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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Coming up on today show, Moneytalk's Anthony Okolie is going to join us with a look at what the US Federal Reserve's preferred inflation indicator is saying about the state of consumer prices and perhaps the future direction of rights.
We are going to discuss whether the early year rally in equitiesis running out of momentum with TD Asset Management's Michael O'Brien.
NTD wealth chiefs wealth strategist Brad Simpson will give us is currently on market conditions. In today's WebBroker education segment, Jason Hnatyk will shows how you can screen for possible investments using technical analysis on the platform.
Let's that you an update on the market.
The Fed's preferred measure of inflation coming in hot and unexpected and a little bit of a risk off sentiment in the markets on the basis of that. Right now about the TSX on this last trading day of the shortened trading week down 95 points, about half a percent right now.
Risk is not in favour today.
Shopify example find what that means for some tech names, particularly here in Canada.
At 55 bucks and change, got Shopify down almost another 4% since its last earnings report, it has been coming off its recent highs.
CCL industries also out with its latest earnings report and right now it's up very modestly, just $0.37 per share, about half a percent. South of the border, the big question is been after the strong start to the year, how much further will the Fed have to go to tame inflation.
You keep getting indications of the economy is strong.
45 points down on the S&P 500, about 1 1/4%. The NASDAQ is off the lows of the session.
Right now it is down 1.8%. Ann Carter Van, disappointing earnings from the used-car e-commerce platform.
Use cars were in very high demand during the pandemic because of the semi shortage.
Bit of a different turn of the story in that space. At eight bucks and $0.24 on the back of their disappointing quarterly report, down a little bit more than 18%.
That's a market update.
Well, we got another read on inflation south of the border. This is the said's preferred measure coming in hotter than expected.
Our Anthony Okolie has been digging into the details. We are talking about the PCE here, aren't we?
>> Yes.
The index surprised people, coming in much hotter in January than expect.
It's feeling worries that the Fed is going to have to keep interest rates higher for longer. I will point to a couple of key highlights of the report.
As you mentioned, he picked up pace in January.
It rose 5.4% year-over-year, versus 5.3% in December. That's the most since June.
Most gains were driven by energy prices.
Energy was up 2% followed by food.
When you look at the core PCE price index, including food and energy, it rose .6% month over month and 4.7% in January from one year ago. Keep in mind, the Fed is aiming for 2% annual inflation so there is a long way to go before it gets there.
> I think TD Economics ran through these numbers.
debris much said, bottom line, even though we heard the word just inflationary come out of the mouth of chair Powell on more than one occasion, the process is going to take a while.
They think we are in for a couple of more hikes from the Fed before this is over.
> Yes.
What the data shows is that disinflation is happening but very slowly.
We are also getting a string of really red-hot reports recently.
We got other data showing that Americans are increasing their spending at retailers.
In January, by the most in two years.
The unemployment rate is sitting at a 50 year low. Service sector activity expanded. Initial jobless claims such as a proxy for layoffs are trending at historically low levels.
This data has completed the victor for the Fed.
>>The situation our the market seems to be believing the Fed.
We started the year with that disconnect because the Fed was not changing its tune.
They were saying they didn't want to stop too early.
They had work to do. The bond market said they would be cutting before the end of the air. The equity market was saying let's start rallying.
>> It's funny how quickly people are starting to forget about potential rate cuts by the end of the year. That's kind of coming off the table and people are increasingly seeing market pricing and potentially 50 basis point rate hike.
What we have seen with the economic data is that markets are focused on the Fed being more aggressive going forward.
>> Thanks for bringing this data point to is off the top of the show.
>> My pleasure.
>> Are things to Anthony Okolie. Stay tuned. And they will join us later on the show was a look at the current state of small business sentiment in this country.
Of course, we did have that strong start to the year for markets. That has lost some momentum recently. All these concerns about the future path of interest rates.
Our current conditions setting us up for more volatility ahead. Michael O'Brien, Portillo manager at TD Asset Management joined me earlier with his view.
>> Well, I think if you think about the start of the year, it was like the markets got shot out of a cannon, like they just had a huge, huge run in January. If we sort of step back and say, what drove that? There were a few pretty legitimate or encouraging signs.
So the first, Europe did not get a cold winter, which was a huge deal. That took a lot of pressure off the European economy.
So as we sit here today, the European economy is in better shape than we thought it was going to be. That's a plus.
A second positive catalyst, people were wondering, when will China ditch its zero-COVID policy?
When will it reopen? That's happened earlier and more aggressively than we thought.
So again, another positive for the markets.
The third thing which you alluded to earlier that really catapulted the markets in January was we were seeing some pretty encouraging data around prices. So inflation was starting to come down, looked like there is some moderation there. So I think investors really took that ball and ran with it, started speculating about how quickly the Fed could go to the sidelines.
And not just go to the sidelines, but also whether we might actually see some interest rate cuts in the back half of the year. And that really lit a fire under what I would say are the more speculative, more frothy parts of the market. So I think that's really what we saw in January.
So what's changed? What's changed is we actually had some better than expected job numbers, both in Canada and the US, a real whopper of a jobs report down there. At the same time as that disinflationary trend kind of took a bit of a pause in the latest CPI releases, you know, particularly South of the border, so I think investors were forced to rethink just how quickly or how easy this disinflationary process is going to be.
They've begun to price out those rate cuts, which I always thought were a bit optimistic, but that's starting to change.
And so I think what began in the bond market, with this rethink of just how quickly inflation's going to ease, that's begun to filter into the equity market.
So to answer your question, how far has this run? How much more have we got to go?
My read is that we pulled forward a lot of the 2023 returns into the first four or five weeks of the year.
So it's natural to think that's going to slow down. It shouldn't be a big surprise.
But I think the other part of it, which is interesting, is I think the nature of market leadership is changing here as we look. And so, like I mentioned, the first few weeks of the year, it was really about finding those names that had had a very tough back half of last year, which I would term more speculative or companies with their best days well out into the future. They really benefit when interest rates fall. So that's what drove the market in the first few weeks of the year.
As rates have begun to actually back up again, that's changing pretty quickly.
So I think the market's due to take a bit of a breather here, but more significantly, the leadership of the market is changing, I think, as we sit here today.
>> Let's talk about that then. If we do end up in an environment-- because as you said, the market's sort of started to change their minds about where we might be headed, sort of fell in line with what the Fed was saying all along. It felt like the market didn't believe them for a while.
We've got to get rates up to a certain point. We've got to hold them there for a while. It's like, yeah, sure, you do. But now sort of in line with that.
So if that's the environment we're in, if that's what plays out, you get a few more rate hikes, who knows how many more and to what magnitude, from the Fed, they find that place they think they can stay at and they stay there for a while. What do you start thinking in terms of your portfolio?
>> So what I'm thinking about in terms of my portfolio is spend less time trying to identify the world beating company in 2035 and focus more on the here and now.
What are the companies that we have the most confidence in in terms of being able to execute in what's a pretty tricky environment?
Growth is still OK but it's slowing. But at the same time, there are a lot of cost pressures.
So it really puts a premium on quality management teams, I think.
Who can control their costs best? Who can deliver on the earnings expectations?
So I'm really focusing on best of breed companies here, relatively dialing down the beta a bit, dialing down the cyclicality a bit, going more for the sure things, which basically everybody ignored for the first three or four weeks of this year, circling back into some of those names that I can really depend on and I think will meet expectations.
>> Do old dependables mean patience as well? I think during the pandemic, obviously, you saw these, obviously very aggressive moves from central banks, from the governments, with stimulus, the market takes off. And everyone thought, you can make a fortune in just a couple months, as the market runs up. And clearly we're in a different environment now. Does it mean a long-term horizon? It means a bit of patience to let your name sort of work out over the long term?
