorningStar research to discuss what that means for the market.
>> We titled that near-term turbulence with clear skies ahead and what I'm thinking is this year it's going to be a tale of two halves. We will see a lot of volatility in the first half of this year but then by the second half of the year, a lot of the headwinds will be noted in 2022.
Probably start turning into a couple of tailwinds and I think that will help the market start to recover towards what we think long-term intrinsic evaluations are for the markets today.
>> So with inflation, we did see that read and you see the gradual pullback. It does sound, as you are laying out your case for this year, a longer-term play. Not a dramatic shift overnight. Just whittling away at it.
>> Yeah. So you know, in 2022, we thought last year the markets were overvalued.
We think things have just swung too far to the downside of the market is actually not significantly undervalued. There were headwinds the market had to contend with last year. We think two out of four are starting to… The increase of long-term interest rates can be expected is behind us at this point and we also noted that we thought inflation had peaked a number of months ago and this would continue to come down. We are looking at 2.9% average inflation for this year and in fact, you can get it down below 2% next year.
So really, the two things I'm watching for the first half of this year are the US economy and the Federal Reserve. Now, as far as the US economy goes, the fourth quarter for 2022 shaped up to be kind of okay. We do think the economy is going to be software for the next two quarters.
Pretty stagnant.
Even as we start to re-accelerate in the second half of the year and that as far as the Federal Reserve goes it looks like we will have at least one more or if not to rate hikes before they pause.
Now part of the reason we think things will start to look better in the second half of the year is that we do think that with the reserve, really starting to pause under hiking, they can actually start shifting their focus back towards their dual mandates.
So not just inflation but also maximizing the economy to be able to get to full employment. And so, in the second half of the year, with inflation continuing to decline with the economy being stagnant in the first half, that actually would give them the reason to actually pave it and the second half of the year turned to an easy policy.
>> That's the great debate it seems at the start of this year. What the Fed and other central banks are saying.
Saying "we got maybe a little more ahead of us and that we will stay at that level for a while." But the bottom market is saying "I don't think so, we will be covering the second half…" > The bond market is always calling the 800 pound gorilla in the room so you certainly have to pay attention to what the bond market is price again.
As far as long-term interest rates, we think we are pretty much at the average of what we are expecting this year, about 3 1/2%. Having said that, with inflation coming down especially in the second half of this year and into next year, we do think there's actually room for long-term interest rates to rally.
We are looking at a 2 1/2% rate for 2024.
So I think the bond market, last year was essentially the worst year ever we saw in terms of fixed income but things are certainly looking much better especially in the second half of this year for fixed income investors.
>> So hopefully things will pan out in the second half of the year.
How bumpy could the ride between now and then be?
Thinking about the volatility… >> That's always hard to know. It does look like the markets probably put in here in the US, October of last year. So I would assume that probably should hold.
Now having said that, I think we can easily see a couple of percent swings in day-to-day prices up 5%, down 5%… Probably a trading range for the next couple of months. So I think the market will be very very focused on the economic indicators and that over the next couple of weeks we do have earnings season here starting and I think people will be focused on what 2023 guidance with the company's especially the banks coming up tomorrow,, depending on how that guidance shakes up we could see people reevaluate what their valuations are based on those EPS numbers.
>> Let's talk a bit about that because obviously people of the morning and perhaps a more bullish argument, I mean the more bearish argument rather for this market is that we haven't seen the companies fully coming out and saying "okay, here's the state of the economy and here's the change that we've seen in consumer activity rising rates. Here's what it will be for the bottom line.
We have a fully priced that in yet".
Is there any merit to that argument?
>> There is certainly merit but you also have to think about whether you are a tray door or an investor.
So looking at the market technicals, we can see a lot of volatility whether you are a trader or an investor rather. If you take a step back and really think of what companies can generate over the long-term and think about this kind of cash flow model here, we are really trying to figure out what the intrinsic value of the company's worth is based on the long slow long-term cash flow.
So even if you have short-term volatility earnings, when you think about how much that should change the intrinsic value of the company, usually in earnings you might see a 3 to 5% movement in intrinsic value if it's different than what we expected. But really we are looking for those changes in the underlying business over the long-term and whether or not those projections are in our forecast.
