Market Insights

[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. Coming up on today show, TD Asset Management head of asset allocation Michael Craig will give us his view on whether the market strong start to the year is just a head fake for investors. TD Securities Robert Both will discuss the recent run of strong economic reports and what it could mean for interest rates this year. And with taxis and on the horizon, we will go through some things you should be keeping in mind when it comes to personal finance with Nicole Ewing, Dir. of tax and estate planning with TD Wealth. Plus, in today's WebBroker education segment, Jason Hnatyk is going to take us through how you can use stop orders on the popper. Before he gets all of that, let's get you an update on the markets. Last trading day of the week. Inflation a top concern. We've had a lot of strong economic data recently and the path forward. we've heard from some fed speakers this week and not ruling out a 50 basis point hike the next time around. We're on the top of earnings season. We are 101 points in the whole in Toronto, the TSX Composite Index down about half a percent. The price of crude is off the lows of the session but still substantially pulling back, got American benchmark crude, West Texas intermediate down almost 3%, hitting some energy names. Nine bucks and $0.35 per share from Crescent Point, down about 3%. Fairfax Financial is out with its latest earnings. The street seems to like this one, that stock is up to the tune of 7%. South of the border, let's look at the S&P 500, the broader read of the American market. Investors just trying to figure out what's the path of inflation this year? We know headline has been coming down, but how much of a fight does the Fed have ahead of it and what does that mean for interest rates? So there are a lot of things that play right now. Right now you're down 37 points, shy of a full percent. Let's check out the NASDAQ. A bit weaker here, Dell 152 points, almost 1 1/3%. Noticing some weakness and some of the big Mega-cap tech names, down a little bit more than 2%. That you market update. Markets did have a strong start to the year, but amid warnings from companies about the outlook for growth, investors may be left wondering whether the rally has more room to run or whether this is a false dawn for socks. Michael Craig, head of asset allocation at TD Asset Management join me earlier with his view. >> A few things, there are only two reasons why stocks go up. They pay more for the same thing or they been able to generate strong earnings. Over time, earnings tend to win the day when valuations make a big change. I will talk about earnings. This rally has been more about valuation, valuations going higher, trading now at 19 times, 20 times. The commentary from companies which has been fairly muted to negative and most earnings reports this quarter have been accompanied by job cuts. So look, I mean, can markets go a little bit higher? Sure, but they are certainly not, from a valuation perspective, interesting here at least in North America. I think you probably want to be a little bit cautious right now with the US market. > Some people have been thinking this was a classic sweet situation. There is a lot of negative sentiment heading into the year and people in the bearish camp got caught offside and then we end up with a short squeeze rally. Is there any indication that that's what was happening with the game? >> 100%, if we look at baskets of stocks, many were shorted. Tesla was shorted there. They are 190 or 80 today, they were 300 and change in October, sold down to 100. That had a huge balance. There was a big run this month but it's been off very depressed levels. This has been led by stocks and strategies that have been the most under pressure. I don't think people were set up very well going into this year. Sentiment indicators were very blue now. It's been a classic counter rally, bear market rally, if you will. And you can make a lot of money doing it, but it's tricky business, treating these types of markets. An investor should be very mindful of that. >> When you say tricky business it makes me think that investors should be cautious in this environment in terms of thinking that they are missing out on something. We've seen that a few times. After the tough first half of last year, there was a rally for the summer. Investors kept asking themselves, is this the real deal or a head fake? Then of course the August rally rolls over and the fall rules away. It sounds like a time to exercise some caution. >> Yeah. It's a great market to trade around lots of volatility. For investors, I wouldn't get… Look, are things materially different than they were a month ago? Not really. I think some of the optimism about rate cuts in the back half of this year have been priced out so that the headwind tocompany's performance. There are some interesting pockets. If you look at the SNP, underneath the top five or six mega-cap names, things are trading materially cheaper. There places to make money. I think it's those stock pickers market. I wouldn't say we can buy here into this constant uplift as we've seen in previous years. It's going to be a grinding market for the foreseeable future. >> What about the fixed income side? Winter this year perhaps with a bit of optimism that we are going to, by the duration of time, the Fed is going to stop and how long we stay at these elevated rates becomes a big question. At the same time, it seemed to be setting up fixed income after a tough years if for some opportunities. How are we feeling about that space? > Fixed income at the start of