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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, we are going to be looking at those jobs numbers out of the United States and Canada. Both came in a little higher-than-expected.
Moneytalk's Anthony Okolie is going to be here to break it all down for us and what it could mean for monetary policy.
Speaking of which, a big theme this week, the growing policy gap between the Bank of Canada and the US Federal Reserve. We are going to hear more about that from Andrew Kelvin, chief Canada strategist at TD Securities.
Plus, in today's WebBroker education segment, a look at dividend paying stocks, what they are and how to find them using the WebBroker platform.
Caitlin Cormier, client education instructor with TD Direct Investing will join us on that.
Before he gets all that, let's give you an update on the markets.
We do want to start with a look at Silicon Valley Bank. Waitressing there is the price action of the close of Thursday.
Halted pending news, we are getting news, this is what Bay and Wall Street have been keeping their eyes on. The latest news out in the last couple of minutes, Silicon Valley Bank was closed today and they appointed the Federal Deposit Insurance Corporation as a receiver. So Silicon Valley Bank has been closed.
The Federal Deposit Insurance Corporation has been reported receiver of those assets.
This is one that has definitely caught the attention of both Bay Street and Wall Street, trying to figure it was happening with that bank. They are tech focused, they've had a rough go in the last couple of days, evidenced by that stock price action before there was a hold in the shares. Basically, they went to their balance sheet, took a look at their bonds, had to settle some at a discount because of all the increases in interest rates we have seen, they try to raise equity and I work and latest news is that they have been closed today in the federal deposit corporation is the receiver.
let's jump into the broader markets.
market has been choppy in the wake of it all. Right now the TSX is down 130 points, a little bit more than 1/2 of a percent.
A little bit of risk coming out of the market today. Let's take a look at Shopify, down about 3 1/2% right now.
But you did see amid some of this action a bid for gold and some of the gold miners.
I want to see that trade is still holding up right now.
We will pull up Kinross or any of the gold names.
Indeed, four bucks and $0.89, it is up 3 1/3%.
So to the border, the marketer and make sense of everything it's getting, whether it's at jobs, the closure of Silicon Valley Bank. We were actually modestly positive heading into the trading day. It has slid down, it is down about 11 points, 1/3 of a percent. A choppy day. The tech heavy NASDAQ. It's still positive, up to the tune of 15 points, a bit more than a sense of a percent. Some of the big Wall Street banks awesome selling pressure yesterday but some are bouncing back. It's a mixed picture.
J.P. Morgan at hundred and 33 at bucks and change is up 2.7%.
and that's your market update.
.
Jobs came out on Friday from Canada and the US, the numbers coming out a little bit firmer than inspected.
Our Anthony Okolie has been digging into numbers. He joins us now with more.
Pretty interesting stuff here.
>> We will start with the US jobs because I think the jobs numbers offered submit hints that inflation could be showing.
The headline numbers, we got a solid 311000 Jobs in February.
The expectation, consensus expectation was for 225,000 job gains, so much stronger than affected.
The unemployment rate rose to 3.6%, up above expectations of 3.4%.
That was thanks to the labour force hitting its highest level since March 2020. As I mentioned, there was some good news in the report, particularly on the inflation side.
Average hourly earnings rose of 4.6% year-over-year, that's below the 4.8% estimated by Wall Street.
The monthly increase was only .2% versus 8.
4% estimate. So although the jobs number was stronger than effect, the good news was easing wage pressures.
This is the largest cost for businesses so this is some good news for the Fed moving for.
>> How about the Canadian situation? I think we added some jobs. Perhaps expectation was that we would start to see some weakness given all the aggressive moves from the central bank.
>> We continue to see strengthen the Canadian labour market. Canada added another 22000 Positions in February after 2 Consecutive Monthly Increases in December and January. All the jobs were full-time positions and jobs in February are on par with what we are seeing in January.
A total appointment, we are sitting just above it 28 million employed. And that employment trend has trended upward since September of last year.
The unemployment rate held steady at 5%.
When we look at inflation, it's much stronger than inspected.
Wage growth accelerated 5.4% year-over-year in February compared to 4.5% in January.
So that inflation picture is not great.
When we break it down by industry, however, most jobs added were in areas such as healthcare, public administration and utilities.
We did see some losses on the business, building and other support services as well as finance, insurance, real estate, rental, leasing industry.
So some good news, bad news in terms of inflation picture for both Canada and the United States.
>> Perhaps with the Fed might make of all this, these are the big questions, right?
Central banks have hiked rates so aggressively, they are trying to call the economy and tame inflation.
Really, they've been saying all along, they need to see some softness in the labour market. We have the Fed coming up later this week. We had the Bank of Canada. They said, we are going to hold and stay on hold at the moment conditionally to see how things play a.
The question is what the Fed does later this month.
>> There is some concern that the Fed might be hiking more aggressively.
We spoke with TD Economics and they say that this jobs report suggest that the Fed needs to a hike by 50 basis points on March 22. Looking at the market's expectations, the CAB group estimate, markets are pricing in a probability of 57% probability of 25 basis point hike.
42% of 50 basis point hike. It's a bit of a coin toss.
We have seen changes in expectations given this report which suggests inflation is slowing.
>> Some choppy trading ahead. Thanks for that.
>> My pleasure.
>> Money talks Anthony Okolie.
As you mentioned, the big news of the week, the central banks, the Bank of Canada reaffirming its Conditional pause on rate hikes at 4 1/2%. This week, we also had Jerome Powellwarning legislators that higher interest rate might be necessary.
As Andrew Kelvin, chief Canada strategist Ted TD Securities, about those, Jerome Powell.
>> We always thought the Federal Reserve would move higher this cycle than the Bank of Canada. We also thought the Federal Reserve would finish at a higher terminal rate, just given the household leverage dynamics in Canada are somewhat more acute than they are in the United States. So each rate hike in Canada should bite a little bit harder than a rate hike in the US would.
So it's not inconsistent in that sense. It does speak to this sort of underlying tension, though, where the Bank of Canada declared their conditional pause in January.
I think to a lot of people it seemed maybe a little bit premature, maybe a little bit overly confident in their assessment of the economy.
Because while I do share this view that growth is likely to slow this year, we haven't seen really material signs of it yet.
And if you look at the most recent jobs figures for the month of January, that really laid that out.
We're running into a very tight labor market, which the Bank of Canada touched on today, and the economy certainly isn't showing the signs of slowing, the Bank of Canada, perhaps, had suggested when they put that conditional pause in in January.
Now, the fourth quarter was a little weaker than expected.
CPI inflation is involving in line with the Bank of Canada's last forecast, which is why we expected that they would stay on hold today.
But as we go into April, into June, we will need to see a pretty notable deceleration in economic activity in Canada to justify the Bank of Canada's hold.
So that's the first piece of this.
It may be that the Federal Reserve is seeing some strength on the ground that the Bank of Canada is not.
But I would suggest that in an environment where the United States is showing significant resilience is probably going to be an environment where the Canadian economy shows significant resilience.
The second piece that will come into play is the currency. Because if the Federal Reserve really steps on the gas or brakes, depending on how you want to think of this analogy, but the Federal Reserve decides to tighten more than the market expects, that will put pressure on the Canadian dollar. And while the Bank of Canada can be tolerant of fluctuations in the Canadian dollar, too much depreciation in the currency is inflationary and could bring them back into play and could force their hand.
So it is something to continue watching the United States.
A degree of extra hawkishness compared to the Bank of Canada is to be expected. But there are bounds to how much those two central banks can diverge.
>> That sounds like it leaves the Bank of Canada in a very hard place. You just talked about the debt dynamics we have in this country.
Good reason for them to be concerned about higher borrowing costs really biting into households and their ability to make their debt payments.
But at the same time, the dynamics south of the border, I wouldn't want to be-- I don't even know if I'd want to be a central bank governor on a good day, and these seem to be very hard times to be a central bank governor.
>> It is a thankless job, no doubt. So in terms of one thing to think that is in common between Canada and the US, in both countries there were significant piles of excess savings that were accumulated. That is something that can help buffer the impact on household spending in Canada, even though we have these sort of more pernicious debt dynamics.