>> I think you hit the nail on the head. I think this is a very different world than the world we were in in 2020. In 2020, you had massive fiscal stimulus, as governments were sending out emergency stimulus checks. You had massive monetary stimulus, as central banks were cutting rates to zero.
The environment today couldn't be more different. Liquidity is tightening.
Liquidity is becoming scarce. And that is not a positive environment for get rich quick investments.
It's just not. At the same time, provided that the economy holds together here, a lot of these businesses, dependable, proven businesses, they'll deliver over the long term.
It's just we shouldn't expect the fireworks that we got used to a year or two ago.
That is not the world we're in. It's not the environment we're in right now for stocks.
>> That was Michael O'Brien, portfolio manager at TD Asset Management. Let's get you an update on some of the top stories in the world of business and take a look at how the markets are trading.
Hudbay Minerals is reporting adjusted earnings for the below analyst estimates for the most recent quarter. The miners forecasting copper production to rise 10% this year, and gold production to increase by 30%.
TD Securities notes Hudbay has weathered inflationary pressures better than many of its mining peers.
production of the electric Ford F150 pickup is being suspended for another week. That after engineers investigated a battery issue that someone at the vehicles catch fire in recent weeks. While Ford's battery supplier has resumed production following the investigation, Ford says it will take time to ensure that they are, quote, back to building high-quality cells." It appears inflation is in keeping concertgoers from opening their wallets.
Live Nationsaw its quarterly revenue source of 2% more than $4 billion while attendance jumped 24%. An early numbers indicate ticket sales are up 20% so far this year.
South of the border, your down now about 1 1/4%. Of course, the personal consumption expenditures Index number coming in hot today, that is the Fed's preferred measure of cost of living pressures and that does have the market shunning risk at the moment.
Let's talk about this cost of living pressures. Here in Canada, they do continue to ease. This week, our headline inflation came in a 5.9%. Of course, the labour markets and consumers continue to show a lot of resilience. What does that mean for rates going forward? I spoke with Alex Gorewicz, portfolio manager for active fixed income at TD Asset Management about that this week. I have a listen.
>> OK. So headline-- the 5.9% that you mentioned-- we're seeing the high food inflation still, but this isn't a Canadian story. This is globally. We continue to see food prices continue to rise at pretty decent clips.
But if we strip that out and we look at core-- so core excludes energy and excludes food prices-- core is absolutely continuing the disinflationary trend that we've seen for several months now.
The problem is that maybe the pace at which it's decelerating is a little bit slower than what we would have anticipated, and not just us, but probably Bank of Canada, as well.
And on top of that, we did see some revisions to the upside for prior months' core numbers.
That's probably not what you want to see.
And this time of the year is known to have pretty strong seasonal upside surprises in core inflation, but if we look through the numbers and see which components are strong and which ones are weaker, housing-related components are the ones that are resilient.
And we expect that to happen. Rent, mortgage, servicing costs-- these are all higher versus last year. And we know that they respond much slower to monetary policy tightening.
So I think what we're seeing right now is not surprising, and it does nothing to really change the Bank of Canada's outlook.
>> Yeah, because you get the headline inflation coming off. And you dug nice underneath the headline there, but then we also got a retail sales report. And we spent, in December, but that traditionally is a month that we do spend.
But StatsCan say-- looks like we kept it up in January. The labor market's been strong. So yeah, the Bank of Canada said we're on pause. We're going to see how this plays out through the economy.
It's interesting lately, the conversation has gone from-- when they start cutting, it's like, would they actually get off pause and hike another time? What are they seeing in the data?
>> Yeah, so mixed data, right? That's effectively what you're pointing at. And the fact that the labor market in particular has been so resilient and we continue to add jobs at a really high clip suggests that consumption, while slowing versus prior year, will still remain, call it, resilient enough, perhaps to even help us avoid or eke out a small positive economic growth for the first quarter of this year.
But it doesn't change the fact that the trend continues to show deceleration in consumption, in housing-related components, which are a big contributor to the Canadian economy.
And this is before we've seen the full effect of the rate hikes that Bank of Canada has delivered over the last 12 months.
So when we think about what's really necessary here, it's time.
We need to see the full effect of the Bank of Canada's tightening through the next couple of months, maybe even the next couple of quarters, at current level of interest rates.
And that's really one of the reasons why Bank of Canada has said, we're comfortable to pause here and wait.
>> All right. Let's talk south of the border. The Fed-- seems that there have been some changing of expectations there in the market as to what we're going to get from, arguably, the world's most powerful central bank. Now, people are starting to throw 50 basis points around for the next hike. How are we reading that situation?
>> Again, very similar to Canada in the sense of the deceleration in inflation, or the disinflationary process. I think that's what Chair Powell said repeatedly in his most recent speech.
He referred to disinflation many times.
That process is still underway. Again, is it happening at a slower pace than maybe what we would have anticipated?
Yes. But we've known for quite some time that, let's say, the road from 8% inflation-- headline inflation-- to about 4% inflation would be relatively quick.
And we can still get there by the end of this first quarter-- so let's say March, April.
But with how the data has come through, particularly around service PMIs, labor market obviously continuing to show a lot of resilience-- and not just resilience, perhaps.
There could even be a reacceleration, although it's still too early to call it that.
All of that is pointing to the fact that the road from 4% inflation to the Fed's target 2% inflation is probably going to be more of a grind. It'll be slower. And what that really means for the bond market is that they have to price what the Fed has said, which is we're not going to cut rates this year.
Does it mean that the Fed needs to go higher? I don't think that the data's supporting the thesis that the economy is reaccelerating, but rather that the deceleration is decelerating.
>> That's interesting you say that the bond market now has to price what the Fed is saying, because I think we went into this year, and definitely into last year with a bit of a disagreement between the Fed saying, listen, we're doing this, we're doing this, we're doing this, and the market's like, nah, come on. But I'm looking at it on my screen right now. I've got a US 10-year bond yield at 3.9%. This has been creeping higher.
>> It has been creeping higher, but believe it or not, it's plus or minus where we started the year.
So we did see interest rates fall noticeably in January. And they've since come back, particularly on the back of strong labor prints.
But this notion of anticipating the pivot from the Fed, where the pivot means they're going to cut rates in the second half of the year, none of the economic data in the last couple of weeks have supported that narrative. So the bond market has had to basically take that fall in interest rates back, so to speak. So we're plus or minus where we started the year.
And again, from our perspective, it just means that-- supports this notion that the Fed is right to say we're not going to cut rates this year. But do they really need to hike further? Are we going to split hairs here about-- is it 5.25% that they should hike to, or 5.5%? The reality is, again, time is what we need at this level of policy rates to work its way through the system and actually take stock of the full impact of monetary policy tightening on the economy.
>> Does the fact that the bond market is actually believing the Fed now really change anyone's investment thesis as to how they perhaps saw bonds playing out this year? Obviously, last year with the aggressive rate hikes, a bond portfolio wasn't looking great. But now you've got these yields being offered, and maybe even a pause. Does it really change our idea about what bonds are going to do this year?
>> It depends which bonds we're talking about. So if we think about shorter bonds-- let's say two-year, one-year type of interest rates-- those can still move higher. And those should move higher if we're going to price the full extent of the Fed, including the-- get to 5.25% and be on pause for the rest of the year.
But if we think about, call it, further out the yield curve, when we look at 10-year interest rates, 30-year interest rates, the real question we have to ask ourselves is do we think the Fed will ever cut rates again?
And if the answer is yes, then you have to answer, well, to what level?
And if we think that 10-year rates at 4% is aggressive relative to where the Fed has continually communicated it intends long-term interest rates to be for the US economy to be in equilibrium, which they're saying is about 2.5%, that 4% today is quite high relative to that longer-term policy rate that the Fed intends to get to.
So that's just a long way of saying there is room, as time goes on and the economy continues to decelerate, for longer-dated interest rates to come down.
>> That was Alex Gorewicz, portfolio manager with TD Asset Management.