the year had high yields, depressed prices. Last week, we saw some air taken out of that. It sold off about 20 basis points. Really off the hot payroll numbers both in Canada and the US from past Friday. And I think that were in a bit of an area with a lot of crosscurrents right now with the inflation picture. I think people are generally in agreement that it's going lower but the speed is up for debate. You will see a huge number tomorrow. The CPI number tomorrow is very important. The ECI, and Fleming context index will be important. There have been some seasonal adjustments. The streets are hyperventilating over seasonal changes because there's a lot of math that goes into this. These are all estimates anyways.so I would saywith fixed income, is when be a good year but is not going to be a straight line. The key with fixed income, our argument is that there may be some volatility but earning 4 1/2, 5% on that strategy with a ton of optimality, if we do go into a severe recession, we will see on yields move materially lower I think so that is the thesis for fixed income. It had a good run. It does presents opportunities to engage. Like stocks, there is always some volatility because many people are unsure about where we are going. >>let's talk about some… A bit of an unsure picture. A very strong jobs report. We also know that headline inflation is going down. Some people are throwing around quirky, cute phrases. Immaculate disinflation, people were trying to get some traction on LSP. So it's a situation where inflation is tamed, but not too much damage is done to the labour market the economy. >> It's not the first time that people talked about his mother slowdown. The central banks have been very clear, saying, we are going to recession and the monetary easing is gonna happen because inflation is not going to be were we needed. That's a much more bearish viewpoint. It's really weird where we kind of were end of September the world is going to come to an end to we are going to have a soft landing. We have kind of priced in, priced out a recession so many times now. We haven't had anything yet. > We haven't even had a recession. >> And I think it is a little bit of… You know, the last time, I don't think we are going anything like a week. That was a true, long, blown a recession. I'm not going to count COVID, that was too short from a markets perspective. The first time we've had kind of a social media echo chamber and the narratives are spinning around that world and I think it has changed the way people are thinking about it, typically people aren't really thinking about recessions. It comes as a shock. This time around, they are very aware of it and we are still waiting and nothing has really happened yet. So I think it's just kind of coping with the world is changing, the world is changing and that's leading to false starts, both recession starting and not starting. I would really push back on the idea that everything is going to be kosher and a soft landing and everyone is going to adapt magically. Certainly if you look at the housing data, stateside and Canada, is not showing a soft landing. He continues to be quite weak. Housing is said to be part of the economy, I think that someone to be worried about. >> That was Michael Craig, head of asset allocation at TD Asset Management. Let's say you updated on some of the top stories in the world business and take a look at how the markets are trading. Shares of Air Canada are in the news today. not off the country's largest air carrier missed earnings expectations on higher costs during the quarter. That said, Air Canada is providing an optimistic forecast for this year on excitations for strong travel demand. Deere & Company is reporting a bead on the top and bottom lines for the most recent order. The maker of agricultural machinery is also raising its earnings forecast for this year, saying its fundamental demand for its products remain strong. The stock up 7%. DoorDash is reporting a wider than inspected loss despite sales coming in stronger than effective. The food delivery company is pointing to cost link to its purchase of Finnish company Wolt and its layoffs in November. However, DoorDash is providing an upbeat forecast for this current quarter. It's down about 5% right now. After hours of pop 6%. Let's check out the main market indices, starting at home with the TSX Composite Index on this last trading day of the week. We are in a negative position, down to the tune of 85 ticks. South of the border, having gotten past this inflation story. Central banks figuring out what they have to do to tame it in the long run. Lot questions swirling around. In the states at least we are coming to the end of earnings season. We have the Canadian banks on deck starting next week. But south of the border, the S&P 500 down a little shy of three quarters of a percent. There are no shortage of reminders this time of year that tax season is just around the corner. Earlier, I spoke with Nicole Ewing, director of tax and estate planning at TD Wealth about what you should keep in mind when it comes to your personal finances. Have a listen. >> Obviously if you are in a family situation then there can be sort of different strategies to deploy heading into taxis and. What are some of the most popular and effective ones? >> There are a couple of immediate ones that come to mind. The RSP spousal contribution to a spousal RRSP is a very effective way of doing some future income splitting, we will say. So rather than making the contribution to my own RRSP, if I make it to my spouse, I'm still using my contribution room, but I make it to my spouse