And I will say, the Bank of Canada did say in their statement today that restrictive monetary policy continues to weigh on household spending.
But I would put forward, given the tightness in the labor market, we need to see further deceleration going forward.
>> So the Bank of Canada needs to see these things as turn in the economy, that's some indications, GDP underperforming but the labor market still being hot, so it's a little mixed on that picture. At some point, we're going to get a spring budget from the federal government.
Then that's the fiscal side. Is there a danger now that those two camps start working at odds with other?
The monetary policy is trying to achieve one thing, but fiscal policy sometimes wants to help voters in need.
>> It's always a danger, in both directions, really. There have been occasions in other countries where central banks have tried to loosen policy while a fiscal agent is cutting spending, which also works against the central bank's goals.
Obviously, in an inflationary environment, the risk would be more government stimulus would make the Bank of Canada's job harder and ultimately cause them to lift rates more.
I haven't seen any indication that we're looking at a really aggressive budget.
Now, political calculations change all the time. Certainly something could shift in the polls or a government decides that they have a shiny new policy they think will go over great with voters. And things can change.
I would just observe, based on the fiscal update we got in November, it didn't seem like a government that was planning a very significant fiscal expansion.
And there's no need to see an election this year. It's a minority government.
It's always a risk.
But given that the next scheduled election isn't for a few years now, I don't know that this is the time where you maybe sprinkle that extra stimulus across the country to try and win a few extra votes.
So it is a risk. It's something we will be watching for very closely is going to April. It's not part of our base case, however.
>> Part of the Bank of Canada's base case today, as I went through their statement, was they think that inflation is going to get down around 3% by the middle of this year.
We're not that far off from the middle of this year. Can they achieve that?
>> I think so. There's a lot of base effects here. Inflation was running extremely hot, I suppose.
Price acceleration was quite high through the first part of 2022.
So as those months of inflation fall out of your year-over-year calculation, inflation just mathematically falls.
So you can get down into the mid 3's without too much difficulty by the middle part of the year.
I think the tricky part is moving from 3.5% to 2.5%, because underlying inflation is running at a rate that is consistent with more sort of 3.5% inflation.
I'm looking at the core measures here, sort of annualize them over a three-month basis.
So you need to see more disinflation on the month-by-month prints to actually have a path to 2% inflation in 2024, which is ultimately the Bank's goal.
That 3% midyear inflation rate that they talked about, that's a milestone. It's a signpost. It's not ultimately where they're trying to get to.
And if we wind up at the end of 2023 and inflation is still 3.5%, that'll be a sign that the Bank of Canada made a dovish policy mistake.
>> The range is 1% to 3%, right? And then some debate starts to happen, as the fact that would they be happy with something at the higher end of the range. The sweet spot is 2%.
But if you do have a range up to 3%, would they feel like mission accomplished, to a certain degree?
>> I think they'd be a lot more comfortable being within the range than being outside the range. Ultimately, they're trying to get to 2%.
They've been trying to get to the midpoint of that range.
And I think particularly given the experience of 2022, certainly, and also what we're experiencing today, inflation expectations in the short term, at least, are elevated. There is an element of preserving credibility they need to take into account.
So in an environment where we were just sort of going along between 1.5% and 2.5%, and maybe inflation hung out at 2.7% for a little while, they may not be overly concerned, as long as they thought inflation was stable going forward.
In an environment where they have really missed their target for a long period of time now, I think it's very difficult to get to 2.9% and say, mission accomplished.
They really need to achieve that 2% number to restore the credibility in that 2% inflation target.
>> That was Andrew Kelvin, chief Kennedy strategist Ted TD Securities.
Now let's say you updated and some of the top stories in the world of business and take a look at how the markets are trading.
Let's get you updated on the situation as Silicon Valley Bank. Obviously, it's been in the headlines in recent days. There was market action yesterday because the shares were halted before the opening of the trading day today, pending news. Well, the news has come out and regulators in the state of California have closed it Silicon Valley Bank and they've named the US Federal Deposit Insurance Corporation as the receiver of its assets. Now, the FDIC, the deposit and insurance Corporation, says that all insured depositors of Silicon Valley Bank will have full access to their deposits no later than this coming Monday morning, March 14. They say the 17 branches that are operating in California and Massachusetts will reopen on Monday as well. The FDIC's now the receiver of that after regulators closed Silicon Valley Bank. Interesting develop and tear.
In terms of what's happening with this bank, it was a heavily tech focused institution and so investors are just taking a look to see obviously it's been a tough go in the tax base.
FDIC tried to have an equity razor… Not FDIC's, Silicon Valley Bank they tried to have an equity race this week that reportedly failed after suffering losses in the sale of some of its bonds in his portfolio there. All of that a symptom of rising rates. A pretty fascinating story, one to keep an eye on indeed.
We've got some other stories in the news today, including Oracle.
It is counting on acquisition of electronic medical records company is Cerner to boost demand for its cloud services this year. The company says it expects to bring on more healthcare customers in the coming quarters.
The commentary comes on the heels of an earnings report the streets calling mixed at best. The parent company of Old Navy and Banana Republic is posting a larger than expected loss for its most recent quarter. Gap Inc.
is seeing a slowdown in demand for its apparel offerings as a higher cost of living shifts consumer habits. In the company/prices during the holiday quarter trying to clear inventory, a move that hit the margin. You can see Under pressure right now to the tune of about 6%.
A quick check in on the markets.
Of course, it is jobs Friday on both sides of the markets and it's been a choppy trade since the release of those numbers, which came in a little firmer than expected on both sides of the border.
Try to figure out what it means in terms of central bank policy. Got the TSX Composite Index down 175 points, we will call that a little shy of a full percent.
South of the border, the S&P 500 right now, it had been modestly positive before the start of the noon hour trading session but right now it's down and 26 points, little more than half percent.
Continuing with our luck this week central bank action and those comments from Fed chair Jerome Powell about perhaps the need for higher rates thanWere anticipated, we did speak with Scott Colbourne, managing director of active fixed income and TD Asset Management about the implications for the bond market.
>> I guess we're in a data-dependent environment, right? And we're seeing slight divergence in that theme. So we start with the US and the Fed and Chair Powell's comments this week, basically introduced the optionality that maybe they even go 50 basis points at the next meeting.
And we got two key pieces of data, right?
So the data-dependency focus, tomorrow we've got the nonfarm payrolls, and then next week we've got CPI. And so basically the Fed told us, look, the data is coming in a little bit stronger than we've expected.
We're going to probably-- we're going-- well, they're definitely going to be raising rates.
It's just they're giving themselves the optionality, if the data comes in stronger, to reintroduce a pace that is greater than 25 basis points. And so that is describing that environment.
It really is an uncertain environment. So you step from the Fed.
And then you look around the world, there is this uncertainty associated with where we are, with this inflationary environment that every country is dealing with. And do we-- In the Bank of Canada, we're on a conditional pause.
And so it's conditional on the data evolving.
And that is the uncertain world that we're all dealing with, whether as a policy maker or investors.
And it is challenging for all of us to really navigate a narrow road, given the volatility and the uncertainty associated with this environment that we're in.
>> Heading into this year, there was investors that were sort of feeling a little bit more constructive, I guess the word would be, about the fixed income space, just like at some point, after the year we had last year and the aggressive rate hikes, these central banks are going to find that endpoint, that terminal rate.
They might stay there for a while.
But at some point because of this restrictive territory, they're going to start cutting. All of this should be good for fixed income.
I know we're only two months into the year and a little bit into the third month.
But what are we thinking about fixed income, given what we're getting recently from all the central banks?
>> Generally speaking, we're constructive on fixed income. And we can sort of dive into that.
But broadly speaking, I think, given the backup in yields, there are enough opportunities, whether it's across the yield curve or in sectors, to participate.
And certainly from a longer perspective, given the post-GFC world that we've been in, we do have income for the first time in a long, long time, right?
So fixed income-- and that hasn't been available to us, given the fact that central bank policies have been so close to 0% for such a long time.