Now, let's get our educational segment of the day.
Technical analysis is one method you can use to help analyse a potential investment in WebBroker has tools that can help you read the charts.
Joining us now with Maurice Jason Hnatyk, Senior client education instructor with TD Direct Investing. Great to have you back.
Let's talk about how WebBroker can help us with some technical analysis.
>> Yeah, it's great to be here as always.
Technical analysis can be a very useful skill for investors to learn, whether or not we are using it to identify enter and exit signals or using historical analysis of the charts to identify if there's going to be a continuation or reversal of the trend.
Let's jump into WebBroker and I'll show you how you can use the tool to help identify and find patterns that are existing on the chart and use that as an opportunity to do some research.
So to get to that tool, we are going to go to research at the top of the screen.
Under the tools column, we got screeners.
On the screen, we have been here numerous times on the program.
We have talked about stock, mutual fund and ETFs training and this time we will be focused on using the system to identify it when system technical matters have displayed themselves on charts. So within the screen, we have the ability to start narrowing down the final, but in a geographic location, select Canada or choose a particular exchange. We can identify a particular index.
We can filter this down to S&P TSX 60 companies. Even have the opportunity if you are looking to diversify into a particular industry or sector, you can have that screen for that particular piece of information as well. Uniquely enough, on the screen we have the ability to choose a particular market sentiment that you might be feeling. Maybe I'm in a bullish frame of mind. Let's urge for bullish technical patterns and signals on the chart.
The next step would be to use the final icon here on the left-hand side.
This is where we can start putting in our particulars that we want the screen to identify for us. We got some fundamental cross-sections that we have the ability to kind of put into the screen as well. Maybe we are looking for only large-cap stocks.
Let's go ahead and put the filtering.
there are other levers to pull as well.
Down below is where the rubber starts to meet the road. We've got many different pattern types that we can find on the chart. We got many different formations that we can find.
Maybe the woman will stick with first is a pretty commonly used pattern identification and that's when the price moves over the moving average.
Keep in mind, we chose a bullish pattern.
This going to be where your price moves above the moving average that is displayed on the chart.
So we scrolled back to the top of the screen.
We can see that out of the index and geographical location that we found, there have now been 43 matches based on that specific pattern alone.
So really good information, really useful.
Maybe that point you in the right action to summer research identified the right trading opportunity for you.
>> Right now, I'm on the screen and I'm looking at a lot going on. Where do you go to learn about what all this means?
>> Yeah, good point. Whether or not you are a beginner with charting or more advanced, there is always something to learn.
We'd be a fool to say we know everything.
WebBroker does a wonderful job of giving us educational opportunities to improve ourselves as investors. From this screen, what I would like to show everybody in the top right-hand corner is that there is a little graduation. I'll go ahead and choose that. This going to bring us into our technical education section.
On the left-hand side, very similar to the differentscreening criteria that we can put in, it is broken down in an identical way so we can track and follow different moves, different patterns, different indicators.
Let's go ahead and choose the same one we were screening four. The price crosses moving average. We can go ahead and identify that and choose this from the list. Here within WebBroker, you are learning about all of the ins and outs of this particular pattern. We get a visual disruption of the pattern and you're also getting some trading considerations to help make you a more informed trader.
Let's take this one step further quickly.
Up at the learn tab at the top of the page, we do have some on-demand video lessons that are available for all of our clients here in WebBroker. That's available on the video lessons section here on the left-hand side.
I have already gone ahead and filtered for technical analysis to speed up the process.
The first thing I'd like to share everybody is if you would like a rundown from an expert on how to use the screen tool, there is this video here on how to screen for technical signals on WebBroker.
It's a wonderful educational opportunity.
Scrolling down, let's go to page 2.
There is a five-part series, I know it's a big undertaking, but it is worth the investment in yourself.
There is a five-part series on the foundations of technical analysis. I think our users can really get a lot of information and educational opportunities from this material.
>> Heading into a weekend, maybe some will dig in if they are interested in this.
Great stuff as always. Thanks for that.
> My pleasure.
> Jason Hnatyk, client education instructor at TD Direct Investing. Make sure to check out the education sector and in WebBroker for more educational videos, live interactive master classes as well as upcoming webinars, including how to help prepare your portfolio for a recession.
After that strong start to the year, volatility has entered into the trading world.
How should investors be thinking about the markets going forward?
Earlier I had a chance to discuss that with Brad Simpson, people strategist at TD Wealth.
He is Brad Simpson.
>> I think we kind of stepped back, the big surprise so far this year, I think that markets have been good. And I don't think that much of a surprise.
And I don't think that's much of a surprise, and I'm sure we can dig in there. But markets started to rally in October.
And at the time, that probably made some sense to have a little bit.
But when we start breaking down what the equity market has looked like, really in particular going through January, and the component parts of the drivers behind it, I would say that-- if there's the way of framing this or a surprise moment, I think you've got to step back a little bit. Take a look at what's been moving the market, what's driving it. And I think when I look at it in those terms, it starts to paint a different picture.
>> I think we can actually show the audience a picture that you can speak to in terms of what kind of picture we are painting.
>> Yeah, so one of the things that has been so incredible about this year so far is that-- all we're showing here is, if you took the absolute best-performing stocks of 2022, and let's say the best performing were good quality, priced well, great earnings per share growth, really, we started to move into an equity market where fundamentals really came back to the fore. And on the opposite side, what really did terribly, if you were really leveraged, you had earnings sometime way, way down the road-- more of your fantasy stocks, if you will. Those really, really got hammered in 2022, some down between 50% and 70%.
You look at January and you look at where a lot of those the worst ones, the worst-performing stocks of 2022, they've been amongst the best-- up around 15% year-to-date.
And that really tells you the story an awful lot of what this market looks like.
And then you start to ask yourself, well, how does this happen?
And for me, a little bit, there's this narrative that has began.
And often, when I think, like, markets, fixed-income markets, I think fixed-income markets, they've been trading on fat. Late stage, you think interest rates will start moving downwards. And six months out to nine months, things will start to slow.
Equity markets, I think, started to trade on fiction. And I think this fiction was this idea that, OK, are we going to have a hard landing? OK, well maybe we're going to have a soft landing.
And then as the market kept moving, a new narrative said we're going to have no landing.
>> Yeah. No landing at all, just continue on as-is.
>> And so I think the part I would-- you know, like right out of the gate I think is to build the stop a little bit, look at this, and go, for us, I think you got to look and say the driver in this is a lot of speculation, a lot of short covering, like, you know. And I think the last part is-- and it's something you and I've spoken about in the past-- is that short-term markets, unlike any time ever in past history, really trade on rhythmic trading, coding.
And if you start drawing a picture saying, well, in this scenario where you don't have a hard landing, you don't have a soft landing, you have a no landing, you change the parameters of how you're going to trade. And you end up having a market that looks a lot like this one. But the problem is that there's still all the reality out there. And I think that investors would be really wise to stop a little bit and say, wait a minute. Let's think about this.
>> Let's talk about the reality out there, because the reality out there would perhaps inform us as to what the Fed is going to do. And I think what the Fed is going to do-- the real question is, of course, what is the end point? When do they think they could stop raising rates and get inflation under control?
>> Right. So in January, we published our quarterly strategy, and it was called Right Here, Right Now.
And the idea in this is, as we said, here's the market drivers, both, let's say, for fixed-income markets and equity markets.
And the starting one is you'd say, well, I think you're going to have to answer the question on what's going to happen with inflation, and is there going to be a recession or not.
And then we said, I think the second thing you're going to have to think a little bit about is what is earnings going to do and how is that going to be able to play out.
And then we think you're going to have to think a little bit about what is this kind of geopolitical world that we're living in and how this is going to play out? And I think that when you look at that equity markets and the way that they've traded, seemingly, all of those have been answered.
