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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's show, TD Wealth's chief while strategist at Brad Simpson is going to be discussing how investors should be navigating all these mixed signals we are getting about the health of the global economy.
TD Securities Andrew Kelvin is going to give us his view on what the Bank of Canada's next move might be after they held on rate earlier this week.
And we are going to discuss the outlook for the tech sector, weather can continue its recent rebound with Jim Kelleher from Argus Research. Plus in today's WebBroker education segment, Hiren Amin is going to explain how trailing stops working-set them up using the popper.
Forget all that, let's get you an update on the markets. A bit of a down day on Bay Street and Wall Street. We will start at home with the TSX Composite Index down 37 points right now, it's modest, benefits of a percent. It is seeing some strength in the trade weighted US bucket, some weakness in gold is playing through to some of the mining names that have rallied recently on that rallying on the price of gold, so a bit of kids back today. Got Barrick Gold at 26 bucks and change, down 2 1/2%. Teck Resources has been in the news all week, or set unsolicited bid from Glencore and some unconfirmed media reports out there that one of text largest shareholders actually is looking favourably upon that Glencore bid that tech has shot down at least twice so far. Sue brought the stock up about a percent at 5998. South of the border, we are beginning another earnings season.
The banks are taking off on Wall Street. We will have more on that in a moment. He got a few of the names out there and it's a bit of a mixed picture, some retail sales data, your dad about 17 points on the S&P 500,a little shy of half a percent. Let's check out the tech heavy NASDAQ which got a pretty good rally yesterday, a little bit of giveback today at87 points, both record to the present. As we said, the big banks are kicking off earnings season. Let's take a quick look at J.P.
Morgan.
The street like what it's on that one. It's up 7 1/2%.
And that is your market update.
Let's dig a little deeper into what we are seeing at the start of earnings season on Wall Street, a trio of big US banksactually topping analyst expectation. Our Anthony Okolie joins us now with more. What are we saying there?
>> The big banks comfortably talked first-quarter earnings as you mentioned and I think we are seeing some tailwinds that they are benefiting from. One, the Federal Reserve interest rate hikes which is helping them charge more on their loan, plus we are seeing some influx of deposits from some of the smaller banks. But I will start with J.P. Morgan. The biggest US bank.
It's profit soared more than 50%, despite the banking crisis. They still record revenue. Revenue arose better than affected, 25%, again on higher net interest income, that the loans less than deposits. They also benefited from depositors pulling some of the cash out of the smaller banks as well.
When you break it down by segment, there is good contribution from commercial banking, wealth management, revenue was flat for investment banking and equity trading which is not surprising given the volatility of markets is less dealmaking today.
They did set aside about 2.3 billion to protect against bad loans, potential bad loans.
When it comes to Citigroup, very similar story there.
They had a solid beat on the top and the bottom with good contribution from personal banking, again, higher interest rates benefiting there.
But unlike J.P. Morgan, city reported a 3% drop in their deposits at the end of the quarter, so I probably didn't see some of the benefits of the deposits from some of the smaller banks.
Wells Fargo, they also reported better-than-expected results, again driven by a higher net interest income.
It's up 45% year-over-year, starting figures there.
Their total deposits also fell 2% quarter over quarter as well.
They also reported an increase in bad loan reserves from commercial real estate loans, particularly Office Lens.
But overall, the banks said that the economy was proving resilient so far. They did warn that credit could become more scarce and expensive going forward.
But overall, a good start to the earnings season for these big US banks.
> We are off to the races with earnings. Going to be a very interesting several weeks ahead of us. Of course, we will be all over it and so will Anthony. Thanks for that.
>> My pleasure.
>> Anthony is going to stick around and have a look at the latest US retail sales report a little later in the show and what it's saying about the health of the economies of the border.
Of course, we have many investors focused on rising rates and the risk of a recession, but the first three months of this year saw the tech heavy NASDAQ index not it's best quarter since 2020.
So what's been driving that recent performance? I was joined earlier by Jim Kelleher, director of research at Argus Research to discuss.
>> Well, going back to 2022, if you recall, the tech sector declined about 20% within the NASDAQ decline.
And actually, earnings were holding up well. Companies were still building their backlogs. And they performed well.
Now you get to 2023 in the first quarter, earnings were down, as reported in January, for the fourth quarter.
And they'll be down again in the first quarter, as reported in April and May. And yet the tech sector is up over 20% year to date.
And I guess the way we explain that is that the market is anticipatory.
Investors already have digested all the bad news in the market, including the inflation-driven weakness in consumer devices like PCs and smartphones.
And they are-- they're skating to the puck, right?
They expect the market to get better as we go along.
And there already are a few hopeful signs out there.
But we definitely have some weakness in the near term in terms of fundamentals. And at the same time, we have a positive stock environment.
>> Let's talk about that near-term then. Because of course, we have another earnings season right on our doorstep.
At some point, we're going to be hearing from the tech companies. You said there briefly that you expect, perhaps, another tough quarter for some of these names.
What should we be bracing for?
>> Well, I think the tech sector will have negative earnings in this quarter within an overall negative earnings quarter for the S&P 500 here in the US. And certain areas like semiconductors should be particularly weak.
Other areas like enterprise software and communications equipment will do a little better.
But we're still going through this digestion phase.
We had this hyper-growth phase in smartphones and PCs in the wake of the pandemic.
And the supply chain crisis caused companies to overload their inventories, double-ordering in many cases. And so the distribution chain got very clogged.
And now that's all working itself out.
We do expect PC sales to swing back to something closer to more positive year over year.
But the comparisons will be easier. But it's going to take a while. We saw a very weak first quarter PC sales, down over 29%, which was similar to what occurred in the fourth quarter, global PC unit sales down in the high 20% range for two straight quarters.
>> Yeah, IDC with its latest report today and talking about that slump that they're seeing in PC demand.
Obviously, there's a certain cyclicality to it, and things got out of whack during the pandemic. In my household, everyone-- OK, including me.
I was going to exclude myself. Everyone, including me, got a new computer. So we're not going to buy one for a little while. How does that cycle play out coming out of the pandemic?