So it is, generally speaking, a positive environment.
That said, it's this-- the uncertainty associated with inflation-- and the history teaches us that rapid turnaround or the push from rapid rate hikes that we've had and the challenge that we had last year in 2022, to rapidly expect the pivot by the central banks this year.
And I think history teaches us that there's a lot more caution warranted from a policymaker point of view, that the risk for them is to err on the side of caution and stay tighter for longer.
And so we begin the year. And they were rapidly pricing in rate cuts this year and then obviously a lot more into next year.
I think we're-- it's pretty clear that, given the trajectory of inflation, while coming down, has elements of stickiness in it, that there is a need to be patient from a policy maker's point of view.
>> And maybe even patient from an investment point of view. And you point out the fact that finally, you're actually getting a coupon. You're getting some yield on fixed income, that perhaps it makes sense that-- the idea when you're saying, being paid to wait. I've always found that an interesting thing as an investor.
You're being paid to wait, because if you're in equities and you've got a dividend-paying stock, then you can be patient because you're getting those dividends.
But now we're actually getting some yield from fixed income as well. So if you need to be patient, at least the coupon's giving us something.
>> Yeah, I mean, you can-- the nice thing with fixed income is there is a mathematics behind it.
And I don't want to go down into the weeds. But basically-- >> Get out the whiteboard.
>> I don't want to bore everybody. But generally speaking, there's-- you buy a two-year bond that's yielding 5%, say, in the US. You're going to get 5% for the year. You're paid 5%. Now, rates could go up more. But the income that you're getting is going to offset the decline that is associated with the increase in interest rates.
So it's not just the price of the bond moving up and down that is your return.
It's the combination of the two. And with bond mathematics, you can sort of give yourself scenarios that-- are we at a breakeven point? So could rates go up 50 basis points?
And holding a 10-year bond right now, and you have a 0% return for the year?
Yeah. So there's-- that's an important part of thinking through allocation to fixed income, in that income is an important part of that, sort of, if you will, scenario analysis in your portfolio.
>> Yeah, because last year, I think some of the frustration from people was-- and given the fact that the central banks were moving so aggressively, it didn't look great on the bond returns.
And it didn't look great on the equity returns. So that idea of the 60-40 or 70-30 or how everyone wants to splice it up, they're starting to wonder if it worked anymore.
But the scenario you're laying at right now that, even if your breakeven part of at least that fixed income part of the portfolio is providing some sort of buffer?
>> Yeah, I mean, we went through a generational shock last year associated with policies that came out of a pandemic that we-- none of us had been through. And the impulse from monetary policy and fiscal policy caused a rapid increase in inflation. And policymakers had to respond.
Equities and fixed income went through the one-- a long time in a generational shock-- And so now, we're transitioning from that rapid adjustment, higher in interest rates.
And we're dealing with a stabilization, at least on fiscal policy.
So we can expect a portfolio, a 60-40 portfolio, to play a role now, given the fact that fixed income has income.
And we talk about fixed income playing a few roles. Income is number one.
Liquidity is important. So if-- you can rebalance that fixed income into equities or alts or whatever you want. But it's also diversification or your-- the role it plays to counterbalance.
And so when days our equities are down, you're seeing a little bit more evidence that fixed income can balance that off in a 60-40 portfolio now.
>> That was Scott Colbourne, managing director of active fixed income at TD Asset Management.
Now, it's time for today's educational segment.
For many investors, dividends can be a key part of their investing strategy, including some of the stocks that they are perhaps looking at purchasing on the plot from. Caitlin Cormier, client education instructors who to take us through the process using the platform.
Great to see you.
Let's talk about it.
>> Absolutely.
As a part of some income strategy, some investors might decide that dividends are the way to go and a dividend is basically a distribution made by a company to its shareholders. The distribution comes from corporate earnings of the corporation and can be paid either on a regular basis or they may just pay one kind of as a one-off. You do need to be a holder of record on the record date to be able to receive the dividend, which essentially means you need to purchase the stock at least one day prior to the ex dividend date.
so that's a really important date when we are talking on the platform.
What we are going to do today isI'm going to actually show you where you can find some different dividend paying stocks.
So I'm going to do is I'm just going to hop into WebBroker, and when you click on research and I'm going to go into under tools I'm going to click on the screen or stool. So this is an excellent spot again for us to filter down from all of the different stocks available in the market to kind of some specific criteria that we are looking for. Today, I'm going to click on the preset screens and then we can see that there is an option here for top dividends and it says stocks paying and growing their dividends for shareholders that seek cash income from their investments.
So what this does is it going to take all of the stocks in both Canadian and US market and show us which ones are actually paying, like we said, paying and growing those dividends.
So they've got some criteria put in already.
We are showing 561 matches, which is a little bit overwhelming probably, too many for us to filter through.
So I'm going to go ahead and add a little bit of additional criteria.
So maybe for example I'm looking for a Canadian stock. So right there, that has narrowed me down. We can see that we are at 77 matches. I could also make some different changes here.
I could click on more criteria, click on sector and industry, maybe there is a particular part of the industry that I would like to see stocks from the or a particular part I don't want to be involved in so let's just take out I don't know technology and communication services, just those two.
We will hit close and we are down to 68 matches, so a little bit more reasonable.
Again, this is just giving me a list of companies that are paying out a dividend, they are growing their dividend. You can see here there dividend growth rate over the last five years.
Their dividend is actually increasing.
Our dividend yield, which is the annual dividend yield divided by the share price as well as the stock price.
So again, just kind of a list to see some different dividends that are paying and increasing their stock so you can maybe make a watchlist from here and then do a little bit of further research and see if they might be stocks you might be interested in adding to your portfolio.
>> Alright, Caitlin, earlier you mentioned a little something called exit dividend dates.
how can we find out more information about that?
>> Yes, the ex dividend date. So a very important date if you are looking to get paid that dividend.
So essentially, the ex dividend date is the first day that the stock trades without the dividend, and I want to show you a place we can actually find out what those dates are.
So we are going to click on actually research. Under markets, we are going to click on events.
This is an event we are going to have reporting on within markets. If I go here under the calendar of events, if I click dividend, this is actually going to show me some companies that have an ex dividend date, pardon me, of today.
So if your member what I just said, it means that if you were to buy the stocks today, he would not be eligible for the dividend that we are seeing here on that payment date so that's why the ex dividend date is so important. If you traded on the ex dividend date, that means it's trading ex dividend or without the dividend.
So to find stocks to buy today and potentially get the ex dividend, we would just have to choose the next trading day, so we choose the third, the 13th, sorry, and we see there are three different stocks that are going to be having their ex dividend date on the 13th so I would be able to put in a purchase for those stocks and be able to be eligible for the dividend here. One other quick thing on the screen, I can switch back and forth between Canada and the US. So because there are so many more securities in the US, it's a lot more to work through, as you can see as I scroll, but you have the ability to kind of filter through Canada and the US as well as to change the date and finally the last thing we see here is actually that dollars and cents piece so what the annual dividend is.
>> Great stuff as always.
Thanks that.
>> No problem.
Thanks.
>> Caitlin Cormier, client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
next Tuesday, among them, is it women and investing webinar, how investing as if you were single can help you safeguard your future with Leslie McCormick.
We've got some breaking news for you here in the past couple of minutes if you've been curious about when the federal government is going to bring down its budget, we now have a date from finance minister Chrystia Freeland. It is said to be released on March 28. That's the latest update from the liberals and whatever fiscal policy ideas they have and that will be an interesting realm of conversation not only for the state of the economy in the fight against inflation and offsetting monetary policy but what it could mean for your personal finances. We all have full coverage here on MoneyTalk on March 28 on the release of the federal budget.
Let's get back to one of the big stories of the week now. The US Federal Reserve signalling its battle with inflation isn't over and rates may have to go even higherthan expected.
We spoke earlier with David Sekera, chief US market strategist at Morningstar Research about the comments we heard from Jerome Powell and what it means for US equities.
Let's have a listen.