So again, we will be watching and listening for that with the first half of this year the guidance numbers.
But based on what we are expecting right now, we do think the markets are pretty significantly undervalued and in fact, if you look at our valuations going back to 2010, as far as how much the US markets are trading at a discount, compared to where it's been in the past… I'll get a lot of volatility here in the short term but for those investors with a longer-term focus that can whether this period of volatility, I do think that things will look much brighter in the second half of this year and going and 2024.
>> Longer-term horizon looking very bullish, I will ask you what can trip up that thesis?
>> Again that it will be stagnant and potentially recessionary and at this point our US economic schema saying "hey, the potential for a recession is 30 to 50%." If that recession does come about I know their base case is that it will be short and shallow. So if we would have a much deeper recession or a recession that lasts more than the next couple of quarters, that's going to put a lot of downward pressure on earnings and certainly downward pressure on our valuations as well.
The other part to the could be a wild card is we do think the preponderance of long-term interest rate increases is behind us.
If we were to see the tenure really start to make a move up again and yields, that certainly could play how the growth stocks see a lot of downward pressure and growth MegaCap stocks.
Again because there is such a large market Percentage of the overall market, that could bring market valuations down as well.
>> That was David Sekera chief US market strategist with MorningStar research.
And now let's get you updated on some of the top stories.
Corus Entertainment is warning investors it expects continued weakness in TV advertising revenue this year.
In light of the tough and add environment course says it will not renew its share buyback program and its differing its decision on declaring the March dividend.
Cortisol both sales and profit fall in its most recent quarter compared to the same period last year.
Tesla shares are in the spotlight today.
That on reports the electric vehicle maker is cutting prices on its vehicles in the US and Europe.
Based on prices listed on its website. Tesla fell short of vehicle delivery target last year and the move is being seen as an attempt to stoke demand.
Oil is set to close out a moneymaking week as investors way China's economic reopening and the impact on demand.
The recent weakness in the US dollar has also been supportive of crude oil and some other commodities.
Let's check in on the main benchmark indices here at home with the TSX Composite Index up a fairly healthy 92 points, almost half a percent right now building on some of the gains in the morning.
South of the border you the big US bank earnings that we've discussed with Anthony at the top of the show.
More about some of these big bankers on Wall Street saying they are pretty much baking in a recession, albeit a mild one as part of their plan for this year.
So sort of digesting all of that.
Not too dramatic.
We'll call that a little shy of 10 points about 1/4 of a percent.
The widely divergent views on where the markets are headed may spell more volatility. Let's ask Michael Craig who I spoke to head of TDS allocation. He joined the earlier to explain.
>>… Stocks are at a miserable level in 2022.
Data is showing that we are seeing continued slowdown across various indicators in terms of activity.
So that's fine in terms of this year… I say there is a pretty, I mean the question right now that is on top of I think most people's minds is the bond market versus central banks. Bond markets pricing and cuts in the second half of this year. Central banks are still in very much hike mode. They are looking to hike more. I think this is where kind of the battle will be.
This will drive a lot of volatility because for either side to kind of win on this and be correct we will have need for further asset classes.
>> Does not spell volatility with every data point and investors saying "this means this, this means that… Therefore you get the swings?
>> It's actually kind of crazy because you have, half the time they get revised anyway. It's really about the strain of economic data and momentum.
So you might miss modestly but the overall direction, you have a big reaction last week.
You had a daily luge of fairly negative data, jobs numbers were okay and both the bonds and stock markets were euphoric.
And that's the, kind of poor economic data shouldn't necessarily be positive for risk assets. I don't think the central banks are actually looking at that growth in terms of their decisions on cutting.
But you get these overshoots in the market and I think in any given day, people try to explain things away about why it's happening and you have to step back and look at that kind of broader, longer term.
A minimum quarter picture and short-term rise and longer-term incentive.
>> So you're talking about the bond market not fully believing in the central banks in the Fed and what they're saying about what they wanted with rates and how long they want to keep them there? How would if you take a look at the bulls and the bears let's say for the S&P 500? I think there's a pretty wide divergence here between where the bulls and bears think we will end up too.