>> Well, we're still seeing a filtering back to offices. So there's still a overdue upgrade cycle for enterprise and business PC refresh.
But that's being pushed out a little bit because the return to office has been kind of mixed to slow.
And people did-- initially, everybody was kind of bootstrapping. In 2020, whatever you had on hand, you made do with.
2021 and early 2022 were the years in which you upgraded your hybrid home-work environment.
And so everyone is sitting in a pretty good-- a better position there.
But those products will need upgrade too because the demands of the modern workspace just keep going up.
And every software upgrade puts more strain on your existing PC and device.
And also, we see other factors, growth in the global middle class. So maybe the best growth in PCs is not going to be North American-based.
It'll probably be Asian, South American-based. But we do see the cycle playing through, as it always does.
>> We started off with talking about what a strong quarter the NASDAQ had, the best quarterly performance since the early days of the pandemic, that first year of the pandemic.
But as I take a look at the chart, we're still well off of the highs.
I know some people who've been watching the show were thinking, OK, it was one thing to see that rally after the losses for the sector.
But if they're in the positions where they're wondering, do we ever get back to where we were, I mean, what would that take?
What would the market have to look like for-- to reclaim those highs?
>> Well, for the market overall, first of all, you're going to need to get out of this cycle of rising rates.
You need to have a global stabilization in rates.
Markets can handle a higher level of rates. What they can't handle is movement in rates.
And once we get to a steadying in rates, that probably means we've got to a steadying and a lower level of inflation.
Inflation is the one thing stock markets cannot handle.
But I think when we come out-- I'm going to speak from a technology perspective now.
We're seeing a traditional cycle here where PCs and smartphones are driving the weakness in the tech sector.
And that's what always happens. But there are so many more drivers in technology now. I mean, tech companies used to sell to one another.
Now they sell to the world. And we've seen technology, sensors, automation, electrification of vehicles, semi-autonomous and autonomous driving. All these things are driving great demand for technology components, semiconductors, software outside the traditional tech industry.
And so coupled with AI and the cloud, we're going to see-- as we get the traditional drivers to recover-- that is, PCs and smartphones-- and those other parts of the market to take off, the tech sector is going to get bigger than it ever was.
And the demand should come back in another strong cycle coming out of this. Timing is the question.
>> Yeah, the argument that does make a lot of sense, Jim, is the fact that even though you're going through a cycle right now, we're seeing weakness in certain areas, technology is not going anywhere. I mean, longer-term, if an investor is looking at the longer horizon, it's not like we're just going to turn around and say, I don't think we need all this technology anymore. Thanks. We'll just go back to where we were.
>> Right. I do also think that the tech sell-offs, the cycles are shorter and shallower.
Because although we did see a hyper-growth phase in PCs and smartphones-- and the harder we came, the harder we fell, right?
But the demand for, for example, industrial and automotive semiconductors is really smoothing the semiconductor cycle out and taking out some of that cyclical lumpiness.
And there are certain names we'll talk about later that we think are really well-positioned to serve those markets.
>> That was Jim Kelleher, director of research at Argus Research.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Boeing shares are in the spotlight today, that is a playmaker warrants production problems will slow deliveries of at 737 Max Jets.
Boeing said there's an issue with part being made by one of its suppliers, Spirit Aerosystems.
The company says the issue does not affect the safety of 737 Max Jets already in service prayer the stock is down about 6%.
Black Rock has beat the streets expectations with its latest quarterly report.
The money manager says net inflows into its funds in the first quarter came in at $110 billion, that's an increase of 20% compared to the same period last year.
While revenue and profit were down compared to last year, the results were still ahead of analyst expectations.
And that stock up about 2 3/4 of a percent.
We got shares of electric vehicle maker Lucid under pressure today.
Down to the tune of about 8%. The company's production and delivery numbers decline quarter over quarter.
Lucid was already facing supply chain issues when rival Tesla ramped up competition in the EV market by slashing prices. Lucid vehicles are aimed at the higher price, luxury end of the market.
A quick check in on the markets now, we will start here at home with the TSX Composite Index.
We are down about 44 points are a fit of a percent.
Seeing some weakness and some of the miners that have really rallied off the price of gold lately as the price of gold pulls back today on a stronger US buck.
And then south of the border, we got bank earnings taking off earnings season.
We are in the thick of it. Again you had some retail sales numbers that were gonna talk about a little bit later in the show.
Investors are waiting through now.
Some modest downside. You down about 20 points or half a percent.
The Bank of Canada held its key rate at 4 1/2% this week.
It does see inflation pressures easing.
But Gov. Tiff Macklem made it clear the bank is willing to raise rates againto get inflation back to its target range. Andrew Kelvin, chief Canada strategist of TD Securities join me earlier to discuss.
>> Market pricing for the Bank of Canada really shifted with some of the banking turmoil we had in the United States, you know, about a month ago now.
And so I think you need to look at everything the Bank of Canada said today, set against the context of a market that is biased towards seeing rate cuts not rate hikes.
I think there was a goal from the Bank of Canada today to maybe push back, directly or not-- it turned out it chose directly-- against this notion that rate cuts were in the offing from the BOC. The big picture for them is, while they're encouraged by some of the progress we've made in inflation, on some level, this is almost the easy work.
It's going to be much more difficult to get inflation from 3 and 1/2% to 2 and 1/2% and 2%.
So they think the market price is a little bit premature, and they want to make sure it's understood that rates could be in restrictive territory for quite some time.
>> What would it take for them-- let's run down the scenarios. What would it take for them to get off of pause, which they're on right now, to the upside-- to make good on this thing, saying, if we have to raise rates we will do it again to bring inflation under control?
What would have to happen in the economy or with inflation for them to do that?
>> Sure. And there's any number of permutations here.
But the one I'm really focused on is around the labor market data.
To get inflation back to 2%, we need to see service inflation decelerate, which means we probably need to see wage growth slow a little bit.
Wage growth is as high as it is because the labor market is extremely tight.
The governor said in his press conference today that we do need to see a period of weakness to let some slack come into the economy, which would be slower job growth, which would be a higher unemployment rate. And the BOC's pause at 4.5% is entirely predicated on this idea that the economy is going to slow. Because they've already lifted rates more than four percentage points.