>> I think if you look at some of the past commentaries made to the public, he has been quite hawkish on inflation for a while, so I think this is almost the market really just kind of catching up to hearing what he's been saying the last couple of times he's been out there.
>> And really, if you're catching up to what he's been saying, in the end, the big part of this is, where does the Fed end up at terminal rate?
How high do they need to get rates, and then how long do they need to hold them there for?
Are we starting to get a better correlation or an agreement between market pricing and what the Fed has actually been saying about where they need to end up?
>> Well, what we're looking for is two more rate hikes before the Fed pauses. And to me, I think, really one of the bigger risks right now isn't necessarily inflation. We still expect inflation will continue to moderate over the course of the year in the US. I think the bigger risk to equity markets would be is if they tighten too much and cause policy error, and we see a deeper recession than what the market is currently looking for.
>> Policy error. I mean, it seems like the only thing the Fed has to concentrate on right now.
And it's their mandate, anyway, is inflation, and unemployment's part of the mandate, too, but they've been laser focused on inflation. How much of a possibility is that there's a policy error? I've got to think they're thinking about this around the clock.
>> Well, that's certainly not our base case at this point. Like I said, we're looking for two more rate hikes at the next two meetings and then a pause thereafter. So I don't think we're going to see a policy error, but again, it's certainly something that would be a big risk. Right now, we do expect that the US economy is running hotter than what people had expected. The Fed is certainly seeing a more resilient economy than what they were expecting, but we do think that there will be a slowdown. We do think this tightening monetary policy will impact the economy later this year.
Now, originally, we expected that the slowdown, kind of a stagnation, would be in the second and third quarter. We've actually now pushed that back, and now we expect to see that slow down in the third and fourth quarter of this year.
>> Now, for all the hawkish speak-- and you said it's not surprising considering the tone that Powell has taken for quite some time now-- he did, obviously, say that monetary policy works with a lag. And the things that they have done even recently aren't going to be felt in the economy until later. Is that the danger there of the policy error? That we know policy works with a lag, but we're being very aggressive right now, and where we end up maybe becomes a moving target.
>> Exactly, and it certainly does work with a lag. And no one really knows exactly going into it how much that lag is going to be. So for example, if we look at the housing industry, that was extremely strong in the US over the course of the past couple of years. There was a lot of backlog for new home construction, so we're still seeing that play through the system.
But when we look at leading economic indicators like permits, we are starting to see those come down, so I would expect to see housing get softer and softer over the course of the year.
And when we look at the other leading economic indicators, as well, those are still in a downward trend, and those will still play out over the next couple of months.
>> Now, when it comes to the equity markets, we're only in March, in the early innings of March, but it's been a pretty bumpy ride between the big gains of January, which took everyone by surprise, some of the pullback of February, and it's been a bumpy ride. Where do we think these markets are headed further out? Are we still in for some chop?
>> Definitely. We do see a rough road ahead here for at least the next several months. So as you indicated, coming into the year, we thought markets were actually very oversold, very undervalued, so I wasn't surprised to see the big run up in January, especially once we got crossing a lot of the selling pressure that we saw at the end of last year as people were locking in losses to take advantage of that in their taxes.
Now, in February, we saw a little bit of a giveback from that. At this point, we still think that the US market is probably 10% to 12% undervalued. Now, I do think that we're going to see more volatility over the next couple of months. Now that we're past earnings season, the market's going to be looking at inflationary and economic metrics. And depending on how those come out, we could certainly see the market move up when they're looking better, and we could certainly see the market move down when they're worse than expected.
But I do think, in the second half of the year, we're looking for leading economic indicators to start turning up, and I think that's really going to be what the signal will be for the market to really make that next sustainable, upward move towards where we see intrinsic value.
>> That's interesting because, of course, as much as investors we are Fed watchers, we're also watchers of the data points that we know that the Fed is watching as well. So what do you think the key ones are? I mean, inflation obviously is the huge one. What else should an investor be looking at in terms of not getting ahead of the Fed, but understanding where their heads are at and what they're looking at?
>> Well, and, again, they're certainly going to be very data dependent, as Fed Chair Powell has really been focusing on.
So this Friday, we do have the payrolls number coming out. That one, I think, consensus is right about 200,000 right now, yet we did see a big surprise to the upside in January that really no one was expecting at all. So I think people will be really focused on that this Friday.
And, again, if it comes in lower than expected, that will take some of the pressure off of the Fed. But again, if we get another high print, then I do think that the Fed will continue to be hawkish.
>> Is that part of the head scratching that's going on, as well? I imagine maybe at the central banks, including here in Canada, the fact that they got so aggressive on interest rate hikes and in that short period of time, you really made a substantial move higher. And yet, the job market has been so resilient.
Is that something they're having a hard time squaring right now?
>> Definitely. As you mentioned, when you look at policy in the United States, the Fed, it's been the fastest and the most that it's increased interest rates probably since going back to the 1980s.
So, again, I think it is very difficult trying to understand how much of a lag there is between when you first start tightening monetary policy and when it really starts playing into the system.
And, of course, then we had the pandemic that plays into all of this, still seeing how the economy has been recovering even three years after that first started. So I think that's why we still see a lot of dislocations in the marketplace, as well as dislocations in the economy.
>> As investors, can we hope for a day-- I'm not going to make you choose the date exactly on the calendar, but can we hope for the day where we don't have to be such aggressive watchers of monetary policy.
Obviously, it's driven so much in the last little while and for good reason, but do we get to a point in the market where we're back to sort of fundamentals where we don't have to-- you always keep an eye on the Fed, but we don't have to worry about them so intently?
>> Well, and I do think we get to a point where things start to normalize a lot more, and that's probably going to be more middle of this year. So when you think about interest rates over the past couple of years, just how far interest rates went down during the pandemic to all time lows down in the US. When you start thinking about 10's and 30's, now coming back up to around 4% for the 10-year.
So again, getting back to more of like a historical normal kind of level. And also just thinking about what's been going on with the equity markets, how far and how fast they fell at the beginning of a pandemic. Then we just had the huge amounts of monetary policy out there, as well as policy by the United States government in order to really try and work things out as much as they could at the beginning of the pandemic. And, of course, I do think the Fed probably kept monetary policy too easy for too long, so now some of the problems that we have now is probably trying to fix what happened back then.
>> That was David Sekera, chief US market strategist at Morningstar Research.
Before we say goodbye for the week, let's get you an update on the market session.
It's been a choppy session. It's jobs Friday on both sides of the border.
Both countries coming in with a headline report a little firmer than expected. 130 points to the downside right now for the TSX Composite Index, a little more than half a percent. Some weakness in the financials, including the life codes. Sun Life down to the tune of about 1 1/2%.
But gold is getting a bit of a bid today and it is playing through to the mining stocks. There is Barrick Gold at 22 bucks and $0.23 per share, up a little bit more than 3%. Now south of the border, Wall Street has a pretty keen eye on Silicon Valley Bank.
We told you earlier how regulators had shut the bank down, the FDIC has become the receiver and that definitely has the I Wall Street now but also the jobs report has a I've Wall Street so it's a bit of a choppy morning when it comes to the S&P 500.
You see that it was in positive territory briefly for a while. It's down modestly now by 14 points, about 1/3 of a percent.
Yes, that headline number on jobs was higher-than-expected and hourly earningsdidn't climb as much as they thought. A bit of a mixed bag for investors to go through. They want to get a read through what the Fed is going to think about it all. A quick check in on the tech heavy NASDAQ. Right now, it's been a choppy one today. We are modestly higher than the top of the show, we are down on a more than 100 points on the NASDAQ, almost a full percent. Definitely a lot of interesting moves on the market today. I do want to check out some of the big Wall Street banks that we showed you earlier. There was some pressure yesterday but there was bounce back in space including Bank of America.
It's up very modestly right now, regaining some ground lost yesterday.
Stay tuned. On Monday, we will be joined by Haining Zha, portfolio manager at TD Asset Management. We'll be talking about the Chinese economy and the Chinese market.
A reminder, of course, that you can get a head start with your questions. Just email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you next week!