and they, then, in retirement are going to be able to pull that money out at their marginal rate at the time. So certainly where we have a big disparity between marginal rates or anticipated income in retirement, it's something to think about, as splitting up that eventual income once we are taking the risk proceeds. The other one is our TFS A. So normally, we cannot simply give our spouse money without the income on not being attributed back to us. It's called the attribution rule. I don't know how aware most people are of these, but the general rule is if I gift or loan for less than the prescribed rate to my spouse, they don't get to claim the income at their marginal rate. I still need to claim it on mine. The TF essay allows you to get the money to your spouse and they can contribute it to their TFS a and we don't have those attributional rules applying because there is no tax. There is no tax being triggered that I would need to report on the return. So a very effective way of getting money into the hands of the lower income spouse and making sure that we are doing that in most tax effective way. >> Hadn't thought about the fact that in a rising rate environment that if you run late with the CRA, it's going to mean a higher rate. But the prescribed rates, they change as well to you, right? Does that change the math on the other strategy of gifting or loaning your spouse cash? >> Very much so. We talked about this for years. We had the low 1% rate which is the lowest he could possibly be an essentially if you loan an amount to your spouse at the prescribed rate, you were able to, they pay you interest, you reported, we are good, we don't have these attribution rules applying. Not very long ago, those 1%. It's now going to be 5%. To the benefit of a strategy like that is that it allows you, your spouse would take that money and invested and the difference between what they are earning as income and the percentage that they need to pay to you as interest, there was a nice opportunity for some savings. It's a bit more difficult when we need to be 5% in order to make that strategy effective, given all the additional requirements. Hopefully everybody got a prescribed rate loan in place in earlier years made sure to have that interest payment made by the end of January because once that, if you don't do that, you lose the benefit of those rules and the attribution rules will continue to apply. Hopefully, we don't have anyone in that situation. But it's a bit of a different math equation than it was a few years ago. >> So that's a significant change in the landscape that people need to keep in mind. Anything else only think about this tax season that might be different from previous tax season? > Last year, we did see a lot of capital loss harvesting, that type of thing. That I think is going to be new for some people this year, that they are going to need to file and look at whether or not they are going to be claiming those losses, whether they might need to carry them forward or back so there is some math that might need to be done. So it's a strategy that we don't want to have to employ very often. We don't want to have to… I think that's a little bit different for many people this year. >> When we are thinking about that as well, obviously, depending on where your investments are, your time horizon or what kind of vehicle you put them in, maybe someone would say, I am looking into my TFS a and I lost some money on a stock I have in there. That's not the same thing as losing money in a cash account. >> No, and it's an unfortunate situation because once it's in the TFS a, you are not taxed on gains or income, you also don't have the benefit of claiming your losses. So unfortunately those losses are likely trapped in the TFS a and that's not ideal. But it's a good reminder about what we invest where, what type of investments we are putting into our registered and nonregistered accounts and making sure that we are thinking about the taxation of that particular type of investment rather than just filling up our RSP or TF essay without really thinking through what the potential for loss might look like. >> That was Nicole Ewing, director of tax and estate planning a TD Wealth. Now, let's get our educational segment of the day. Stop orders are one tool that investors may consider in volatile markets. Joining us now for more on how to use them, Jason Hnatyk, senior client education structurewith TD Direct Investing. Let's talk about why an investor might consider using a stop order. >> Great to be here. Thanks so much. Investors always give lots of thought and consideration to their entry point when they are looking into getting into new investment but it's that exit strategy that can be sometimes overlooked and be a very important part to your trading plan and a stop order can be a very helpful tool in that endeavour, whether we're looking to limit losses or lock in some gains. So let's get into WebBroker. I have a chart on the screen so we can talk to the concept. I have a charger for SP Y. This blue line is presenting a fictitious by point I might have entered my trade up. Stop orders are usually placed below the current market price. You can do the soccer ETF is trading right now. We can place it at any point below its current price and when the investment trades below or through that price is going to trigger in order to happen. Once again, talking about that exit strategy, its plan in advance to take the emotion out of the trade and we will then sell our position to either lock in our gains or limit our losses. A couple of examples mom that might be, I will draw some additional