But none of those have been answered.
And so one of the things in risk priority management-- which is a governing philosophy of how we think about allocating capital.
It's this belief that markets are these complex, open systems.
And complex, open systems have randomness in them.
Like, the world doesn't work in a linear way because we as human beings are making decisions in them.
I gave you an example where human beings are actually writing code based on their thoughts. That starts to move markets.
That starts to move our impressions on things.
But the reality is that, over the last few years, we have seen unbelievable monetary policy and fiscal policy for something we haven't seen in years.
The data that's going to come out of that is going to be a little bit messy.
Of course, we saw the consumer come back big in January.
And I think that caught most of us by surprise.
You could start to see where things would start to slow.
>> Simple explanations just aren't working.
>> Yeah, right? And so now, they said, well then, what do you do with that?
As a narrative, you could say, great. It is a no landing. The consumer is back.
Boy, that was one bad month, and it's all guns blazing from here. I think you have to slow a little bit and say, well, sometimes what people do with their spending is they go out, they have a great time. It's pent-up demand. They have to stay home for a while.
And then, lo and behold, don't forget we are. It's middle of winter.
It's not been that bad of a winter. People have had a lot more time to be able to go outside.
They've had a lot more time to be able to go out and enjoy the space.
So in January, it was a pretty nice January, and particularly in North America.
And you can see those flows through spending picked up.
Does that equate to we don't need to worry about any kind of consumer slowdown from here, we don't need to worry about people having large debt levels on their credit cards, do we not have to worry that people's valuations of their homes have gone down-- all the things which have an impact on their balance sheet.
And this-- I don't want to sound overly-bearish because that's not what I am.
We called our strategy Right Here, Right Now because what we wanted to make sure was, during this quarter, we thought there were going to be extreme narratives going on. Like, if we had some data that came out was going to be positive, we thought that you would see volume and volatility to the upside really pick up.
If you had a few negative data points, you would see the opposite case. And really, so far, that's really what it's looked at.
And I think for us, it's then saying that Right Here, Right Now is about this idea that says, let's make sure you have an investment process based on fundamentals in the way of allocating capital.
Let's not have a time horizon of whatever the next data point that comes out.
And if you can extend out your thinking to at least quarterly, and preferably 12 to 18 months out, and think about the right here and right now and you're seeing this noise, there's lots of contradictory data that's going to come out from this.
And if you do that and not get caught up in it, this is actually a really, really nice-- we would call this a nice alpha-driven market where it's not just driven by flows.
There's great valuations across the spectrum to look at, but you got to watch the noise.
>> In terms of the economic cycle, where are we at and how does that play out?
I mean, because the Fed-- the whole point of the aggressive central bank rate hikes, whether it's here or at home, whether south of the border with the Fed, is saying, if we're going to bring inflation down, we've got to cool this economy. As you said, the weather's nice, we spend.
You got some weird data points. There's a lot of noise. But if we're looking at longer term, what are we thinking about where we are on the economy?
>> Now, look, I think we're obsessed with recession right now.
>> Yeah.
>> Right? Like, that's the starting point.
And I always say that the one thing you have to remember about a recession is that a bell doesn't ring and people go, there it is.
>> It has begun. You wake up one morning, look at your watch, and you go, there we go-- recession.
>> I mean, the reality is a bunch of economists in an office after the fact sit down and go, oh, there's your starting date of your recession. It is there. And I think that if you're trying to allocate capital based on that, I think you've got to look at your process a little bit and say, wait a minute.
What we know for certain is that we are in a late-stage economy.
And if you're in a late-stage economy, that should guide your thinking on where you're allocated today.
You've got a pretty good idea of what that next 12 to 18 looks like.
You can be adaptive as it adjusts and changes a little bit.
But this idea that we can perpetually ever have a late stage economy that doesn't ultimately move to a recession, I think the reality-- and I think if we actually even reversed the tape to the last time I was here, I said one of the realities is that we have this thing called inflation front and center now. When inflation wasn't a concern, central banks could operate in a way of saying, OK, that's our number one thing is to control that. The fact of the matter is they went through almost 15 to 20 years of actually being worried about disinflation. So they could go, well, let's park that.
And what we want to do is just manage for slow growth, because, really, that's what we were in.
You look, inflation is front and center again. And so the central bank is basically saying we actually have more of a regular business cycle right now. We're going to manage like it's a business cycle again.
And I think, in many ways, this idea in the market is that I think a lot of the movement that we're seeing are folks that have not come to terms with the environment has changed dramatically with inflation here. And so that late-stage economy should really impact how you're allocating capital.
And the bottom line is, if you look at the S&P 500 and you look at the things that moved the S&P year-to-date, it is usually the stuff that works in the early-stage economy.
And the stuff that didn't work-- more your defensive type of names-- is the stuff that underperformed, which usually does really well late stage. If you think things actually revert to a mean-- because as you start to move away from this short-termism and the really new era of market movement that we're in, you revert to this mean and you start to move back into late-stage assets, back into late-stage equities. And I think that's a place in the market where you really want to look to be.
>> That was Brad Simpson, chief wealth strategist at TD Wealth.
Let's say you updated on the markets on this last trading day of the shortened trading week. We'll start here at home with the TSX Composite Index.
We have a bit of a bid for American benchmark crude.
It's pretty modest but I'm trying to find some green on my screen. The headline TSX is still to the downside, about 119 points, little more than half a percent pure let's take a look at Hudbay Minerals.
Since his latest earnings, they are down about 3 1/2%.
El Dorado gold is also an earnings reaction story. I told bucks and $0.11, it is up about 7%.
Before we say goodbye for the week, we want to bring Anthony Okolie back in the conversation, taking a look at how small businesses are feeling about this economic environment.
What you see?
>>So far, the small business Index inched up in February as worries over inflation eased a bid in the last month.
Now, the latest index showed the confidence for the next 12 months hedged up half a point to 51.7 in February.
Just slightly above expansion territory.
Again, anything above 50 shows that more business owners are feeling confidently versus negatively about the next few months.
Now, the immediate three month outlook improved two points to 48.9 index points with that still and contractionary territory.
When you look at again both indices, they are generally at the lowest levels that have been reported since 2009 outside of her sessions. Now, when you look at what's hurting small businesses, the average wage expectations rose just above 3% versus just a 3% gain in January.
While future price increase plans weak uptake but it is still at elevated levels versus historical standards.
Amongst sectors, retail posted the lowest optimism level at just under 44 points.
That marks the eighth straight month below 50.
Now, Canada's retail industry has struggled to find workers as job vacancy rates hit record highs last year.
Now when it comes to the input cost pressures, they continue to be a concern for small businesses.
Input costs are running at levels around twice their historical averages.
Other cost pressures as well like energy and fuel as well as wage costs.
Now, there was some good news in the survey.
Confidence on employment, especially full-time employment, ticked up in February and supply chain challenges also continued to fade.
The uptake and confidence in recent months is good news but overall it is still lower versus historical levels.
Greg?
>> I remember guests telling me during the pandemic, putting it in the simplest terms in how you view small businesses oriented towards the economy, my spending is somebody else's income.
How are businesses feeling about consumer spending for the rest of the year?
>> Many businesses continue to worry about the lack of demand which remains the third largest concern above… Impacted one third of respondents.
TD Economics says that this is in line with their economic outlook with growth and consumer spending expected to slow this year and that will ultimately hurt businesses profitability.
>> Interesting stuff. Thanks for that. At my pleasure.
>> Moneytalk's Anthony Okolie.
If you want to stay tuned, on Monday, Andres Rincon, head of ETF sales and strategy at TD Securities will be our guest, taking your questions about exchange traded funds.
a reminder that you can get a head start with this question by emailing moneytalklive@td.
com. That's all the time we have for the show today.
On behalf of me and Anthony and everyone bringing the show to you, thanks for watching. See you next week.