[music]
coming up on today show, we are going to be looking at those jobs numbers out of the United States and Canada. Both came in a little higher-than-expected.
Moneytalk's Anthony Okolie is going to be here to break it all down for us and what it could mean for monetary policy.
Speaking of which, a big theme this week, the growing policy gap between the Bank of Canada and the US Federal Reserve. We are going to hear more about that from Andrew Kelvin, chief Canada strategist at TD Securities.
Plus, in today's WebBroker education segment, a look at dividend paying stocks, what they are and how to find them using the WebBroker platform.
Caitlin Cormier, client education instructor with TD Direct Investing will join us on that.
Before he gets all that, let's give you an update on the markets.
We do want to start with a look at Silicon Valley Bank. Waitressing there is the price action of the close of Thursday.
Halted pending news, we are getting news, this is what Bay and Wall Street have been keeping their eyes on. The latest news out in the last couple of minutes, Silicon Valley Bank was closed today and they appointed the Federal Deposit Insurance Corporation as a receiver. So Silicon Valley Bank has been closed.
The Federal Deposit Insurance Corporation has been reported receiver of those assets.
This is one that has definitely caught the attention of both Bay Street and Wall Street, trying to figure it was happening with that bank. They are tech focused, they've had a rough go in the last couple of days, evidenced by that stock price action before there was a hold in the shares. Basically, they went to their balance sheet, took a look at their bonds, had to settle some at a discount because of all the increases in interest rates we have seen, they try to raise equity and I work and latest news is that they have been closed today in the federal deposit corporation is the receiver.
let's jump into the broader markets.
market has been choppy in the wake of it all. Right now the TSX is down 130 points, a little bit more than 1/2 of a percent.
A little bit of risk coming out of the market today. Let's take a look at Shopify, down about 3 1/2% right now.
But you did see amid some of this action a bid for gold and some of the gold miners.
I want to see that trade is still holding up right now.
We will pull up Kinross or any of the gold names.
Indeed, four bucks and $0.89, it is up 3 1/3%.
So to the border, the marketer and make sense of everything it's getting, whether it's at jobs, the closure of Silicon Valley Bank. We were actually modestly positive heading into the trading day. It has slid down, it is down about 11 points, 1/3 of a percent. A choppy day. The tech heavy NASDAQ. It's still positive, up to the tune of 15 points, a bit more than a sense of a percent. Some of the big Wall Street banks awesome selling pressure yesterday but some are bouncing back. It's a mixed picture.
J.P. Morgan at hundred and 33 at bucks and change is up 2.7%.
and that's your market update.
.
Jobs came out on Friday from Canada and the US, the numbers coming out a little bit firmer than inspected.
Our Anthony Okolie has been digging into numbers. He joins us now with more.
Pretty interesting stuff here.
>> We will start with the US jobs because I think the jobs numbers offered submit hints that inflation could be showing.
The headline numbers, we got a solid 311000 Jobs in February.
The expectation, consensus expectation was for 225,000 job gains, so much stronger than affected.
The unemployment rate rose to 3.6%, up above expectations of 3.4%.
That was thanks to the labour force hitting its highest level since March 2020. As I mentioned, there was some good news in the report, particularly on the inflation side.
Average hourly earnings rose of 4.6% year-over-year, that's below the 4.8% estimated by Wall Street.
The monthly increase was only .2% versus 8.
4% estimate. So although the jobs number was stronger than effect, the good news was easing wage pressures.
This is the largest cost for businesses so this is some good news for the Fed moving for.
>> How about the Canadian situation? I think we added some jobs. Perhaps expectation was that we would start to see some weakness given all the aggressive moves from the central bank.
>> We continue to see strengthen the Canadian labour market. Canada added another 22000 Positions in February after 2 Consecutive Monthly Increases in December and January. All the jobs were full-time positions and jobs in February are on par with what we are seeing in January.
A total appointment, we are sitting just above it 28 million employed. And that employment trend has trended upward since September of last year.
The unemployment rate held steady at 5%.
When we look at inflation, it's much stronger than inspected.
Wage growth accelerated 5.4% year-over-year in February compared to 4.5% in January.
So that inflation picture is not great.
When we break it down by industry, however, most jobs added were in areas such as healthcare, public administration and utilities.
We did see some losses on the business, building and other support services as well as finance, insurance, real estate, rental, leasing industry.
So some good news, bad news in terms of inflation picture for both Canada and the United States.
>> Perhaps with the Fed might make of all this, these are the big questions, right?
Central banks have hiked rates so aggressively, they are trying to call the economy and tame inflation.
Really, they've been saying all along, they need to see some softness in the labour market. We have the Fed coming up later this week. We had the Bank of Canada. They said, we are going to hold and stay on hold at the moment conditionally to see how things play a.
The question is what the Fed does later this month.
>> There is some concern that the Fed might be hiking more aggressively.
We spoke with TD Economics and they say that this jobs report suggest that the Fed needs to a hike by 50 basis points on March 22. Looking at the market's expectations, the CAB group estimate, markets are pricing in a probability of 57% probability of 25 basis point hike.
42% of 50 basis point hike. It's a bit of a coin toss.
We have seen changes in expectations given this report which suggests inflation is slowing.
>> Some choppy trading ahead. Thanks for that.
>> My pleasure.
>> Money talks Anthony Okolie.
As you mentioned, the big news of the week, the central banks, the Bank of Canada reaffirming its Conditional pause on rate hikes at 4 1/2%. This week, we also had Jerome Powellwarning legislators that higher interest rate might be necessary.
As Andrew Kelvin, chief Canada strategist Ted TD Securities, about those, Jerome Powell.
>> We always thought the Federal Reserve would move higher this cycle than the Bank of Canada. We also thought the Federal Reserve would finish at a higher terminal rate, just given the household leverage dynamics in Canada are somewhat more acute than they are in the United States. So each rate hike in Canada should bite a little bit harder than a rate hike in the US would.
So it's not inconsistent in that sense. It does speak to this sort of underlying tension, though, where the Bank of Canada declared their conditional pause in January.
I think to a lot of people it seemed maybe a little bit premature, maybe a little bit overly confident in their assessment of the economy.
Because while I do share this view that growth is likely to slow this year, we haven't seen really material signs of it yet.
And if you look at the most recent jobs figures for the month of January, that really laid that out.
We're running into a very tight labor market, which the Bank of Canada touched on today, and the economy certainly isn't showing the signs of slowing, the Bank of Canada, perhaps, had suggested when they put that conditional pause in in January.
Now, the fourth quarter was a little weaker than expected.
CPI inflation is involving in line with the Bank of Canada's last forecast, which is why we expected that they would stay on hold today.
But as we go into April, into June, we will need to see a pretty notable deceleration in economic activity in Canada to justify the Bank of Canada's hold.
So that's the first piece of this.
It may be that the Federal Reserve is seeing some strength on the ground that the Bank of Canada is not.
But I would suggest that in an environment where the United States is showing significant resilience is probably going to be an environment where the Canadian economy shows significant resilience.
The second piece that will come into play is the currency. Because if the Federal Reserve really steps on the gas or brakes, depending on how you want to think of this analogy, but the Federal Reserve decides to tighten more than the market expects, that will put pressure on the Canadian dollar. And while the Bank of Canada can be tolerant of fluctuations in the Canadian dollar, too much depreciation in the currency is inflationary and could bring them back into play and could force their hand.
So it is something to continue watching the United States.
A degree of extra hawkishness compared to the Bank of Canada is to be expected. But there are bounds to how much those two central banks can diverge.
>> That sounds like it leaves the Bank of Canada in a very hard place. You just talked about the debt dynamics we have in this country.
Good reason for them to be concerned about higher borrowing costs really biting into households and their ability to make their debt payments.
But at the same time, the dynamics south of the border, I wouldn't want to be-- I don't even know if I'd want to be a central bank governor on a good day, and these seem to be very hard times to be a central bank governor.
>> It is a thankless job, no doubt. So in terms of one thing to think that is in common between Canada and the US, in both countries there were significant piles of excess savings that were accumulated. That is something that can help buffer the impact on household spending in Canada, even though we have these sort of more pernicious debt dynamics.