lines here. For instance, you can see in this example we are up and making money on the trade. If we want to lock in those gains, maybe we will be away from the computer, we can set a stop order around somewhere around $400 in this case. Additionally, once again, this is something you can do at the start of the trade. When you enter the position, if you know you are only willing to lose so much, stop order could be useful so you're only risking so much money and not leaving it on the table. Additionally, one other key concept with stop orders is you want to set them at a risk point that's comfortable for you but you also want to know that the stocks, they are not just moving in one particular direction, they have a natural ebb and flow. If you look at the lower indicators here on the charts, there is an average turn range. I will add this to my chart and down below we can see here that this our dish showing that the average movement that the stock is making in any given day. So you can start being thoughtful about what is an appropriate level to set at my stop price so I'm not going to be stopped out before it's going to be helpful. >> Very interesting stuff. Now you got some background about the stop orders, how to place one on the WebBroker platform. >> Yeah, absolutely. Placing the order happens to be the easy part. It's identifying those points and risk tolerance that each investor will have. But let's jump into the platform and get the order in. At the top of the screen you will notice we had to buy and sell errors. Click that. From here, we're just going to go ahead and work off our standard order entry ticket, go ahead and put in our symbol. Use the same symbol that we were using on our chart. We're going to hit sell. The quantity is going to be tied to the individual investor. In this case, we will use stock market orders which are telling you that whatever your trigger price that you set,… Maybe will say will put up $400. We bonded just below that so we are looking to lock in some gains and once again, SP wide trades below that price, it trades based on the order type in the tag. You can choose to have your order extended into the future. We can have a good for the day, meeting will stop at 4 PM Eastern time. Additionally you can choose or specify an individual day. Until cancel, it's 90 Days in Canada or 184 US securities. >> Great stuff as always. Thanks for that. > It's my pleasure. >> Jason Hnatyk, 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 some upcoming webinars, including how to find trading ideas during volatile markets on the advanced dashboard. With the recent string of strong economic reports, it might have some investors wondering how much further central banks will have to go as they attempt to tame inflation. Robert Both, macro strategist with TD SecuritiesLet me earlier with his view. >> I think, you know, going into this year, we started to see a more dovish tone from both the Bank of Canada and the Federal Reserve relative to what we had been hearing from them over the last quarter of last year. From the Bank of Canada, we saw them deliver a 25 Basis Point Hike in January. But the more surprising elements of that was that they did signal that they are ready to pause rate hikes from here going forward if the outlook does evolve in line with their production. We look at Canada to remain at4.5% is the year. We didn't expect them to take rate hikes off the stage at this stage of the cycle. similarly in the US following the last for decision in early February, you start to hear more of a dovish tone coming from Chairman Powell and other Fed officials. So neither Powell nor the other Fed governors and presidents had been necessarily struggling to defend the projections from December, which showed the Fed funds rate reaching 5.25% this year. They started to if not walked back, not strongly defend those projections and that had markets guessing whether they would continue to follow along that path or if they were prepared to potentially stop a little earlier. But over the last two weeks, we have started to see some of that B walked back and what really kicked all of this off was the payrolls report for January. So when that data was released in the first week of February, we saw another 500,000 jobs added in the US. We saw a new multi deck are low for the unemployment rate and that speaks to a labour market that is continually growing tighter in an economy that is moving further into excess demand. After that, we got a little bit of déjà vu last Friday with the Canadian jobs figures. We saw one of the strongest reports on record outside of the COVID period. 150,000 jobs added and pretty strong wage pressures as well. So we are now going to find out whether the economy is still unfolding in line with the BOC's projections or whether they have to, whether they may come back off the sidelines later this year. >> Some of the commentary you'll see when we get these reports say one month doesn't make a trend but for past months there have been much stronger than expected US and Canadian jobs, headline inflation and the state continues to come off but doesn't seem to be in a rush to get down to 2%. Today, wholesale prices up . 