[music]
Coming up on today show, Moneytalk's Anthony Okolie is going to join us with a look at what the US Federal Reserve's preferred inflation indicator is saying about the state of consumer prices and perhaps the future direction of rights.
We are going to discuss whether the early year rally in equitiesis running out of momentum with TD Asset Management's Michael O'Brien.
NTD wealth chiefs wealth strategist Brad Simpson will give us is currently on market conditions. In today's WebBroker education segment, Jason Hnatyk will shows how you can screen for possible investments using technical analysis on the platform.
Let's that you an update on the market.
The Fed's preferred measure of inflation coming in hot and unexpected and a little bit of a risk off sentiment in the markets on the basis of that. Right now about the TSX on this last trading day of the shortened trading week down 95 points, about half a percent right now.
Risk is not in favour today.
Shopify example find what that means for some tech names, particularly here in Canada.
At 55 bucks and change, got Shopify down almost another 4% since its last earnings report, it has been coming off its recent highs.
CCL industries also out with its latest earnings report and right now it's up very modestly, just $0.37 per share, about half a percent. South of the border, the big question is been after the strong start to the year, how much further will the Fed have to go to tame inflation.
You keep getting indications of the economy is strong.
45 points down on the S&P 500, about 1 1/4%. The NASDAQ is off the lows of the session.
Right now it is down 1.8%. Ann Carter Van, disappointing earnings from the used-car e-commerce platform.
Use cars were in very high demand during the pandemic because of the semi shortage.
Bit of a different turn of the story in that space. At eight bucks and $0.24 on the back of their disappointing quarterly report, down a little bit more than 18%.
That's a market update.
Well, we got another read on inflation south of the border. This is the said's preferred measure coming in hotter than expected.
Our Anthony Okolie has been digging into the details. We are talking about the PCE here, aren't we?
>> Yes.
The index surprised people, coming in much hotter in January than expect.
It's feeling worries that the Fed is going to have to keep interest rates higher for longer. I will point to a couple of key highlights of the report.
As you mentioned, he picked up pace in January.
It rose 5.4% year-over-year, versus 5.3% in December. That's the most since June.
Most gains were driven by energy prices.
Energy was up 2% followed by food.
When you look at the core PCE price index, including food and energy, it rose .6% month over month and 4.7% in January from one year ago. Keep in mind, the Fed is aiming for 2% annual inflation so there is a long way to go before it gets there.
> I think TD Economics ran through these numbers.
debris much said, bottom line, even though we heard the word just inflationary come out of the mouth of chair Powell on more than one occasion, the process is going to take a while.
They think we are in for a couple of more hikes from the Fed before this is over.
> Yes.
What the data shows is that disinflation is happening but very slowly.
We are also getting a string of really red-hot reports recently.
We got other data showing that Americans are increasing their spending at retailers.
In January, by the most in two years.
The unemployment rate is sitting at a 50 year low. Service sector activity expanded. Initial jobless claims such as a proxy for layoffs are trending at historically low levels.
This data has completed the victor for the Fed.
>>The situation our the market seems to be believing the Fed.
We started the year with that disconnect because the Fed was not changing its tune.
They were saying they didn't want to stop too early.
They had work to do. The bond market said they would be cutting before the end of the air. The equity market was saying let's start rallying.
>> It's funny how quickly people are starting to forget about potential rate cuts by the end of the year. That's kind of coming off the table and people are increasingly seeing market pricing and potentially 50 basis point rate hike.
What we have seen with the economic data is that markets are focused on the Fed being more aggressive going forward.
>> Thanks for bringing this data point to is off the top of the show.
>> My pleasure.
>> Are things to Anthony Okolie. Stay tuned. And they will join us later on the show was a look at the current state of small business sentiment in this country.
Of course, we did have that strong start to the year for markets. That has lost some momentum recently. All these concerns about the future path of interest rates.
Our current conditions setting us up for more volatility ahead. Michael O'Brien, Portillo manager at TD Asset Management joined me earlier with his view.
>> Well, I think if you think about the start of the year, it was like the markets got shot out of a cannon, like they just had a huge, huge run in January. If we sort of step back and say, what drove that? There were a few pretty legitimate or encouraging signs.
So the first, Europe did not get a cold winter, which was a huge deal. That took a lot of pressure off the European economy.
So as we sit here today, the European economy is in better shape than we thought it was going to be. That's a plus.
A second positive catalyst, people were wondering, when will China ditch its zero-COVID policy?
When will it reopen? That's happened earlier and more aggressively than we thought.
So again, another positive for the markets.
The third thing which you alluded to earlier that really catapulted the markets in January was we were seeing some pretty encouraging data around prices. So inflation was starting to come down, looked like there is some moderation there. So I think investors really took that ball and ran with it, started speculating about how quickly the Fed could go to the sidelines.
And not just go to the sidelines, but also whether we might actually see some interest rate cuts in the back half of the year. And that really lit a fire under what I would say are the more speculative, more frothy parts of the market. So I think that's really what we saw in January.
So what's changed? What's changed is we actually had some better than expected job numbers, both in Canada and the US, a real whopper of a jobs report down there. At the same time as that disinflationary trend kind of took a bit of a pause in the latest CPI releases, you know, particularly South of the border, so I think investors were forced to rethink just how quickly or how easy this disinflationary process is going to be.
They've begun to price out those rate cuts, which I always thought were a bit optimistic, but that's starting to change.
And so I think what began in the bond market, with this rethink of just how quickly inflation's going to ease, that's begun to filter into the equity market.
So to answer your question, how far has this run? How much more have we got to go?
My read is that we pulled forward a lot of the 2023 returns into the first four or five weeks of the year.
So it's natural to think that's going to slow down. It shouldn't be a big surprise.
But I think the other part of it, which is interesting, is I think the nature of market leadership is changing here as we look. And so, like I mentioned, the first few weeks of the year, it was really about finding those names that had had a very tough back half of last year, which I would term more speculative or companies with their best days well out into the future. They really benefit when interest rates fall. So that's what drove the market in the first few weeks of the year.
As rates have begun to actually back up again, that's changing pretty quickly.
So I think the market's due to take a bit of a breather here, but more significantly, the leadership of the market is changing, I think, as we sit here today.
>> Let's talk about that then. If we do end up in an environment-- because as you said, the market's sort of started to change their minds about where we might be headed, sort of fell in line with what the Fed was saying all along. It felt like the market didn't believe them for a while.
We've got to get rates up to a certain point. We've got to hold them there for a while. It's like, yeah, sure, you do. But now sort of in line with that.
So if that's the environment we're in, if that's what plays out, you get a few more rate hikes, who knows how many more and to what magnitude, from the Fed, they find that place they think they can stay at and they stay there for a while. What do you start thinking in terms of your portfolio?
>> So what I'm thinking about in terms of my portfolio is spend less time trying to identify the world beating company in 2035 and focus more on the here and now.
What are the companies that we have the most confidence in in terms of being able to execute in what's a pretty tricky environment?
Growth is still OK but it's slowing. But at the same time, there are a lot of cost pressures.
So it really puts a premium on quality management teams, I think.
Who can control their costs best? Who can deliver on the earnings expectations?
So I'm really focusing on best of breed companies here, relatively dialing down the beta a bit, dialing down the cyclicality a bit, going more for the sure things, which basically everybody ignored for the first three or four weeks of this year, circling back into some of those names that I can really depend on and I think will meet expectations.
>> Do old dependables mean patience as well? I think during the pandemic, obviously, you saw these, obviously very aggressive moves from central banks, from the governments, with stimulus, the market takes off. And everyone thought, you can make a fortune in just a couple months, as the market runs up. And clearly we're in a different environment now. Does it mean a long-term horizon? It means a bit of patience to let your name sort of work out over the long term?