And I will say, the Bank of Canada did say in their statement today that restrictive monetary policy continues to weigh on household spending.
But I would put forward, given the tightness in the labor market, we need to see further deceleration going forward.
>> So the Bank of Canada needs to see these things as turn in the economy, that's some indications, GDP underperforming but the labor market still being hot, so it's a little mixed on that picture. At some point, we're going to get a spring budget from the federal government.
Then that's the fiscal side. Is there a danger now that those two camps start working at odds with other?
The monetary policy is trying to achieve one thing, but fiscal policy sometimes wants to help voters in need.
>> It's always a danger, in both directions, really. There have been occasions in other countries where central banks have tried to loosen policy while a fiscal agent is cutting spending, which also works against the central bank's goals.
Obviously, in an inflationary environment, the risk would be more government stimulus would make the Bank of Canada's job harder and ultimately cause them to lift rates more.
I haven't seen any indication that we're looking at a really aggressive budget.
Now, political calculations change all the time. Certainly something could shift in the polls or a government decides that they have a shiny new policy they think will go over great with voters. And things can change.
I would just observe, based on the fiscal update we got in November, it didn't seem like a government that was planning a very significant fiscal expansion.
And there's no need to see an election this year. It's a minority government.
It's always a risk.
But given that the next scheduled election isn't for a few years now, I don't know that this is the time where you maybe sprinkle that extra stimulus across the country to try and win a few extra votes.
So it is a risk. It's something we will be watching for very closely is going to April. It's not part of our base case, however.
>> Part of the Bank of Canada's base case today, as I went through their statement, was they think that inflation is going to get down around 3% by the middle of this year.
We're not that far off from the middle of this year. Can they achieve that?
>> I think so. There's a lot of base effects here. Inflation was running extremely hot, I suppose.
Price acceleration was quite high through the first part of 2022.
So as those months of inflation fall out of your year-over-year calculation, inflation just mathematically falls.
So you can get down into the mid 3's without too much difficulty by the middle part of the year.
I think the tricky part is moving from 3.5% to 2.5%, because underlying inflation is running at a rate that is consistent with more sort of 3.5% inflation.
I'm looking at the core measures here, sort of annualize them over a three-month basis.
So you need to see more disinflation on the month-by-month prints to actually have a path to 2% inflation in 2024, which is ultimately the Bank's goal.
That 3% midyear inflation rate that they talked about, that's a milestone. It's a signpost. It's not ultimately where they're trying to get to.
And if we wind up at the end of 2023 and inflation is still 3.5%, that'll be a sign that the Bank of Canada made a dovish policy mistake.
>> The range is 1% to 3%, right? And then some debate starts to happen, as the fact that would they be happy with something at the higher end of the range. The sweet spot is 2%.
But if you do have a range up to 3%, would they feel like mission accomplished, to a certain degree?
>> I think they'd be a lot more comfortable being within the range than being outside the range. Ultimately, they're trying to get to 2%.
They've been trying to get to the midpoint of that range.
And I think particularly given the experience of 2022, certainly, and also what we're experiencing today, inflation expectations in the short term, at least, are elevated. There is an element of preserving credibility they need to take into account.
So in an environment where we were just sort of going along between 1.5% and 2.5%, and maybe inflation hung out at 2.7% for a little while, they may not be overly concerned, as long as they thought inflation was stable going forward.
In an environment where they have really missed their target for a long period of time now, I think it's very difficult to get to 2.9% and say, mission accomplished.
They really need to achieve that 2% number to restore the credibility in that 2% inflation target.
>> That was Andrew Kelvin, chief Kennedy strategist Ted TD Securities.
Now let's say you updated and some of the top stories in the world of business and take a look at how the markets are trading.
Let's get you updated on the situation as Silicon Valley Bank. Obviously, it's been in the headlines in recent days. There was market action yesterday because the shares were halted before the opening of the trading day today, pending news. Well, the news has come out and regulators in the state of California have closed it Silicon Valley Bank and they've named the US Federal Deposit Insurance Corporation as the receiver of its assets. Now, the FDIC, the deposit and insurance Corporation, says that all insured depositors of Silicon Valley Bank will have full access to their deposits no later than this coming Monday morning, March 14. They say the 17 branches that are operating in California and Massachusetts will reopen on Monday as well. The FDIC's now the receiver of that after regulators closed Silicon Valley Bank. Interesting develop and tear.
In terms of what's happening with this bank, it was a heavily tech focused institution and so investors are just taking a look to see obviously it's been a tough go in the tax base.
FDIC tried to have an equity razor… Not FDIC's, Silicon Valley Bank they tried to have an equity race this week that reportedly failed after suffering losses in the sale of some of its bonds in his portfolio there. All of that a symptom of rising rates. A pretty fascinating story, one to keep an eye on indeed.
We've got some other stories in the news today, including Oracle.
It is counting on acquisition of electronic medical records company is Cerner to boost demand for its cloud services this year. The company says it expects to bring on more healthcare customers in the coming quarters.
The commentary comes on the heels of an earnings report the streets calling mixed at best. The parent company of Old Navy and Banana Republic is posting a larger than expected loss for its most recent quarter. Gap Inc.
is seeing a slowdown in demand for its apparel offerings as a higher cost of living shifts consumer habits. In the company/prices during the holiday quarter trying to clear inventory, a move that hit the margin. You can see Under pressure right now to the tune of about 6%.
A quick check in on the markets.
Of course, it is jobs Friday on both sides of the markets and it's been a choppy trade since the release of those numbers, which came in a little firmer than expected on both sides of the border.
Try to figure out what it means in terms of central bank policy. Got the TSX Composite Index down 175 points, we will call that a little shy of a full percent.
South of the border, the S&P 500 right now, it had been modestly positive before the start of the noon hour trading session but right now it's down and 26 points, little more than half percent.
Continuing with our luck this week central bank action and those comments from Fed chair Jerome Powell about perhaps the need for higher rates thanWere anticipated, we did speak with Scott Colbourne, managing director of active fixed income and TD Asset Management about the implications for the bond market.
>> I guess we're in a data-dependent environment, right? And we're seeing slight divergence in that theme. So we start with the US and the Fed and Chair Powell's comments this week, basically introduced the optionality that maybe they even go 50 basis points at the next meeting.
And we got two key pieces of data, right?
So the data-dependency focus, tomorrow we've got the nonfarm payrolls, and then next week we've got CPI. And so basically the Fed told us, look, the data is coming in a little bit stronger than we've expected.
We're going to probably-- we're going-- well, they're definitely going to be raising rates.
It's just they're giving themselves the optionality, if the data comes in stronger, to reintroduce a pace that is greater than 25 basis points. And so that is describing that environment.
It really is an uncertain environment. So you step from the Fed.
And then you look around the world, there is this uncertainty associated with where we are, with this inflationary environment that every country is dealing with. And do we-- In the Bank of Canada, we're on a conditional pause.
And so it's conditional on the data evolving.
And that is the uncertain world that we're all dealing with, whether as a policy maker or investors.
And it is challenging for all of us to really navigate a narrow road, given the volatility and the uncertainty associated with this environment that we're in.
>> Heading into this year, there was investors that were sort of feeling a little bit more constructive, I guess the word would be, about the fixed income space, just like at some point, after the year we had last year and the aggressive rate hikes, these central banks are going to find that endpoint, that terminal rate.
They might stay there for a while.
But at some point because of this restrictive territory, they're going to start cutting. All of this should be good for fixed income.
I know we're only two months into the year and a little bit into the third month.
But what are we thinking about fixed income, given what we're getting recently from all the central banks?
>> Generally speaking, we're constructive on fixed income. And we can sort of dive into that.
But broadly speaking, I think, given the backup in yields, there are enough opportunities, whether it's across the yield curve or in sectors, to participate.
And certainly from a longer perspective, given the post-GFC world that we've been in, we do have income for the first time in a long, long time, right?
So fixed income-- and that hasn't been available to us, given the fact that central bank policies have been so close to 0% for such a long time.