If it turns out that they haven't lifted rates by enough to cause the economy to slow, due to whatever external factors you want to point to or just that they didn't hike enough to begin with, they ultimately would need to start tightening more.
So to my mind, if we keep running in the sort of growth we've seen in the first quarter, which is tracking about 2 and 1/2% GDP-- we've added, I think, 60,000 jobs per month over the last two quarters on average.
If we see numbers like that just continue into the second quarter or to Q3, the Bank of Canada may find their hand forced to have to lift rates again.
And I would just add, historically, when the bank moves to restricted territory, it's actually more common than not that they hike.
They pause a bit because they think they're done, and they want to see what impact rate hikes are having.
And then they decide they need to, oh no, hike again later on in the cycle, which is inevitably followed by a very quick reversal in history.
But the idea that they'd pause and hike again is actually-- it's more historically consistent than the path which we are expecting, which the bank is expecting, which is that 4 and 1/2% is the top.
>> That's an interesting perspective, historically.
What about the other scenarios?
Those are the conditions that perhaps would force the Bank of Canada to hike again, even though we're on a conditional pause. What would it take for the bond market to prevail, and to actually see a cut before the end of this year?
>> So if we want to talk about a cut in December versus January, we're sort of quibbling a bit here.
That would just be growth that's a little bit weaker than anticipated.
I would just say that we are looking for growth that's going to be closer to 1% this year. The Bank of Canada is looking for 1.4%.
They took a little bit more of the recent strength on board than we have.
So if we want to talk about a cut by the end of the year, which is where the bond market is, you just need to see growth slow a little bit more than anticipated in Q2 and Q3, and maybe a little bit less of a pullback in-- or rebound, I should, say in Q4. A recession would probably get you having a serious discussion about cutting rates in the fourth quarter.
But anything prior to that, we really need to be talking about a coordinated global downturn, like the sort of recession where you're having a debate if it's a recession or a depression.
And right now, I see no indication that that's likely, particularly given that every day that goes by and we don't see new bad news out of the US banking sector, it makes it more unlikely that the banking sector is healing.
So from that perspective, it looks like a very unlikely scenario to me that we'd be discussing rate cuts before the very end of this year.
And really, we think cuts are a 2024 story, not a 2023 one.
>> OK. We've also had an interesting-- because we had a monetary policy report, which is where the bank sort of reassesses its position on economic growth and where everything is headed.
And they've had to factor in the fact that we've had a federal budget, provincial budgets.
And there was a question asked point blank of the governor, saying, in these fiscal plans, do you see anything that's sort of going to stand in the way of your inflation fight?
I found his answer very interesting. He basically says, well, these budgets aren't standing in the way of bringing inflation down. I mean, you looked through all these documents.
Are they inflationary or is the Bank of Canada on the right course here?
>> I think the governor handled that question really well from an objective perspective, not just a political perspective.
The budget is more inflationary than deflationary-- I'll put it that way-- to the extent that deficits are going to be larger, though there is a bit of new spending.
That is something that is, just from an arithmetic perspective, inflationary.
There's going to be a bit more demand because of the budgets.
But I don't think the numbers that we were talking about with that budget are enough to really change the broader narrative, to change the broader trajectory in where inflation is going and where the economy is going.
And so to the governor's point, if you were to see significant spending cuts from the federal government, or tax raises or something of that like, you would see less demand.
And that would help bring inflation under control.
But I don't know that's something in the last set of budgets that I thought was going to make it materially more difficult for the Bank of Canada to bring inflation under control.
>> Of course, inflation is the heart of this conversation about central banks, our central bank. We got a fresh read on US consumer prices. The market at first seemed to think, OK, inflation is pulling back.
There's a bit of a rally, a bit of choppiness. How should we be reading this inflation report?
>> So I think that rally you saw, after the US CPI data, really speaks to how jittery markets are.
We can see very large moves on modest surprises on economic data.
And I think markets had maybe been braced a little bit for an upside surprise not a downside surprise.
And we had inflation come in a little bit softer than expected in the US. It was seen as a sign that the Fed might have to tighten less, all else equal.
But I would take it back to the Canadian situation.
Because, I think Canada and the US, you're looking at fairly similar situations on the inflation front.
Inflation is decelerating.
This is good. But there's still quite a bit more work to be done.
And because there's still quite a bit more work to be done for both the Fed and Bank of Canada, a very out-sized reaction in markets is probably unwarranted.
Because we shouldn't be changing-- making large changes to the projected path of monetary policy based on a downside surprise of approximately 1/10 on inflation.
>> That was Andrew Kelvin, chief Canada strategist with TD Securities.
Now let's get our educational segment of the day.
Stop orders are one strategy investors can use to potentially manage their risk. Joining us now to discuss how to set one up and a particular type of stop order is Hiren Amin, Senior client education structure TD Direct Investing.
Great to have you with us. Take us are how the stops work.
>> Absolutely. Great to be back again, Greg. I want to point out the difference today between stop orders and trailing stop orders. Before we do that, it's important to explain to our viewers not at the exchange level, there are only two orders that are recognized, and that's going to be limit and market orders.
So any orders outside of these are really just derivatives off a limit and market order and that's where stop orders come into play.
So a stop order really is commonly set up as a sell order and its use to protect a profit and minimize a loss. Actually we have a great visual that we can better explain and speak to that. So when it comes to it, let's say we own a stock and he purchased it for $10 and you can see on the stop order, we may want to protect ourselves against downside losses and may set a price at nine dollars.
That means if a stock eventually reverses course, it would get us there.
In a trailing stop order, something you're doing is very similar. It's a modified stop order and you are sending a difference rather than an actual price.
In this case, we are using a one dollar difference of the price that we entered the stock at.
So when we buy the stock at 10 with a one dollar difference or Delta, we have a nine dollars stop.
But the key part of this order is the trailing part.
This order in fact gets modified or adjusted every time that the stock rises, so it's essentially just following the stock on the way up, keeping a one dollar difference and adjusting it to a new stock price there.