>> I think you hit the nail on the head. I think this is a very different world than the world we were in in 2020. In 2020, you had massive fiscal stimulus, as governments were sending out emergency stimulus checks. You had massive monetary stimulus, as central banks were cutting rates to zero.
The environment today couldn't be more different. Liquidity is tightening.
Liquidity is becoming scarce. And that is not a positive environment for get rich quick investments.
It's just not. At the same time, provided that the economy holds together here, a lot of these businesses, dependable, proven businesses, they'll deliver over the long term.
It's just we shouldn't expect the fireworks that we got used to a year or two ago.
That is not the world we're in. It's not the environment we're in right now for stocks.
>> That was Michael O'Brien, portfolio manager at TD Asset Management. Let's get you an update on some of the top stories in the world of business and take a look at how the markets are trading.
Hudbay Minerals is reporting adjusted earnings for the below analyst estimates for the most recent quarter. The miners forecasting copper production to rise 10% this year, and gold production to increase by 30%.
TD Securities notes Hudbay has weathered inflationary pressures better than many of its mining peers.
production of the electric Ford F150 pickup is being suspended for another week. That after engineers investigated a battery issue that someone at the vehicles catch fire in recent weeks. While Ford's battery supplier has resumed production following the investigation, Ford says it will take time to ensure that they are, quote, back to building high-quality cells." It appears inflation is in keeping concertgoers from opening their wallets.
Live Nationsaw its quarterly revenue source of 2% more than $4 billion while attendance jumped 24%. An early numbers indicate ticket sales are up 20% so far this year.
South of the border, your down now about 1 1/4%. Of course, the personal consumption expenditures Index number coming in hot today, that is the Fed's preferred measure of cost of living pressures and that does have the market shunning risk at the moment.
Let's talk about this cost of living pressures. Here in Canada, they do continue to ease. This week, our headline inflation came in a 5.9%. Of course, the labour markets and consumers continue to show a lot of resilience. What does that mean for rates going forward? I spoke with Alex Gorewicz, portfolio manager for active fixed income at TD Asset Management about that this week. I have a listen.
>> OK. So headline-- the 5.9% that you mentioned-- we're seeing the high food inflation still, but this isn't a Canadian story. This is globally. We continue to see food prices continue to rise at pretty decent clips.
But if we strip that out and we look at core-- so core excludes energy and excludes food prices-- core is absolutely continuing the disinflationary trend that we've seen for several months now.
The problem is that maybe the pace at which it's decelerating is a little bit slower than what we would have anticipated, and not just us, but probably Bank of Canada, as well.
And on top of that, we did see some revisions to the upside for prior months' core numbers.
That's probably not what you want to see.
And this time of the year is known to have pretty strong seasonal upside surprises in core inflation, but if we look through the numbers and see which components are strong and which ones are weaker, housing-related components are the ones that are resilient.
And we expect that to happen. Rent, mortgage, servicing costs-- these are all higher versus last year. And we know that they respond much slower to monetary policy tightening.
So I think what we're seeing right now is not surprising, and it does nothing to really change the Bank of Canada's outlook.
>> Yeah, because you get the headline inflation coming off. And you dug nice underneath the headline there, but then we also got a retail sales report. And we spent, in December, but that traditionally is a month that we do spend.
But StatsCan say-- looks like we kept it up in January. The labor market's been strong. So yeah, the Bank of Canada said we're on pause. We're going to see how this plays out through the economy.
It's interesting lately, the conversation has gone from-- when they start cutting, it's like, would they actually get off pause and hike another time? What are they seeing in the data?
>> Yeah, so mixed data, right? That's effectively what you're pointing at. And the fact that the labor market in particular has been so resilient and we continue to add jobs at a really high clip suggests that consumption, while slowing versus prior year, will still remain, call it, resilient enough, perhaps to even help us avoid or eke out a small positive economic growth for the first quarter of this year.
But it doesn't change the fact that the trend continues to show deceleration in consumption, in housing-related components, which are a big contributor to the Canadian economy.
And this is before we've seen the full effect of the rate hikes that Bank of Canada has delivered over the last 12 months.
So when we think about what's really necessary here, it's time.
We need to see the full effect of the Bank of Canada's tightening through the next couple of months, maybe even the next couple of quarters, at current level of interest rates.
And that's really one of the reasons why Bank of Canada has said, we're comfortable to pause here and wait.
>> All right. Let's talk south of the border. The Fed-- seems that there have been some changing of expectations there in the market as to what we're going to get from, arguably, the world's most powerful central bank. Now, people are starting to throw 50 basis points around for the next hike. How are we reading that situation?
>> Again, very similar to Canada in the sense of the deceleration in inflation, or the disinflationary process. I think that's what Chair Powell said repeatedly in his most recent speech.
He referred to disinflation many times.
That process is still underway. Again, is it happening at a slower pace than maybe what we would have anticipated?
Yes. But we've known for quite some time that, let's say, the road from 8% inflation-- headline inflation-- to about 4% inflation would be relatively quick.
And we can still get there by the end of this first quarter-- so let's say March, April.
But with how the data has come through, particularly around service PMIs, labor market obviously continuing to show a lot of resilience-- and not just resilience, perhaps.
There could even be a reacceleration, although it's still too early to call it that.
All of that is pointing to the fact that the road from 4% inflation to the Fed's target 2% inflation is probably going to be more of a grind. It'll be slower. And what that really means for the bond market is that they have to price what the Fed has said, which is we're not going to cut rates this year.
Does it mean that the Fed needs to go higher? I don't think that the data's supporting the thesis that the economy is reaccelerating, but rather that the deceleration is decelerating.
>> That's interesting you say that the bond market now has to price what the Fed is saying, because I think we went into this year, and definitely into last year with a bit of a disagreement between the Fed saying, listen, we're doing this, we're doing this, we're doing this, and the market's like, nah, come on. But I'm looking at it on my screen right now. I've got a US 10-year bond yield at 3.9%. This has been creeping higher.
>> It has been creeping higher, but believe it or not, it's plus or minus where we started the year.
So we did see interest rates fall noticeably in January. And they've since come back, particularly on the back of strong labor prints.
But this notion of anticipating the pivot from the Fed, where the pivot means they're going to cut rates in the second half of the year, none of the economic data in the last couple of weeks have supported that narrative. So the bond market has had to basically take that fall in interest rates back, so to speak. So we're plus or minus where we started the year.
And again, from our perspective, it just means that-- supports this notion that the Fed is right to say we're not going to cut rates this year. But do they really need to hike further? Are we going to split hairs here about-- is it 5.25% that they should hike to, or 5.5%? The reality is, again, time is what we need at this level of policy rates to work its way through the system and actually take stock of the full impact of monetary policy tightening on the economy.
>> Does the fact that the bond market is actually believing the Fed now really change anyone's investment thesis as to how they perhaps saw bonds playing out this year? Obviously, last year with the aggressive rate hikes, a bond portfolio wasn't looking great. But now you've got these yields being offered, and maybe even a pause. Does it really change our idea about what bonds are going to do this year?
>> It depends which bonds we're talking about. So if we think about shorter bonds-- let's say two-year, one-year type of interest rates-- those can still move higher. And those should move higher if we're going to price the full extent of the Fed, including the-- get to 5.25% and be on pause for the rest of the year.
But if we think about, call it, further out the yield curve, when we look at 10-year interest rates, 30-year interest rates, the real question we have to ask ourselves is do we think the Fed will ever cut rates again?
And if the answer is yes, then you have to answer, well, to what level?
And if we think that 10-year rates at 4% is aggressive relative to where the Fed has continually communicated it intends long-term interest rates to be for the US economy to be in equilibrium, which they're saying is about 2.5%, that 4% today is quite high relative to that longer-term policy rate that the Fed intends to get to.
So that's just a long way of saying there is room, as time goes on and the economy continues to decelerate, for longer-dated interest rates to come down.