So it is, generally speaking, a positive environment.
That said, it's this-- the uncertainty associated with inflation-- and the history teaches us that rapid turnaround or the push from rapid rate hikes that we've had and the challenge that we had last year in 2022, to rapidly expect the pivot by the central banks this year.
And I think history teaches us that there's a lot more caution warranted from a policymaker point of view, that the risk for them is to err on the side of caution and stay tighter for longer.
And so we begin the year. And they were rapidly pricing in rate cuts this year and then obviously a lot more into next year.
I think we're-- it's pretty clear that, given the trajectory of inflation, while coming down, has elements of stickiness in it, that there is a need to be patient from a policy maker's point of view.
>> And maybe even patient from an investment point of view. And you point out the fact that finally, you're actually getting a coupon. You're getting some yield on fixed income, that perhaps it makes sense that-- the idea when you're saying, being paid to wait. I've always found that an interesting thing as an investor.
You're being paid to wait, because if you're in equities and you've got a dividend-paying stock, then you can be patient because you're getting those dividends.
But now we're actually getting some yield from fixed income as well. So if you need to be patient, at least the coupon's giving us something.
>> Yeah, I mean, you can-- the nice thing with fixed income is there is a mathematics behind it.
And I don't want to go down into the weeds. But basically-- >> Get out the whiteboard.
>> I don't want to bore everybody. But generally speaking, there's-- you buy a two-year bond that's yielding 5%, say, in the US. You're going to get 5% for the year. You're paid 5%. Now, rates could go up more. But the income that you're getting is going to offset the decline that is associated with the increase in interest rates.
So it's not just the price of the bond moving up and down that is your return.
It's the combination of the two. And with bond mathematics, you can sort of give yourself scenarios that-- are we at a breakeven point? So could rates go up 50 basis points?
And holding a 10-year bond right now, and you have a 0% return for the year?
Yeah. So there's-- that's an important part of thinking through allocation to fixed income, in that income is an important part of that, sort of, if you will, scenario analysis in your portfolio.
>> Yeah, because last year, I think some of the frustration from people was-- and given the fact that the central banks were moving so aggressively, it didn't look great on the bond returns.
And it didn't look great on the equity returns. So that idea of the 60-40 or 70-30 or how everyone wants to splice it up, they're starting to wonder if it worked anymore.
But the scenario you're laying at right now that, even if your breakeven part of at least that fixed income part of the portfolio is providing some sort of buffer?
>> Yeah, I mean, we went through a generational shock last year associated with policies that came out of a pandemic that we-- none of us had been through. And the impulse from monetary policy and fiscal policy caused a rapid increase in inflation. And policymakers had to respond.
Equities and fixed income went through the one-- a long time in a generational shock-- And so now, we're transitioning from that rapid adjustment, higher in interest rates.
And we're dealing with a stabilization, at least on fiscal policy.
So we can expect a portfolio, a 60-40 portfolio, to play a role now, given the fact that fixed income has income.
And we talk about fixed income playing a few roles. Income is number one.
Liquidity is important. So if-- you can rebalance that fixed income into equities or alts or whatever you want. But it's also diversification or your-- the role it plays to counterbalance.
And so when days our equities are down, you're seeing a little bit more evidence that fixed income can balance that off in a 60-40 portfolio now.
>> That was Scott Colbourne, managing director of active fixed income at TD Asset Management.
Now, it's time for today's educational segment.
For many investors, dividends can be a key part of their investing strategy, including some of the stocks that they are perhaps looking at purchasing on the plot from. Caitlin Cormier, client education instructors who to take us through the process using the platform.
Great to see you.
Let's talk about it.
>> Absolutely.
As a part of some income strategy, some investors might decide that dividends are the way to go and a dividend is basically a distribution made by a company to its shareholders. The distribution comes from corporate earnings of the corporation and can be paid either on a regular basis or they may just pay one kind of as a one-off. You do need to be a holder of record on the record date to be able to receive the dividend, which essentially means you need to purchase the stock at least one day prior to the ex dividend date.
so that's a really important date when we are talking on the platform.
What we are going to do today isI'm going to actually show you where you can find some different dividend paying stocks.
So I'm going to do is I'm just going to hop into WebBroker, and when you click on research and I'm going to go into under tools I'm going to click on the screen or stool. So this is an excellent spot again for us to filter down from all of the different stocks available in the market to kind of some specific criteria that we are looking for. Today, I'm going to click on the preset screens and then we can see that there is an option here for top dividends and it says stocks paying and growing their dividends for shareholders that seek cash income from their investments.
So what this does is it going to take all of the stocks in both Canadian and US market and show us which ones are actually paying, like we said, paying and growing those dividends.
So they've got some criteria put in already.
We are showing 561 matches, which is a little bit overwhelming probably, too many for us to filter through.
So I'm going to go ahead and add a little bit of additional criteria.
So maybe for example I'm looking for a Canadian stock. So right there, that has narrowed me down. We can see that we are at 77 matches. I could also make some different changes here.
I could click on more criteria, click on sector and industry, maybe there is a particular part of the industry that I would like to see stocks from the or a particular part I don't want to be involved in so let's just take out I don't know technology and communication services, just those two.
We will hit close and we are down to 68 matches, so a little bit more reasonable.
Again, this is just giving me a list of companies that are paying out a dividend, they are growing their dividend. You can see here there dividend growth rate over the last five years.
Their dividend is actually increasing.
Our dividend yield, which is the annual dividend yield divided by the share price as well as the stock price.
So again, just kind of a list to see some different dividends that are paying and increasing their stock so you can maybe make a watchlist from here and then do a little bit of further research and see if they might be stocks you might be interested in adding to your portfolio.
>> Alright, Caitlin, earlier you mentioned a little something called exit dividend dates.
how can we find out more information about that?
>> Yes, the ex dividend date. So a very important date if you are looking to get paid that dividend.
So essentially, the ex dividend date is the first day that the stock trades without the dividend, and I want to show you a place we can actually find out what those dates are.
So we are going to click on actually research. Under markets, we are going to click on events.
This is an event we are going to have reporting on within markets. If I go here under the calendar of events, if I click dividend, this is actually going to show me some companies that have an ex dividend date, pardon me, of today.
So if your member what I just said, it means that if you were to buy the stocks today, he would not be eligible for the dividend that we are seeing here on that payment date so that's why the ex dividend date is so important. If you traded on the ex dividend date, that means it's trading ex dividend or without the dividend.
So to find stocks to buy today and potentially get the ex dividend, we would just have to choose the next trading day, so we choose the third, the 13th, sorry, and we see there are three different stocks that are going to be having their ex dividend date on the 13th so I would be able to put in a purchase for those stocks and be able to be eligible for the dividend here. One other quick thing on the screen, I can switch back and forth between Canada and the US. So because there are so many more securities in the US, it's a lot more to work through, as you can see as I scroll, but you have the ability to kind of filter through Canada and the US as well as to change the date and finally the last thing we see here is actually that dollars and cents piece so what the annual dividend is.
>> Great stuff as always.
Thanks that.
>> No problem.
Thanks.
>> Caitlin Cormier, client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
next Tuesday, among them, is it women and investing webinar, how investing as if you were single can help you safeguard your future with Leslie McCormick.
We've got some breaking news for you here in the past couple of minutes if you've been curious about when the federal government is going to bring down its budget, we now have a date from finance minister Chrystia Freeland. It is said to be released on March 28. That's the latest update from the liberals and whatever fiscal policy ideas they have and that will be an interesting realm of conversation not only for the state of the economy in the fight against inflation and offsetting monetary policy but what it could mean for your personal finances. We all have full coverage here on MoneyTalk on March 28 on the release of the federal budget.
Let's get back to one of the big stories of the week now. The US Federal Reserve signalling its battle with inflation isn't over and rates may have to go even higherthan expected.
We spoke earlier with David Sekera, chief US market strategist at Morningstar Research about the comments we heard from Jerome Powell and what it means for US equities.
Let's have a listen.