>> Not to sound like a two-handed strategist but they both could be right.
What I mean by that is when you look at the actual S&P, you take out the kind of MegaCap top six names, market is now only 7% below its highs. It's been a pretty material recovery in smaller companies.
Where you continue to see a lot of pressure, not so much today but a lot of pressure is in the things that have kind of gone stratospheric and are still kind of deflating.
So you have your MegaCap attack on one side but then you have other parts of the stock market that have done quite well. Energy did very well Esther. Healthcare define lustre.
So you know, it's more of a stockbrokers market it's a world where you a lot of confluences and there will be some certain asset classes that will be a prolonged bear market and somewhere you can probably do okay the next couple years.
Because valuations are actually quite attractive in certain areas.
> After the year we had, all the volatility that we saw, some portfolios performing the way investors want them to, you don't have to look far if you want some of the reinforce your negative viewpoint you have to look far. Is that a bit overdone at this stage?
>> I think the sentiment, in a bull market is fine.
It's really important because it's a very good short-term measure. When you're in a bear market recession, it tends to be bad and it's not really a contra indicator.
On a given day trading around, the sentiment is important but I would be a little wary of getting to contrary and right now because people are, you know bitter and not happy.
You look at CAO rather CEO surveys quite bearish right now.
A lot of the soft ads telling you that people are quite negative.
Employment is still quite strong for example. So again, there's a lot of crosscurrents right now. You have to step back and look at, on, we have these major economic forces at play.
Dead, much higher cost of borrowing. Ultimately that's gonna drive economic progress in the next medium term and I think those are two things you have to watch for and be mindful that that's can be driving things for some time and that's where the risk is in our opinion.
>> So obviously, it depends where you look at opportunities. What about fixed income? That was a tough year as well because the central banks are so aggressive with super sizing rate hikes.
That was not good for the bond portfolio. Could there be some opportunity this year?
>> We think so.
Last year was one of total misery.
In fixed income land.
You know, I think ultimately, in terms of inflation, there are some aspects that are transitory but it's just nobody ever defined what transitory was whether it's a month, 1/4 or two years.
With finishing right now as you look at the market expectations for inflation… They are actually there are traitors in the market that trade off inflation data… Sub 2% by June.
People realize that's aggressive.
If that's remotely accurate than the bond market provides relatively interesting value, we've been in an era of financial depression were bond yields have been well below inflation or just touching it now.
We are in an era where there still below headline inflation but expectations of inflation is actually yielding much above. So right now, anyone who tells you this can happen this year, forget it.
You have to be open to a pretty wide range of outcomes and think about almost in your head, wargame, what you want to do with those outcomes.
Our approach right now as we can step back a bit, hold duration, yields higher than they have been for a long time and see how things play out for we get committed to risking if you will. I think there are places where equities do okay but I would have a higher Commission in the fixed income markets right now.
Not so much the value but certainly the long and were we think inflation will moderate this year.
>> Given the fact that we are not out of the woods yet and could have some volatility, is it really about your timeline or what you want to do here?
You're probably not expecting great things in short order… >> By definition, equities provide far better value than they did a year ago. You should always be looking at equities as a source of long-term wealth creation, not a something to trade around. I know people do trade and that's fine.
It's a really hard way to make a living. Identical four. In a previous role. But if you're thinking on a five-year horizon, there are certainly areas where you look back in five years, 3 to 5 years and say "that worked out quite well." So over the next 12 months, we might be flat.
We may not go anywhere.
With a lot of volatility.
But that's ultimately how I would think about right now, they are not nearly as vulnerable as they were 12 months ago. I think some of the growth parts of the market, if you don't see earnings, for growth stocks with no earnings, I think they're still at risk there.
But other parts of the market we are making good money, yeah. It's not a bad time to start looking at that but you have to have of you over three years.
>> That was Michael Craig, Head of Asset Allocation at TD Asset Management. Now let's get to our educational segment of the day.
Staying up-to-date on market news is important for any self-directed investor and WebBroker has tools which can help you.
Joining us now with more is Bryan Rogers, Senior Client Education Instructor with TD Direct Investing.