So this order is more about protecting profits and it automatically adjusts where is this a regular old old vanilla stop order, you will have to do a manual process to adjust the stop order especially if you are on strong trending bull markets there.
That's a trailing stop order big >> That's a really great illustrative video there of how they work and now that we have a better understanding of it, how do we actually enter one on what broker?
>> Absolutely.
I've got Walmart queued up on my screen right here. A big retailer that most of us have probably visited.
I want to show you, we are going to make the assumption that we own 10 long shares of Walmart and we want to protect ourselves, o our Walmart symbol, so will put that here and choose the American one. To enter the quantity they would like to sell, so 10.
In this case we want to keep it up as a sell. In the price tag, you're going to see there are a number different choices and we are actually going to illustrate using a trailing stop market order. This triggered Delta is what you are seeing in us the verbiage that's used. This is essentially what's the difference you want to take based off of the current bid price paid so we could say in this case, look, this stock does tend to move in a 1 to 2 dollar range on a daily basis so I don't want to get stopped out too early so I'm going to set a five dollar triggered Delta. In other words, when I said a five dollar triggered Delta, it will take a five dollar difference off of the current price and establishing that is my stop price.
And that's pretty much it. You can set the time frame that you want for how long this order is going to be in effect and then send the order through.
And keep in mind, every time the stock goes up, it's going to keep adjusting the stop price with that five dollar difference until it no longer is on the rise again and starts reversing course and then we might eventually get stopped out of the stock price does end up meeting our stock price. And that's the basic set up.
> Great stuff as always. Thanks for that.
>> Are welcome.
>> Our thanks to Hiren Amin, Senior 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.
Of course, there plenty of mixed signals out there on the markets these days.
We have some signs inflation of courses easing but then you get this persistent threat and fear of a recession.
So how should investors be navigating this uncertain environment?
I put the question to Brad Simpson, chief will strategist with TD Wealth. Here's our conversation.
>> When I was a kid, I worked in Victoria at the docks of a ferry company. And one day we had a lot of storm, and there was a runaway sailboat. And it was just all over the place. The waves were going, the wind was going all over the place.
And that's kind of what the economic data is like. It's like sitting in this little sailboat, and you're getting thrown all over the place. And every once in a while there's this calm water, and then the wind picks up, and the big waves again.
And I think that when you look at the world in that way, or if you think about that, one of the things we spend a lot of time doing is that I often think that if you looked at an investment market a little bit like racing along a highway, and there's all these signs all over the place, but you don't know which ones to read.
And you've kind of got to choose.
And that's what we do, is we say, OK. When we're doing this, and we're looking at the ballast of the things you want to look at that will help us determine that.
And then it starts to take the noise away a little bit.
And partially what I would like to do when I come on this show is to go, if we can share some of that to go, here's how we want to start thinking about this.
And so starting out is that the environment that we're in, well, when we really look at it, we chart it out, and we sit back, you can look at the economy.
You can look at industrial production, which gives you kind of what's going on with your manufacturing. You've got the consumer spending you can look at.
And then you look at the job market.
And when we look at this, you look on the one side, you can see, well, you see a lot of lines going down.
And really the one that you see pretty good is the consumer and job market.
So what is this telling us is, well, what we do is, every one of these lines is that we build and take every one of those line points and say, OK, let's look at Conference Board Leading Indicators.
And we call it 100. And so 100 is perfect.
It's at 9 right now. 100 is perfect. 0 is out.
Right. Yeah. So it's at a 9. So you'd go, well, that leading indicator doesn't look all that great.
Then you look, you go, what's your PMIs look like?
Well, you're looking at that, you're into the 8s and 9s.
So you go, well, for manufacturing, that's deteriorating.
You look at the services, it's strong, but it's deteriorating as well.
So you go OK, with the economy, well, when you're walking around in it, there is a lot of deteriorating going on. So that's the first one.
So you go, OK. Well, let's look at that and say, OK. So what about industrial production?
And you look at that, and you go, well, let's look at new orders and inventories.
We look at new orders and inventories, it's not very good.
If we look at industrial production, it's not very good.
If we look at sales date inventory ratios, not so good.
So the manufacturing is slowing-- and now, I'm just very North American-oriented.
Now if we do that same thing, go through Europe, you'll see the same thing.
If you go through China, it's positive. And it would be pretty darn good in each one of those.
So the good news is you have a diversified economy, which we haven't had for a lot of years. That's interesting globally.
The production side, it kind of lays out the same way.
So then it goes the consumer. And the consumer is pretty darn good still.
So when we look at that and we look at consumers' confidence, it's actually been improving. And now-- >> Is the consumer just-- I don't want to say the word, "ignorant" always has a connotation-- blissfully unaware of some of those other things you're talking about?
>> Yeah, because I think the first two is, they have a lag effect. It takes a little bit of a while before you see it. I was having a couple of nights ago-- this was my conversation before bedtime. I was up and talking to one of my adult children, instead of talking about weather and sports, we had a 45-minute macroeconomics discussion.
I was going like-- and I said, one of the big things is, his question was, has this recession fear subsided?
And I said, no. And I said, the fear of it has.
But there's lots of inputs that continue to point that way.
The consumer's in good shape, in their confidence side.
But if you look at their spending, it's still pretty good.
But if you look at their balance sheet, it's not so positive.
And so if you look at it through that lens, you start to say, well, that's probably going to be making it slow as well.
So then it comes to jobs. Jobs are very positive.
I mean, it is the greatest employment market in 30 years.
It's hard to add all those other things up, extrapolate that nine months out, and go, that'll probably slow.
And so I think if you look at it in that, people go, oh, this is bullish or bearish.
It's neither of those. It's actually a reality of going, OK. Now that I'm racing down that road and looking at these signs-- I think when people get really caught up in the short term of things, the problem is, you just are making stuff up.
You're going with how you feel about something, or a headline that you read.
Two or three days ago, the headline is, "IMF Hard Landing." Well, you've got to read the whole thing.
Yeah, that's one of the outcomes that it could be. But you've just gloss that one.
And then that enters-- And then yesterday, well, "Yellen's Positive." Yellen's positive.
And so I think for a starting point, if you can consistently say, I'm going to look the economy this way. I'm going to look at the manufacturing this way.