>> That was Alex Gorewicz, portfolio manager with TD Asset Management.
Now, let's get our educational segment of the day.
Technical analysis is one method you can use to help analyse a potential investment in WebBroker has tools that can help you read the charts.
Joining us now with Maurice Jason Hnatyk, Senior client education instructor with TD Direct Investing. Great to have you back.
Let's talk about how WebBroker can help us with some technical analysis.
>> Yeah, it's great to be here as always.
Technical analysis can be a very useful skill for investors to learn, whether or not we are using it to identify enter and exit signals or using historical analysis of the charts to identify if there's going to be a continuation or reversal of the trend.
Let's jump into WebBroker and I'll show you how you can use the tool to help identify and find patterns that are existing on the chart and use that as an opportunity to do some research.
So to get to that tool, we are going to go to research at the top of the screen.
Under the tools column, we got screeners.
On the screen, we have been here numerous times on the program.
We have talked about stock, mutual fund and ETFs training and this time we will be focused on using the system to identify it when system technical matters have displayed themselves on charts. So within the screen, we have the ability to start narrowing down the final, but in a geographic location, select Canada or choose a particular exchange. We can identify a particular index.
We can filter this down to S&P TSX 60 companies. Even have the opportunity if you are looking to diversify into a particular industry or sector, you can have that screen for that particular piece of information as well. Uniquely enough, on the screen we have the ability to choose a particular market sentiment that you might be feeling. Maybe I'm in a bullish frame of mind. Let's urge for bullish technical patterns and signals on the chart.
The next step would be to use the final icon here on the left-hand side.
This is where we can start putting in our particulars that we want the screen to identify for us. We got some fundamental cross-sections that we have the ability to kind of put into the screen as well. Maybe we are looking for only large-cap stocks.
Let's go ahead and put the filtering.
there are other levers to pull as well.
Down below is where the rubber starts to meet the road. We've got many different pattern types that we can find on the chart. We got many different formations that we can find.
Maybe the woman will stick with first is a pretty commonly used pattern identification and that's when the price moves over the moving average.
Keep in mind, we chose a bullish pattern.
This going to be where your price moves above the moving average that is displayed on the chart.
So we scrolled back to the top of the screen.
We can see that out of the index and geographical location that we found, there have now been 43 matches based on that specific pattern alone.
So really good information, really useful.
Maybe that point you in the right action to summer research identified the right trading opportunity for you.
>> Right now, I'm on the screen and I'm looking at a lot going on. Where do you go to learn about what all this means?
>> Yeah, good point. Whether or not you are a beginner with charting or more advanced, there is always something to learn.
We'd be a fool to say we know everything.
WebBroker does a wonderful job of giving us educational opportunities to improve ourselves as investors. From this screen, what I would like to show everybody in the top right-hand corner is that there is a little graduation. I'll go ahead and choose that. This going to bring us into our technical education section.
On the left-hand side, very similar to the differentscreening criteria that we can put in, it is broken down in an identical way so we can track and follow different moves, different patterns, different indicators.
Let's go ahead and choose the same one we were screening four. The price crosses moving average. We can go ahead and identify that and choose this from the list. Here within WebBroker, you are learning about all of the ins and outs of this particular pattern. We get a visual disruption of the pattern and you're also getting some trading considerations to help make you a more informed trader.
Let's take this one step further quickly.
Up at the learn tab at the top of the page, we do have some on-demand video lessons that are available for all of our clients here in WebBroker. That's available on the video lessons section here on the left-hand side.
I have already gone ahead and filtered for technical analysis to speed up the process.
The first thing I'd like to share everybody is if you would like a rundown from an expert on how to use the screen tool, there is this video here on how to screen for technical signals on WebBroker.
It's a wonderful educational opportunity.
Scrolling down, let's go to page 2.
There is a five-part series, I know it's a big undertaking, but it is worth the investment in yourself.
There is a five-part series on the foundations of technical analysis. I think our users can really get a lot of information and educational opportunities from this material.
>> Heading into a weekend, maybe some will dig in if they are interested in this.
Great stuff as always. Thanks for that.
> My pleasure.
> Jason Hnatyk, client education instructor at TD Direct Investing. Make sure to check out the education sector and in WebBroker for more educational videos, live interactive master classes as well as upcoming webinars, including how to help prepare your portfolio for a recession.
After that strong start to the year, volatility has entered into the trading world.
How should investors be thinking about the markets going forward?
Earlier I had a chance to discuss that with Brad Simpson, people strategist at TD Wealth.
He is Brad Simpson.
>> I think we kind of stepped back, the big surprise so far this year, I think that markets have been good. And I don't think that much of a surprise.
And I don't think that's much of a surprise, and I'm sure we can dig in there. But markets started to rally in October.
And at the time, that probably made some sense to have a little bit.
But when we start breaking down what the equity market has looked like, really in particular going through January, and the component parts of the drivers behind it, I would say that-- if there's the way of framing this or a surprise moment, I think you've got to step back a little bit. Take a look at what's been moving the market, what's driving it. And I think when I look at it in those terms, it starts to paint a different picture.
>> I think we can actually show the audience a picture that you can speak to in terms of what kind of picture we are painting.
>> Yeah, so one of the things that has been so incredible about this year so far is that-- all we're showing here is, if you took the absolute best-performing stocks of 2022, and let's say the best performing were good quality, priced well, great earnings per share growth, really, we started to move into an equity market where fundamentals really came back to the fore. And on the opposite side, what really did terribly, if you were really leveraged, you had earnings sometime way, way down the road-- more of your fantasy stocks, if you will. Those really, really got hammered in 2022, some down between 50% and 70%.
You look at January and you look at where a lot of those the worst ones, the worst-performing stocks of 2022, they've been amongst the best-- up around 15% year-to-date.
And that really tells you the story an awful lot of what this market looks like.
And then you start to ask yourself, well, how does this happen?
And for me, a little bit, there's this narrative that has began.
And often, when I think, like, markets, fixed-income markets, I think fixed-income markets, they've been trading on fat. Late stage, you think interest rates will start moving downwards. And six months out to nine months, things will start to slow.
Equity markets, I think, started to trade on fiction. And I think this fiction was this idea that, OK, are we going to have a hard landing? OK, well maybe we're going to have a soft landing.
And then as the market kept moving, a new narrative said we're going to have no landing.
>> Yeah. No landing at all, just continue on as-is.
>> And so I think the part I would-- you know, like right out of the gate I think is to build the stop a little bit, look at this, and go, for us, I think you got to look and say the driver in this is a lot of speculation, a lot of short covering, like, you know. And I think the last part is-- and it's something you and I've spoken about in the past-- is that short-term markets, unlike any time ever in past history, really trade on rhythmic trading, coding.
And if you start drawing a picture saying, well, in this scenario where you don't have a hard landing, you don't have a soft landing, you have a no landing, you change the parameters of how you're going to trade. And you end up having a market that looks a lot like this one. But the problem is that there's still all the reality out there. And I think that investors would be really wise to stop a little bit and say, wait a minute. Let's think about this.
>> Let's talk about the reality out there, because the reality out there would perhaps inform us as to what the Fed is going to do. And I think what the Fed is going to do-- the real question is, of course, what is the end point? When do they think they could stop raising rates and get inflation under control?
>> Right. So in January, we published our quarterly strategy, and it was called Right Here, Right Now.
And the idea in this is, as we said, here's the market drivers, both, let's say, for fixed-income markets and equity markets.
And the starting one is you'd say, well, I think you're going to have to answer the question on what's going to happen with inflation, and is there going to be a recession or not.
And then we said, I think the second thing you're going to have to think a little bit about is what is earnings going to do and how is that going to be able to play out.
And then we think you're going to have to think a little bit about what is this kind of geopolitical world that we're living in and how this is going to play out? And I think that when you look at that equity markets and the way that they've traded, seemingly, all of those have been answered.