7% in January. It seems like we're getting a body of work that might be suggesting the fight against inflation might take a little bit longer than investors hope this year. >> One piece of data doesn't make a trend and especially from the BOC's perspective, they are going to want to see more datato confirm that jobs report. They want to see GDP coming a little bit stronger than projected in the fourth quarter for the first quarter before they start to second-guess their outlook. Canadian Limited is notoriously volatile. Some people have, call into question, the accuracy of that 150,000 increase. >> But even some work on that recently. What did you find out as he started digging below the headline number? >> Yeah, we had gotten questions whether there was any abnormal effects from seasonal adjustment or if whether potentially played an impact here. What we found is that it's really difficult to attribute the strength to any one single factor. Certainly in the last couple of years, in 2021 and 2022, we saw significant job losses in the month of January because that's on the economy was entering waves of COVID and you saw more social distancing policies put into place. But if you look into the nonseasonally adjusted numbers, you still saw much stronger performance this January than any January over the last 20 years. So it's difficult to really blame seasonal adjustment here. Likewise, there wasn't a really strong case that whether played an abnormal effect here. So overall, there were some one offs but it's very difficult to fade this report entirely especially given the performance over the last few months as well, we added another 165,000 jobs in the fourth quarter. So when you look at a longer period, we are averaging about 50,000 a month of the last six months and that's much harder to ignore because it's about double the rate that is required to keep unemployment rate and participation rate stable, so does speak to the labour market continuing to tighten and the economy moving further into excess demand. >> This sets the stage, and I think the market is pricing and the possibility now that even though the Bank of Canada said, here is the height, we are going to pause or take a look at where we are going to be and in the market is thinking based on some of the data we've been getting, maybe we get another hike before the fall. How likely is that? >> Well, like I said, off the top, I do think we need to see a little more data just to confirm that growth is trending about those latest projections for the Bank of Canada. The Bank of Canada is also just released its summary of deliberations from the January policy meeting. This is the first time we have ever gotten a glimpse behind the curtain at what they are discussed saying and what drove them to that decision in January. So one of the points he made was that to move off the sidelines, they would need to see an accumulation of evidence that the outlook has deviated from their projection. So that's why think there's a very high bar to move off the sidelines at the next meeting but as we get further into 2023, if data does become stronger and inflation does prove to be a little more persistent, then I think there is a chance the Bank of Canada would have to go again. It's not our base case. We are still looking for 4.5%. But it is going to put a little bit more pressure on the bank and put a little more importance on the data going forward. >> Next week we are going to get the latest read on Canadian inflation. Any expectations there in terms of what we might see? >> I think we are going to see inflation move lower again in January. We are already seeing it come from 8 to 6%. I think you're probably going to see inflation lower to somewhere around 6% for the comforting factors that energy prices, which have largely driven the deceleration from the highs last year, have now started to move higher again. We saw in the US numbers that even though inflation moved lower it was still rising at a pretty solid clip on a month over month basis and we also saw a bit of a rebound in core goods prices in the US. Now services inflation has proved a little more sticky so far. Core goods have contributed to the disinflation we have seen over the last six months or so but of core goods prices start to rise again, that is going to introduce new upside risks around the inflation outlook. And the outlook for terminal rates in both Canada and the US. >> That was Robert Both, macro strategist with TD Securities. Here's a bit of an update on the market before we sign off for the week. Down on band Wall Street on this last day before we head into an extended long weekend. We've got 84 point to the downside on the TSX, a little 5/2 a percent. Crude prices are under pressure today. We are still sifting through earnings, including Air Canada. Let's check in on this one right now. Some negative I guess reaction on the street we would call bad to the latest earnings report, 21 bucks and $0.48 per share, your down a little more than 7%. Seeing some pressure in the gold-mining spaces as well today. Let's check out Kinross Gold. It's down to the tune of about 3%. South of the border, the S&P 500 with a 29 point deficit from breakeven, dad about three quarters of a percent. Of course, inflation is still the big story. As far as headline inflation goes in this country, we will get that report next week. And on those states heading in the right direction but still pretty elevated to where the central banks want us to be. It raises a lot of questions about what could come next. The tech heavy NASDAQ was faring a little worse than the broader market earlier in the session. It is down a full percent. Let's check in on one of the chipmakers, MD. They are down 2 1/2%. We will be off on Monday. Markets are closed for the family holiday. Be sure to tune in on Tuesday. Alex Gorewicz is going to be our guest, taking your questions about fixed income. A reminder that you can get a head start with those questions. Email moneytalklive@td.com. Thanks for watching the show today. We will see you next week. [music]