>> I think if you look at some of the past commentaries made to the public, he has been quite hawkish on inflation for a while, so I think this is almost the market really just kind of catching up to hearing what he's been saying the last couple of times he's been out there.
>> And really, if you're catching up to what he's been saying, in the end, the big part of this is, where does the Fed end up at terminal rate?
How high do they need to get rates, and then how long do they need to hold them there for?
Are we starting to get a better correlation or an agreement between market pricing and what the Fed has actually been saying about where they need to end up?
>> Well, what we're looking for is two more rate hikes before the Fed pauses. And to me, I think, really one of the bigger risks right now isn't necessarily inflation. We still expect inflation will continue to moderate over the course of the year in the US. I think the bigger risk to equity markets would be is if they tighten too much and cause policy error, and we see a deeper recession than what the market is currently looking for.
>> Policy error. I mean, it seems like the only thing the Fed has to concentrate on right now.
And it's their mandate, anyway, is inflation, and unemployment's part of the mandate, too, but they've been laser focused on inflation. How much of a possibility is that there's a policy error? I've got to think they're thinking about this around the clock.
>> Well, that's certainly not our base case at this point. Like I said, we're looking for two more rate hikes at the next two meetings and then a pause thereafter. So I don't think we're going to see a policy error, but again, it's certainly something that would be a big risk. Right now, we do expect that the US economy is running hotter than what people had expected. The Fed is certainly seeing a more resilient economy than what they were expecting, but we do think that there will be a slowdown. We do think this tightening monetary policy will impact the economy later this year.
Now, originally, we expected that the slowdown, kind of a stagnation, would be in the second and third quarter. We've actually now pushed that back, and now we expect to see that slow down in the third and fourth quarter of this year.
>> Now, for all the hawkish speak-- and you said it's not surprising considering the tone that Powell has taken for quite some time now-- he did, obviously, say that monetary policy works with a lag. And the things that they have done even recently aren't going to be felt in the economy until later. Is that the danger there of the policy error? That we know policy works with a lag, but we're being very aggressive right now, and where we end up maybe becomes a moving target.
>> Exactly, and it certainly does work with a lag. And no one really knows exactly going into it how much that lag is going to be. So for example, if we look at the housing industry, that was extremely strong in the US over the course of the past couple of years. There was a lot of backlog for new home construction, so we're still seeing that play through the system.
But when we look at leading economic indicators like permits, we are starting to see those come down, so I would expect to see housing get softer and softer over the course of the year.
And when we look at the other leading economic indicators, as well, those are still in a downward trend, and those will still play out over the next couple of months.
>> Now, when it comes to the equity markets, we're only in March, in the early innings of March, but it's been a pretty bumpy ride between the big gains of January, which took everyone by surprise, some of the pullback of February, and it's been a bumpy ride. Where do we think these markets are headed further out? Are we still in for some chop?
>> Definitely. We do see a rough road ahead here for at least the next several months. So as you indicated, coming into the year, we thought markets were actually very oversold, very undervalued, so I wasn't surprised to see the big run up in January, especially once we got crossing a lot of the selling pressure that we saw at the end of last year as people were locking in losses to take advantage of that in their taxes.
Now, in February, we saw a little bit of a giveback from that. At this point, we still think that the US market is probably 10% to 12% undervalued. Now, I do think that we're going to see more volatility over the next couple of months. Now that we're past earnings season, the market's going to be looking at inflationary and economic metrics. And depending on how those come out, we could certainly see the market move up when they're looking better, and we could certainly see the market move down when they're worse than expected.
But I do think, in the second half of the year, we're looking for leading economic indicators to start turning up, and I think that's really going to be what the signal will be for the market to really make that next sustainable, upward move towards where we see intrinsic value.
>> That's interesting because, of course, as much as investors we are Fed watchers, we're also watchers of the data points that we know that the Fed is watching as well. So what do you think the key ones are? I mean, inflation obviously is the huge one. What else should an investor be looking at in terms of not getting ahead of the Fed, but understanding where their heads are at and what they're looking at?
>> Well, and, again, they're certainly going to be very data dependent, as Fed Chair Powell has really been focusing on.
So this Friday, we do have the payrolls number coming out. That one, I think, consensus is right about 200,000 right now, yet we did see a big surprise to the upside in January that really no one was expecting at all. So I think people will be really focused on that this Friday.
And, again, if it comes in lower than expected, that will take some of the pressure off of the Fed. But again, if we get another high print, then I do think that the Fed will continue to be hawkish.
>> Is that part of the head scratching that's going on, as well? I imagine maybe at the central banks, including here in Canada, the fact that they got so aggressive on interest rate hikes and in that short period of time, you really made a substantial move higher. And yet, the job market has been so resilient.
Is that something they're having a hard time squaring right now?
>> Definitely. As you mentioned, when you look at policy in the United States, the Fed, it's been the fastest and the most that it's increased interest rates probably since going back to the 1980s.
So, again, I think it is very difficult trying to understand how much of a lag there is between when you first start tightening monetary policy and when it really starts playing into the system.
And, of course, then we had the pandemic that plays into all of this, still seeing how the economy has been recovering even three years after that first started. So I think that's why we still see a lot of dislocations in the marketplace, as well as dislocations in the economy.
>> As investors, can we hope for a day-- I'm not going to make you choose the date exactly on the calendar, but can we hope for the day where we don't have to be such aggressive watchers of monetary policy.
Obviously, it's driven so much in the last little while and for good reason, but do we get to a point in the market where we're back to sort of fundamentals where we don't have to-- you always keep an eye on the Fed, but we don't have to worry about them so intently?
>> Well, and I do think we get to a point where things start to normalize a lot more, and that's probably going to be more middle of this year. So when you think about interest rates over the past couple of years, just how far interest rates went down during the pandemic to all time lows down in the US. When you start thinking about 10's and 30's, now coming back up to around 4% for the 10-year.
So again, getting back to more of like a historical normal kind of level. And also just thinking about what's been going on with the equity markets, how far and how fast they fell at the beginning of a pandemic. Then we just had the huge amounts of monetary policy out there, as well as policy by the United States government in order to really try and work things out as much as they could at the beginning of the pandemic. And, of course, I do think the Fed probably kept monetary policy too easy for too long, so now some of the problems that we have now is probably trying to fix what happened back then.
>> That was David Sekera, chief US market strategist at Morningstar Research.
Before we say goodbye for the week, let's get you an update on the market session.
It's been a choppy session. It's jobs Friday on both sides of the border.
Both countries coming in with a headline report a little firmer than expected. 130 points to the downside right now for the TSX Composite Index, a little more than half a percent. Some weakness in the financials, including the life codes. Sun Life down to the tune of about 1 1/2%.
But gold is getting a bit of a bid today and it is playing through to the mining stocks. There is Barrick Gold at 22 bucks and $0.23 per share, up a little bit more than 3%. Now south of the border, Wall Street has a pretty keen eye on Silicon Valley Bank.
We told you earlier how regulators had shut the bank down, the FDIC has become the receiver and that definitely has the I Wall Street now but also the jobs report has a I've Wall Street so it's a bit of a choppy morning when it comes to the S&P 500.
You see that it was in positive territory briefly for a while. It's down modestly now by 14 points, about 1/3 of a percent.
Yes, that headline number on jobs was higher-than-expected and hourly earningsdidn't climb as much as they thought. A bit of a mixed bag for investors to go through. They want to get a read through what the Fed is going to think about it all. A quick check in on the tech heavy NASDAQ. Right now, it's been a choppy one today. We are modestly higher than the top of the show, we are down on a more than 100 points on the NASDAQ, almost a full percent. Definitely a lot of interesting moves on the market today. I do want to check out some of the big Wall Street banks that we showed you earlier. There was some pressure yesterday but there was bounce back in space including Bank of America.
It's up very modestly right now, regaining some ground lost yesterday.
Stay tuned. On Monday, we will be joined by Haining Zha, portfolio manager at TD Asset Management. We'll be talking about the Chinese economy and the Chinese market.
A reminder, of course, that you can get a head start with your questions. Just email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you next week!
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