Great to see you as always. Take us through WebBroker.
>> Greg, obviously we have our MoneyTalk Live sources but within WebBroker there's lots of great options for accessing market news within WebBroker platform itself.
Specifically, there's a tremendous amount of current information available under "news and commentary" so I want to jump there really quick and show everyone.
There is a number of places you can get your news but if you like to just jump in and go directly to the news, you can click on "research" and you want to go to news and commentary under this markets tab. It will take you to the screen that actually shows you global news and commentary. You will see the latest news and you can actually see the timing where it comes from as well.
One hour ago, two hours ago… If you scroll down you can see a number of different areas that are available in the left-hand side here. Business news is a category if you're looking for that.
You can see all along, you can enter a keyword search.
If you're looking for news on China or something about commodities or gold… They specifically even have a commodities section if you scroll down.
Past the business news and keep scrolling down further you can see it as a commodity new section at the bottom. So all along the left, you can see the different times as you're going if you're looking for something that the little bit older.
And as I said, you can put in that keyword search, see if you can find what you're looking for. It may not always be exactly what you're looking for but if there is something related to that keyword search, scroll down for all the sections and see if there's an article about what you're looking for.
Then on the right-hand side with the video commentary, if you're someone who likes to watch more videos, we have videos of money talk and other contributors like MorningStar also the Globe and Mail as you scroll down further on the right-hand side.
Articles from key people like Scott Barlow and… Etc. so you have other articles that you can read. One of the parts I really like is you can do a keyword search you're also you can also see if there are some trading ideas that they have available for you.
Like a story about Albertsons here… Or Microsoft so to give you some ideas on your trading. One other quick aspect Edmonton too, Greg, is you can actually filter this in a way just by the region you're looking for. If you're more of a US-based investor, this is already filtered by the US flag.
You can see this is checked off right away.
If you want the stories coming through to be just a Canadian slant you connection up at the Canadian flag and you will notice that some of the headlines will change based on whether you are looking for more Canadian content. So just a member you have these little flags at the top here as well.
>> Clearly a wealth of content there for people of the platform.
But at the same time, sometimes you just want to filtered through the things that you really want to focus on. So talk about filtering through all the stuff.
>> Yeah.
There is a section that you can actually look for a specific category.
So if you're looking for commodities or a certain type of commodity as we mentioned our certain sector or just even market news in general and so on… Let's jump back into WebBroker: this might be something that will save you from that it's something I've had to do over the years and finally figured out that there is a section where I can look more to specific category. In that same location under the "research" and that global news and commentary, we also do have live briefs as well. I didn't mention that earlier.
That's something you can look at for just that quick hit of live briefs that might be available.
You have that as well on this section.
But if we are looking for a specific category, go in the categories tab and now you can search by any of these categories available so you just want to click on the top if you want to select the specific category for example by going to "market summary" or you can view news. I can see down here all the news stories related to the market summary.
Or if you want to get a bit more specific, I will uncheck this and go to commodities.
Here you can actually look for energy only or all three, metals and agriculture… Especially as Canadian investors. We can click on "view news" in all the stories related to that and you can look at say, the financial sector and view the news for those stories as you go.
So whatever you're looking for, you'll be able to find it. You have to go through a giant stack of newspapers and put it out of the recycling Greg. You've got your one stop shop for your news.
>> That's an important point for the people who take out the recycling of the house. Bryan Rogers thanks as always.
I was Bryan Rogers senior Client Education Instructor at TD Direct Investing. Make sure to check out the Learning Center and WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Investors were hoping for better returns this year may have to exercise in patience.
Michael O'Brien, Portfolio Manager at TD Asset Management join me earlier to discuss.
>> Obviously last year, what got us all by surprise was just how rapidly and how high interest rates were raised by central banks. The good news is we are getting closer to the end of that story. But now, the trick for 2023, when you think about it, is how can we get inflation back closer to the 2% target that central bankers are really clear that they want to see.
How can we do that without a big impact on company earnings?
That's a pretty tricky, you know, path to navigate.
And so, being realistic, I think there's reasons to be optimistic, inflation has been a sort of coming off the peak.