I'm going to look at how the consumer is doing in this way. I'm going to look at the job market this way.
And if I keep going back when I'm racing down that macroeconomic road and looking at that way, I can have a really honest view with myself on how I'm going to make decisions.
>> All right. So you make that honest view of how you're going to make decisions. That takes you back to your portfolio and how people are approaching their investments. So with all of that in mind, what should they be thinking about in terms of their portfolio?
>> Well, I think the starting point is that you probably should look at this in terms of saying, OK, all of those things point to a slowdown.
And always remember, recession is something that-- like, a bell doesn't go off, or somebody sends you a note and says, oh, by the way-- >> It has begun.
>> Right.
>> Here we go.
>> So what you know in that environment is-- one of the things that in our principles, risk priority management, is we always say, you've got to think like a business owner.
And if you think like a business owner, one of the things in your intro you said is the Nasdaq heavy continues to be very positive.
Well, why is that? And why is that is, well, my first things that I've walked through is, I think in many ways that there's a lot of people in the market today that have actually never experienced a recession, have never experienced a slowdown, have never thought of it in that way. But what they have seen is a low-growth environment.
And in our low-growth environment, big tech was the only game in town.
And so I think there's a camp writing algos right now that says, OK, great. We're just back to those days again.
And when you look at the performance of the Nasdaq or if you go through the S&P 500, you can see that the majority of names are just absolutely going nowhere.
And you have these names that are written, which I would just call for the most part quant trading going on.
And I think what you do is, you go, OK, well, I'm not going to get caught up on bullish arguments or bearish arguments.
I'm going to actually sit back and go, what if I took and I extrapolated that out, and I said that I'm not going to be investing for the next 24 hours or two weeks, but said, this is when you actually can make money because we know that there's going to be a slowdown.
We know that we're going to do the things to get on the other side of it.
And we know when you come out of the other side of it that there are an awful lot of names that you could go out and you could look at it in areas of the market to invest in.
And so I think when you look at that in terms of the equity market, first and foremost is that you say, I'm not to go all in. And so you go, whatever usual amount I'd invest in, I'll be a little less than that. And then you look at that, and you go, so then I'm going to diversify that.
And I just said, China's in a different economic cycle.
So hey, why don't I add a little bit more to that?
And you go, oh, yeah. But I read in the press every day how difficult it is there.
Well, it is difficult there right now. There is geopolitical strife going on.
The market still runs, though.
So the way I look at it as the starting point is that I would say that in the equity market, let's think about being underweighted.
You don't only have to own investments that are on market going up.
You can also run investments that are market neutral, are long/short.
You can be long and short, shorting the market to offset your risk that you're doing, using hedging strategies.
I think in the equity market today that's a really wise thing to do.
>> That was Brad Simpson, chief wealth strategist with TD Wealth.
Let's check in on the markets. We will start with the TSX Composite Index. You are seeing some downward pressure on the price of gold today.
Nothing too dramatic on the top line number of the TSX, 35 points in the whole, a little shy of 1/5 of a percent.
Although there is some strength in the trade weighted US back today putting some pressure on the price of gold which has been rallying as of late along with some of the names we have seen some get back in the space, including B2Gold at 5625 per share today, down about 2 1/4%. Noticing some of the timber plays are getting a bid today, including West Fraser Timber at hundred and three bucks and changed per share, it is apples 2%. No south of the border, earning season has kicked off some of the big Wall Street banks beating earnings expectations. A rally in some of those names but for the broader market, a bit of a slump on this last trading day of the week. Still, nothing too dramatic.
He got 25 points in the S&P 500, a little more than 1/2 of a percent for the tech heavy NASDAQ, the NASDAQ had a pretty strong rally yesterday, giving some of it back today, now down hundred and five points, a little shy of a percent. Lucid group, we talked at the top of the shadow of the EV maker falling short of both production and deliveries in its latest quarter, and at 764 per share, you're seeing a pullback about 7%.
We did get those US retail sales numbers today and noticed some pretty interesting pullback in the month of June, sorry, I'm getting ahead of myself, aren't I?
It's so hot outside, I think it's the summer. In the month of March, consumers pulling back after the banking crisis.
Our Anthony Okolie has been digging into the latest numbers and what TD Economics has to say about the outlook for interest rates in the economy. You and I are sort of in our summer you're already.
So in my head, it's already June. It's only me.
>> It feels like June. Absolutely.
Retail sales used in March. This was the second consecutive month of decline for US right retail sales.
If I'll 1%.
Much more than the .4% expected decline that Wall Street was looking for. When we break down the numbers, the decline might indicate the effects of the Fed's interest rate hikes to tame inflation are continuing to work its way through the economy.
Americans spent less on things like vehicles, furniture and other big-ticket items like appliances and electronics as well.
Sales in the auto sector actually fell for the second month in a row.
That was largely driven by auto sales at car dealerships, automotive parts and tire stores as well.
We take out the volatile auto sales, sales were down just a little bit under 1%. They fell .8% in March. And again, a pullback in consumer spending is worrying for the broader economy if it continues to persist.
Of course, US household consumption represent roughly 70% of total economic output, so this is something that certainly the Fed will be keeping an eye on.
Spending increased on things like online sales, they rose slightly, at bars and restaurants.
This is the only service category in the report.
In fact, most of the gains came through sales and restaurants in the March report. Overall though, not surprising to see spending giving back some gainsfrom earlier in the quarter. Again, after a strong start to the year. And the drop in retail sales among the recent data on wholesale and consumer inflation continue to provide good news on the inflation front for the said, which is awaiting its next move ahead of the next FOMC meeting in May. Greg it?
>> So given all of that that we saw, the slowdown in the consumer, what are we thinking here about not only the consumer spending going forward but what interest rates might look like?
>> TD Economics expects the Fed to raise interest rates and other 25 Basis Points in May before pausing to assess the effects of the past nine hikes on the economy. In terms of consumer spending, they expected to slow from about 4.2% in the first quarter to a stall speed by the second quarter. Now they also note a wildcard in their outlook which is credit tightening, following the banking crisis back in March. The additional tightening of credit conditions could still weigh on consumer confidence according to TD Economics and that could further impact American spending behaviour that's already becoming cautious.