But none of those have been answered.
And so one of the things in risk priority management-- which is a governing philosophy of how we think about allocating capital.
It's this belief that markets are these complex, open systems.
And complex, open systems have randomness in them.
Like, the world doesn't work in a linear way because we as human beings are making decisions in them.
I gave you an example where human beings are actually writing code based on their thoughts. That starts to move markets.
That starts to move our impressions on things.
But the reality is that, over the last few years, we have seen unbelievable monetary policy and fiscal policy for something we haven't seen in years.
The data that's going to come out of that is going to be a little bit messy.
Of course, we saw the consumer come back big in January.
And I think that caught most of us by surprise.
You could start to see where things would start to slow.
>> Simple explanations just aren't working.
>> Yeah, right? And so now, they said, well then, what do you do with that?
As a narrative, you could say, great. It is a no landing. The consumer is back.
Boy, that was one bad month, and it's all guns blazing from here. I think you have to slow a little bit and say, well, sometimes what people do with their spending is they go out, they have a great time. It's pent-up demand. They have to stay home for a while.
And then, lo and behold, don't forget we are. It's middle of winter.
It's not been that bad of a winter. People have had a lot more time to be able to go outside.
They've had a lot more time to be able to go out and enjoy the space.
So in January, it was a pretty nice January, and particularly in North America.
And you can see those flows through spending picked up.
Does that equate to we don't need to worry about any kind of consumer slowdown from here, we don't need to worry about people having large debt levels on their credit cards, do we not have to worry that people's valuations of their homes have gone down-- all the things which have an impact on their balance sheet.
And this-- I don't want to sound overly-bearish because that's not what I am.
We called our strategy Right Here, Right Now because what we wanted to make sure was, during this quarter, we thought there were going to be extreme narratives going on. Like, if we had some data that came out was going to be positive, we thought that you would see volume and volatility to the upside really pick up.
If you had a few negative data points, you would see the opposite case. And really, so far, that's really what it's looked at.
And I think for us, it's then saying that Right Here, Right Now is about this idea that says, let's make sure you have an investment process based on fundamentals in the way of allocating capital.
Let's not have a time horizon of whatever the next data point that comes out.
And if you can extend out your thinking to at least quarterly, and preferably 12 to 18 months out, and think about the right here and right now and you're seeing this noise, there's lots of contradictory data that's going to come out from this.
And if you do that and not get caught up in it, this is actually a really, really nice-- we would call this a nice alpha-driven market where it's not just driven by flows.
There's great valuations across the spectrum to look at, but you got to watch the noise.
>> In terms of the economic cycle, where are we at and how does that play out?
I mean, because the Fed-- the whole point of the aggressive central bank rate hikes, whether it's here or at home, whether south of the border with the Fed, is saying, if we're going to bring inflation down, we've got to cool this economy. As you said, the weather's nice, we spend.
You got some weird data points. There's a lot of noise. But if we're looking at longer term, what are we thinking about where we are on the economy?
>> Now, look, I think we're obsessed with recession right now.
>> Yeah.
>> Right? Like, that's the starting point.
And I always say that the one thing you have to remember about a recession is that a bell doesn't ring and people go, there it is.
>> It has begun. You wake up one morning, look at your watch, and you go, there we go-- recession.
>> I mean, the reality is a bunch of economists in an office after the fact sit down and go, oh, there's your starting date of your recession. It is there. And I think that if you're trying to allocate capital based on that, I think you've got to look at your process a little bit and say, wait a minute.
What we know for certain is that we are in a late-stage economy.
And if you're in a late-stage economy, that should guide your thinking on where you're allocated today.
You've got a pretty good idea of what that next 12 to 18 looks like.
You can be adaptive as it adjusts and changes a little bit.
But this idea that we can perpetually ever have a late stage economy that doesn't ultimately move to a recession, I think the reality-- and I think if we actually even reversed the tape to the last time I was here, I said one of the realities is that we have this thing called inflation front and center now. When inflation wasn't a concern, central banks could operate in a way of saying, OK, that's our number one thing is to control that. The fact of the matter is they went through almost 15 to 20 years of actually being worried about disinflation. So they could go, well, let's park that.
And what we want to do is just manage for slow growth, because, really, that's what we were in.
You look, inflation is front and center again. And so the central bank is basically saying we actually have more of a regular business cycle right now. We're going to manage like it's a business cycle again.
And I think, in many ways, this idea in the market is that I think a lot of the movement that we're seeing are folks that have not come to terms with the environment has changed dramatically with inflation here. And so that late-stage economy should really impact how you're allocating capital.
And the bottom line is, if you look at the S&P 500 and you look at the things that moved the S&P year-to-date, it is usually the stuff that works in the early-stage economy.
And the stuff that didn't work-- more your defensive type of names-- is the stuff that underperformed, which usually does really well late stage. If you think things actually revert to a mean-- because as you start to move away from this short-termism and the really new era of market movement that we're in, you revert to this mean and you start to move back into late-stage assets, back into late-stage equities. And I think that's a place in the market where you really want to look to be.
>> That was Brad Simpson, chief wealth strategist at TD Wealth.
Let's say you updated on the markets on this last trading day of the shortened trading week. We'll start here at home with the TSX Composite Index.
We have a bit of a bid for American benchmark crude.
It's pretty modest but I'm trying to find some green on my screen. The headline TSX is still to the downside, about 119 points, little more than half a percent pure let's take a look at Hudbay Minerals.
Since his latest earnings, they are down about 3 1/2%.
El Dorado gold is also an earnings reaction story. I told bucks and $0.11, it is up about 7%.
Before we say goodbye for the week, we want to bring Anthony Okolie back in the conversation, taking a look at how small businesses are feeling about this economic environment.
What you see?
>>So far, the small business Index inched up in February as worries over inflation eased a bid in the last month.
Now, the latest index showed the confidence for the next 12 months hedged up half a point to 51.7 in February.
Just slightly above expansion territory.
Again, anything above 50 shows that more business owners are feeling confidently versus negatively about the next few months.
Now, the immediate three month outlook improved two points to 48.9 index points with that still and contractionary territory.
When you look at again both indices, they are generally at the lowest levels that have been reported since 2009 outside of her sessions. Now, when you look at what's hurting small businesses, the average wage expectations rose just above 3% versus just a 3% gain in January.
While future price increase plans weak uptake but it is still at elevated levels versus historical standards.
Amongst sectors, retail posted the lowest optimism level at just under 44 points.
That marks the eighth straight month below 50.
Now, Canada's retail industry has struggled to find workers as job vacancy rates hit record highs last year.
Now when it comes to the input cost pressures, they continue to be a concern for small businesses.
Input costs are running at levels around twice their historical averages.
Other cost pressures as well like energy and fuel as well as wage costs.
Now, there was some good news in the survey.
Confidence on employment, especially full-time employment, ticked up in February and supply chain challenges also continued to fade.
The uptake and confidence in recent months is good news but overall it is still lower versus historical levels.
Greg?
>> I remember guests telling me during the pandemic, putting it in the simplest terms in how you view small businesses oriented towards the economy, my spending is somebody else's income.
How are businesses feeling about consumer spending for the rest of the year?
>> Many businesses continue to worry about the lack of demand which remains the third largest concern above… Impacted one third of respondents.
TD Economics says that this is in line with their economic outlook with growth and consumer spending expected to slow this year and that will ultimately hurt businesses profitability.
>> Interesting stuff. Thanks for that. At my pleasure.
>> Moneytalk's Anthony Okolie.
If you want to stay tuned, on Monday, Andres Rincon, head of ETF sales and strategy at TD Securities will be our guest, taking your questions about exchange traded funds.
a reminder that you can get a head start with this question by emailing moneytalklive@td.
com. That's all the time we have for the show today.
On behalf of me and Anthony and everyone bringing the show to you, thanks for watching. See you next week.
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