It's moving in the right direction.
I'm just saying, I think we should be prepared for some bumps on the road here in 2023 because it's not an easy task to soft land and economy. It's not an easy task to bring inflation down without sending on employment up.
So I think we just have to expect that there is good to be some trade-offs as we go through this journey and, you know, I guess put another way, I have not seen the "all clear sign" to back up the truck and load and the markets here.
We still need to be very discerning, pick our spots and be disciplined about what we want to do.
The good part of this though, I guess if you want to sort of put a little bit of positive spin on things is you know, the next 6 to 12 months will be tricky.
If I'm thinking at longer-term, 3 to 5 years, when I look at today's starting point where the Canadian market specifically sits, historically the market should trade between 15 to 16 times. That's the norm.
Now today we are trading at 12 1/2.
You think about the big, the biggest part of our Index, the banks is a great example.
Historically, they trade 11 to 12 times earnings and today they are trading below 10.
So what I see and that is with today as a starting point with a little patience, over the next three, four, five years, I think we can have a pretty positive you overwork Canadian equities are going. It's just in the short term there are still work to be done. The central banks are not finished with their task. At some point, there will be some ugly headlines in the newspaper about unemployment rate taking higher or whatnot.
So we just need to be ready for that.
>> The work that needs to be done perhaps they haven't arrived yet those headlines.
Is that surprising? I'm thinking of the labour report we just got out of Canada.
After all of those supersized rate hikes of last year, the labour markets still very resilient.
What's happening there?
>> It's interesting you hit on that. I think a lot of investors are scratching their heads.
We all came into 2023 collectively with a similar playbook. The early part of the year will be difficult as interest rates increase and hit the economy. But things get better in the back half.
That was kind of the consensus view. Now, I think were all looking around each other saying "100000 Jobs in Canada in December… What was the US number, three and a thousand or something?" Recession does not seem imminent. This is pretty resilient. So now I think were kind of realizing that this might take a little longer to play out so it's not this convenient first six months difficult, next six months great. This could extend a little further. So the glass half full spin on this is I think we are seeing both in Canada and the US, consumers, households are much more resilient than we give them credit for. The glass half empty is this resilience, this potentially forcing central bankers to be more aggressive than they otherwise would be.
Maybe forces rates higher than they otherwise would need to go in order to create the same end result. So in other words, it could be a little higher interest rate environment for a little bit longer that brings us to the eventual destination.
>> So clearly, the big story of last year was inflation. The fight against inflation.
What to do if the economy dominated all the markets in our conversation, clearly moving into this year, still sort of the dominant force.
Do we get to a point in 2023 were we are looking at other things? I just these big macro challenges that we will just have to sort of wade through for the next while?
>> I think we had an unprecedented boom in 2020 and 2021 in terms of the stimulus. It will take more than just nine or 12 months for that to dissipate.
So I think there is still a little bit of payback to come. But yes, I think there is a good, there are lots of reasons to believe that inflation may have already peaked. It's trending in the right direction. I think there's lots of good reasons to believe that the peak in the central bank rate hike cycles is pretty imminent.
You know, maybe not too many more hikes to go. It's just, you know, we aren't there yet. Once we get there then it will be a whole new set. A whole new wall to climb. But I think in the short term people will be glued to every inflationary report. Glued to every comment out of a central bankers mouth, whether in Sweden or wherever they are. That's good to drive the market in the short term.
But yeah, I think we can look forward to a new set of issues to worry about.
>> I was looking for a new set of things to celebrate but there's always things to worry about.
haha you talk about sharpening pencils for investors and all that stuff.
Is it about patients? How does it play in the market?
Not so much sitting on the sidelines with picking your moments?
>> I think it's about picking your moments and also understanding what it is you're trying to accomplish.
I guess what I always try to tell myself is don't try to outsmart myself.
Find the types of companies you want to own through the cycle and if all the noise and all the you know, concerns and worries have driven to a point where you can buy them at a fair price today, sometimes it's as simple as that.