>> Interesting stuff. Thanks.
>> My pleasure.
>> You want to stay tuned. On Monday, TD economist Rishi Sondhi is going to be on the show, you will be taking your questions about the housing market. You can get a head start with this question. Just email moneytalklive@td.com.
That's all the time have the show today. On behalf of Anthony and me here on the desk and everyone behind the scenes that bring to the show every day, thanks for watching. We will see you on Monday.
[music]
coming up on today's show, TD Wealth's chief while strategist at Brad Simpson is going to be discussing how investors should be navigating all these mixed signals we are getting about the health of the global economy.
TD Securities Andrew Kelvin is going to give us his view on what the Bank of Canada's next move might be after they held on rate earlier this week.
And we are going to discuss the outlook for the tech sector, weather can continue its recent rebound with Jim Kelleher from Argus Research. Plus in today's WebBroker education segment, Hiren Amin is going to explain how trailing stops working-set them up using the popper.
Forget all that, let's get you an update on the markets. A bit of a down day on Bay Street and Wall Street. We will start at home with the TSX Composite Index down 37 points right now, it's modest, benefits of a percent. It is seeing some strength in the trade weighted US bucket, some weakness in gold is playing through to some of the mining names that have rallied recently on that rallying on the price of gold, so a bit of kids back today. Got Barrick Gold at 26 bucks and change, down 2 1/2%. Teck Resources has been in the news all week, or set unsolicited bid from Glencore and some unconfirmed media reports out there that one of text largest shareholders actually is looking favourably upon that Glencore bid that tech has shot down at least twice so far. Sue brought the stock up about a percent at 5998. South of the border, we are beginning another earnings season.
The banks are taking off on Wall Street. We will have more on that in a moment. He got a few of the names out there and it's a bit of a mixed picture, some retail sales data, your dad about 17 points on the S&P 500,a little shy of half a percent. Let's check out the tech heavy NASDAQ which got a pretty good rally yesterday, a little bit of giveback today at87 points, both record to the present. As we said, the big banks are kicking off earnings season. Let's take a quick look at J.P.
Morgan.
The street like what it's on that one. It's up 7 1/2%.
And that is your market update.
Let's dig a little deeper into what we are seeing at the start of earnings season on Wall Street, a trio of big US banksactually topping analyst expectation. Our Anthony Okolie joins us now with more. What are we saying there?
>> The big banks comfortably talked first-quarter earnings as you mentioned and I think we are seeing some tailwinds that they are benefiting from. One, the Federal Reserve interest rate hikes which is helping them charge more on their loan, plus we are seeing some influx of deposits from some of the smaller banks. But I will start with J.P. Morgan. The biggest US bank.
It's profit soared more than 50%, despite the banking crisis. They still record revenue. Revenue arose better than affected, 25%, again on higher net interest income, that the loans less than deposits. They also benefited from depositors pulling some of the cash out of the smaller banks as well.
When you break it down by segment, there is good contribution from commercial banking, wealth management, revenue was flat for investment banking and equity trading which is not surprising given the volatility of markets is less dealmaking today.
They did set aside about 2.3 billion to protect against bad loans, potential bad loans.
When it comes to Citigroup, very similar story there.
They had a solid beat on the top and the bottom with good contribution from personal banking, again, higher interest rates benefiting there.
But unlike J.P. Morgan, city reported a 3% drop in their deposits at the end of the quarter, so I probably didn't see some of the benefits of the deposits from some of the smaller banks.
Wells Fargo, they also reported better-than-expected results, again driven by a higher net interest income.
It's up 45% year-over-year, starting figures there.
Their total deposits also fell 2% quarter over quarter as well.
They also reported an increase in bad loan reserves from commercial real estate loans, particularly Office Lens.
But overall, the banks said that the economy was proving resilient so far. They did warn that credit could become more scarce and expensive going forward.
But overall, a good start to the earnings season for these big US banks.
> We are off to the races with earnings. Going to be a very interesting several weeks ahead of us. Of course, we will be all over it and so will Anthony. Thanks for that.
>> My pleasure.
>> Anthony is going to stick around and have a look at the latest US retail sales report a little later in the show and what it's saying about the health of the economies of the border.
Of course, we have many investors focused on rising rates and the risk of a recession, but the first three months of this year saw the tech heavy NASDAQ index not it's best quarter since 2020.
So what's been driving that recent performance? I was joined earlier by Jim Kelleher, director of research at Argus Research to discuss.
>> Well, going back to 2022, if you recall, the tech sector declined about 20% within the NASDAQ decline.
And actually, earnings were holding up well. Companies were still building their backlogs. And they performed well.
Now you get to 2023 in the first quarter, earnings were down, as reported in January, for the fourth quarter.
And they'll be down again in the first quarter, as reported in April and May. And yet the tech sector is up over 20% year to date.
And I guess the way we explain that is that the market is anticipatory.
Investors already have digested all the bad news in the market, including the inflation-driven weakness in consumer devices like PCs and smartphones.
And they are-- they're skating to the puck, right?
They expect the market to get better as we go along.
And there already are a few hopeful signs out there.
But we definitely have some weakness in the near term in terms of fundamentals. And at the same time, we have a positive stock environment.
>> Let's talk about that near-term then. Because of course, we have another earnings season right on our doorstep.
At some point, we're going to be hearing from the tech companies. You said there briefly that you expect, perhaps, another tough quarter for some of these names.
What should we be bracing for?
>> Well, I think the tech sector will have negative earnings in this quarter within an overall negative earnings quarter for the S&P 500 here in the US. And certain areas like semiconductors should be particularly weak.
Other areas like enterprise software and communications equipment will do a little better.
But we're still going through this digestion phase.
We had this hyper-growth phase in smartphones and PCs in the wake of the pandemic.
And the supply chain crisis caused companies to overload their inventories, double-ordering in many cases. And so the distribution chain got very clogged.
And now that's all working itself out.
We do expect PC sales to swing back to something closer to more positive year over year.
But the comparisons will be easier. But it's going to take a while. We saw a very weak first quarter PC sales, down over 29%, which was similar to what occurred in the fourth quarter, global PC unit sales down in the high 20% range for two straight quarters.
>> Yeah, IDC with its latest report today and talking about that slump that they're seeing in PC demand.
Obviously, there's a certain cyclicality to it, and things got out of whack during the pandemic. In my household, everyone-- OK, including me.
I was going to exclude myself. Everyone, including me, got a new computer. So we're not going to buy one for a little while. How does that cycle play out coming out of the pandemic?
>> Well, we're still seeing a filtering back to offices. So there's still a overdue upgrade cycle for enterprise and business PC refresh.
But that's being pushed out a little bit because the return to office has been kind of mixed to slow.
And people did-- initially, everybody was kind of bootstrapping. In 2020, whatever you had on hand, you made do with.
2021 and early 2022 were the years in which you upgraded your hybrid home-work environment.
And so everyone is sitting in a pretty good-- a better position there.
But those products will need upgrade too because the demands of the modern workspace just keep going up.
And every software upgrade puts more strain on your existing PC and device.
And also, we see other factors, growth in the global middle class. So maybe the best growth in PCs is not going to be North American-based.
It'll probably be Asian, South American-based. But we do see the cycle playing through, as it always does.
>> We started off with talking about what a strong quarter the NASDAQ had, the best quarterly performance since the early days of the pandemic, that first year of the pandemic.
But as I take a look at the chart, we're still well off of the highs.
I know some people who've been watching the show were thinking, OK, it was one thing to see that rally after the losses for the sector.
But if they're in the positions where they're wondering, do we ever get back to where we were, I mean, what would that take?
What would the market have to look like for-- to reclaim those highs?
>> Well, for the market overall, first of all, you're going to need to get out of this cycle of rising rates.
You need to have a global stabilization in rates.
Markets can handle a higher level of rates. What they can't handle is movement in rates.
And once we get to a steadying in rates, that probably means we've got to a steadying and a lower level of inflation.
Inflation is the one thing stock markets cannot handle.
But I think when we come out-- I'm going to speak from a technology perspective now.
We're seeing a traditional cycle here where PCs and smartphones are driving the weakness in the tech sector.
And that's what always happens. But there are so many more drivers in technology now. I mean, tech companies used to sell to one another.
Now they sell to the world. And we've seen technology, sensors, automation, electrification of vehicles, semi-autonomous and autonomous driving. All these things are driving great demand for technology components, semiconductors, software outside the traditional tech industry.
And so coupled with AI and the cloud, we're going to see-- as we get the traditional drivers to recover-- that is, PCs and smartphones-- and those other parts of the market to take off, the tech sector is going to get bigger than it ever was.
And the demand should come back in another strong cycle coming out of this. Timing is the question.
>> Yeah, the argument that does make a lot of sense, Jim, is the fact that even though you're going through a cycle right now, we're seeing weakness in certain areas, technology is not going anywhere. I mean, longer-term, if an investor is looking at the longer horizon, it's not like we're just going to turn around and say, I don't think we need all this technology anymore. Thanks. We'll just go back to where we were.
>> Right. I do also think that the tech sell-offs, the cycles are shorter and shallower.
Because although we did see a hyper-growth phase in PCs and smartphones-- and the harder we came, the harder we fell, right?
But the demand for, for example, industrial and automotive semiconductors is really smoothing the semiconductor cycle out and taking out some of that cyclical lumpiness.
And there are certain names we'll talk about later that we think are really well-positioned to serve those markets.
>> That was Jim Kelleher, director of research at Argus Research.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Boeing shares are in the spotlight today, that is a playmaker warrants production problems will slow deliveries of at 737 Max Jets.
Boeing said there's an issue with part being made by one of its suppliers, Spirit Aerosystems.
The company says the issue does not affect the safety of 737 Max Jets already in service prayer the stock is down about 6%.
Black Rock has beat the streets expectations with its latest quarterly report.
The money manager says net inflows into its funds in the first quarter came in at $110 billion, that's an increase of 20% compared to the same period last year.
While revenue and profit were down compared to last year, the results were still ahead of analyst expectations.
And that stock up about 2 3/4 of a percent.
We got shares of electric vehicle maker Lucid under pressure today.
Down to the tune of about 8%. The company's production and delivery numbers decline quarter over quarter.
Lucid was already facing supply chain issues when rival Tesla ramped up competition in the EV market by slashing prices. Lucid vehicles are aimed at the higher price, luxury end of the market.
A quick check in on the markets now, we will start here at home with the TSX Composite Index.
We are down about 44 points are a fit of a percent.
Seeing some weakness and some of the miners that have really rallied off the price of gold lately as the price of gold pulls back today on a stronger US buck.
And then south of the border, we got bank earnings taking off earnings season.
We are in the thick of it. Again you had some retail sales numbers that were gonna talk about a little bit later in the show.
Investors are waiting through now.
Some modest downside. You down about 20 points or half a percent.
The Bank of Canada held its key rate at 4 1/2% this week.
It does see inflation pressures easing.
But Gov. Tiff Macklem made it clear the bank is willing to raise rates againto get inflation back to its target range. Andrew Kelvin, chief Canada strategist of TD Securities join me earlier to discuss.
>> Market pricing for the Bank of Canada really shifted with some of the banking turmoil we had in the United States, you know, about a month ago now.
And so I think you need to look at everything the Bank of Canada said today, set against the context of a market that is biased towards seeing rate cuts not rate hikes.
I think there was a goal from the Bank of Canada today to maybe push back, directly or not-- it turned out it chose directly-- against this notion that rate cuts were in the offing from the BOC. The big picture for them is, while they're encouraged by some of the progress we've made in inflation, on some level, this is almost the easy work.
It's going to be much more difficult to get inflation from 3 and 1/2% to 2 and 1/2% and 2%.
So they think the market price is a little bit premature, and they want to make sure it's understood that rates could be in restrictive territory for quite some time.
>> What would it take for them-- let's run down the scenarios. What would it take for them to get off of pause, which they're on right now, to the upside-- to make good on this thing, saying, if we have to raise rates we will do it again to bring inflation under control?