You know, don't try to outsmart yourself. At the same time, be aware of how much risk you're taking. And so it could be a company that's very very cyclical whose earnings are highly at risk or it could be a company who is viewed as a very stable company but their valuation is very elevated. Both have to be really ready or aware of the risks are taking in the portfolio. Right now, I think that's how I'm thinking through things. It's more about "what is the balance?
The risks I'm taking at the opportunity… Where is that imbalance?
Because there are still parts of the market where it's a little bit skewed to the downside.
Too much earnings risk, paying too much for it.
But there are places in the market that you can find where,, at least a portion of the earnings risk you're taking in this type of environment has already been in the share price.
>> That was Michael O'Brien, Portfolio Manager at TD Asset Management.
The chicken on the market action right now. The TSX, making gains today.
Actual triple digit gain of 110 points. A little more than half a percent.
as for mining stocks, we do have investors reacting to production but some other minors are making gains.
Shopify was making modest gains earlier in the session.
50 bucks and $0.58, we will call that a gain of 3%.
Now, south of the border, bank earnings coming in on Wall Street.
The quarters for some of these big Wall Street banks, the CEO sort of baking and as a base case, a recession this year.
Investors turned away all that out right now. You are pretty much just flat with the S&P 500. Pretty modest about five points.
Also seeing this headline about Janet Yellin on Thursday. So we have that to worry about in terms of Washington in the ceiling.
Something else to keep an eye on.
The tech heavy NASDAQ, let's see how it's fearing in the broader market. Down about the same degree. Less than 1/10 of a percent and Tesla, apparently cutting some vehicle prices in US and Europe.
Remember they miss their delivery target for last year.
Trying to stoke some demand. That stock is down 2.7%.
Of course, the US dollar surged to record highs in 2022 against a basket of other major currencies.
Adding a two decade high in September of last year.
What will the US dollar strength last? Our Anthony Okolie joins us to discuss TD Securities 2023 outlook on the US greenback.
>> As Greg mentioned, it is coming off is a very strong year in 2022.
As this chart shows, it shows the US dollar has a tremendous run last year, peaking in September. But since then, can see, we have seen a bit of a drawdown in the currency and the big question is, TD Securities believes rather, that this recent drawdown raises the question about whether that sparks a broader downturn this year. While TD Securities expects a broader US dollar depletion this year, it's past lower will probably be a choppy one.
Driving the review of the US dollar is that they say the major themes that we heard about quite a bit in 2022 including inflation, global growth downgrades and synchronized global central bank tightening… These trends are likely to reverse this year. Albeit slowly.
TD Securities also points out that global growth downgrades sensed rising stagflation risk… A rising economy were key driver of the US dollars of performance in 2022.
Now, the US dollar update provided a great mobile stagflation hedge, offering it's relatively… Some of the global commodity shocks that we saw last year. But the key focus, again this year, should be on global disinflation according to TD Securities.
Against the back and is backed up, TD Securities says that the US dollars overvaluation has reached extremes.
That's typically associated with the turning point.
Now according to TD Securities, the US dollar certainly has declined in subsequent quarters after posting a 20% year-over-year rally. So overall, they believe the US dollar has passed its peak.
Depreciating this year. Against a basket of global currencies in 2023.
> There is the thesis.
After that big run of last year we will see a weaker US buck.
What about the risks on their thesis?
>> Absolutely. TD Securities comes to a number of risk factors that could challenge their outlook.
One of them is a poor fourth-quarter earnings season.
As well as a wobbly global growth environment. That could benefit the US dollar. Keep in mind that the US dollar has a strong correlation to risk appetite.
The US dollar weakens as risk appetite rises and vice versa.
Another factor or risk factor that they point to, China's reopening. It could be a bumpy one in the first quarter.
That increases the risk of a reversal of the US dollar weakness. But overall, TDC believes this factor should offer only short-term support for the US dollar, primarily through the first quarter.
>> Interesting stuff in a big question on the mind of investors.
Thanks Anthony.
>> My pleasure.
>> MoneyTalk Live Anthony Okolie.
You want to stay tuned to Monday shows Vitali Mossounov, Global Technology Analyst at TD Asset Management taking your questionsabout technology stocks.
And a reminder to get a head start, just email moneytalklive@td.com.
Thanks for me and Anthony that's all for our show today take care.
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