What would have to happen in the economy or with inflation for them to do that?
>> Sure. And there's any number of permutations here.
But the one I'm really focused on is around the labor market data.
To get inflation back to 2%, we need to see service inflation decelerate, which means we probably need to see wage growth slow a little bit.
Wage growth is as high as it is because the labor market is extremely tight.
The governor said in his press conference today that we do need to see a period of weakness to let some slack come into the economy, which would be slower job growth, which would be a higher unemployment rate. And the BOC's pause at 4.5% is entirely predicated on this idea that the economy is going to slow. Because they've already lifted rates more than four percentage points.
If it turns out that they haven't lifted rates by enough to cause the economy to slow, due to whatever external factors you want to point to or just that they didn't hike enough to begin with, they ultimately would need to start tightening more.
So to my mind, if we keep running in the sort of growth we've seen in the first quarter, which is tracking about 2 and 1/2% GDP-- we've added, I think, 60,000 jobs per month over the last two quarters on average.
If we see numbers like that just continue into the second quarter or to Q3, the Bank of Canada may find their hand forced to have to lift rates again.
And I would just add, historically, when the bank moves to restricted territory, it's actually more common than not that they hike.
They pause a bit because they think they're done, and they want to see what impact rate hikes are having.
And then they decide they need to, oh no, hike again later on in the cycle, which is inevitably followed by a very quick reversal in history.
But the idea that they'd pause and hike again is actually-- it's more historically consistent than the path which we are expecting, which the bank is expecting, which is that 4 and 1/2% is the top.
>> That's an interesting perspective, historically.
What about the other scenarios?
Those are the conditions that perhaps would force the Bank of Canada to hike again, even though we're on a conditional pause. What would it take for the bond market to prevail, and to actually see a cut before the end of this year?
>> So if we want to talk about a cut in December versus January, we're sort of quibbling a bit here.
That would just be growth that's a little bit weaker than anticipated.
I would just say that we are looking for growth that's going to be closer to 1% this year. The Bank of Canada is looking for 1.4%.
They took a little bit more of the recent strength on board than we have.
So if we want to talk about a cut by the end of the year, which is where the bond market is, you just need to see growth slow a little bit more than anticipated in Q2 and Q3, and maybe a little bit less of a pullback in-- or rebound, I should, say in Q4. A recession would probably get you having a serious discussion about cutting rates in the fourth quarter.
But anything prior to that, we really need to be talking about a coordinated global downturn, like the sort of recession where you're having a debate if it's a recession or a depression.
And right now, I see no indication that that's likely, particularly given that every day that goes by and we don't see new bad news out of the US banking sector, it makes it more unlikely that the banking sector is healing.
So from that perspective, it looks like a very unlikely scenario to me that we'd be discussing rate cuts before the very end of this year.
And really, we think cuts are a 2024 story, not a 2023 one.
>> OK. We've also had an interesting-- because we had a monetary policy report, which is where the bank sort of reassesses its position on economic growth and where everything is headed.
And they've had to factor in the fact that we've had a federal budget, provincial budgets.
And there was a question asked point blank of the governor, saying, in these fiscal plans, do you see anything that's sort of going to stand in the way of your inflation fight?
I found his answer very interesting. He basically says, well, these budgets aren't standing in the way of bringing inflation down. I mean, you looked through all these documents.
Are they inflationary or is the Bank of Canada on the right course here?
>> I think the governor handled that question really well from an objective perspective, not just a political perspective.
The budget is more inflationary than deflationary-- I'll put it that way-- to the extent that deficits are going to be larger, though there is a bit of new spending.
That is something that is, just from an arithmetic perspective, inflationary.
There's going to be a bit more demand because of the budgets.
But I don't think the numbers that we were talking about with that budget are enough to really change the broader narrative, to change the broader trajectory in where inflation is going and where the economy is going.
And so to the governor's point, if you were to see significant spending cuts from the federal government, or tax raises or something of that like, you would see less demand.
And that would help bring inflation under control.
But I don't know that's something in the last set of budgets that I thought was going to make it materially more difficult for the Bank of Canada to bring inflation under control.
>> Of course, inflation is the heart of this conversation about central banks, our central bank. We got a fresh read on US consumer prices. The market at first seemed to think, OK, inflation is pulling back.
There's a bit of a rally, a bit of choppiness. How should we be reading this inflation report?
>> So I think that rally you saw, after the US CPI data, really speaks to how jittery markets are.
We can see very large moves on modest surprises on economic data.
And I think markets had maybe been braced a little bit for an upside surprise not a downside surprise.
And we had inflation come in a little bit softer than expected in the US. It was seen as a sign that the Fed might have to tighten less, all else equal.
But I would take it back to the Canadian situation.
Because, I think Canada and the US, you're looking at fairly similar situations on the inflation front.
Inflation is decelerating.
This is good. But there's still quite a bit more work to be done.
And because there's still quite a bit more work to be done for both the Fed and Bank of Canada, a very out-sized reaction in markets is probably unwarranted.
Because we shouldn't be changing-- making large changes to the projected path of monetary policy based on a downside surprise of approximately 1/10 on inflation.
>> That was Andrew Kelvin, chief Canada strategist with TD Securities.
Now let's get our educational segment of the day.
Stop orders are one strategy investors can use to potentially manage their risk. Joining us now to discuss how to set one up and a particular type of stop order is Hiren Amin, Senior client education structure TD Direct Investing.
Great to have you with us. Take us are how the stops work.
>> Absolutely. Great to be back again, Greg. I want to point out the difference today between stop orders and trailing stop orders. Before we do that, it's important to explain to our viewers not at the exchange level, there are only two orders that are recognized, and that's going to be limit and market orders.
So any orders outside of these are really just derivatives off a limit and market order and that's where stop orders come into play.
So a stop order really is commonly set up as a sell order and its use to protect a profit and minimize a loss. Actually we have a great visual that we can better explain and speak to that. So when it comes to it, let's say we own a stock and he purchased it for $10 and you can see on the stop order, we may want to protect ourselves against downside losses and may set a price at nine dollars.
That means if a stock eventually reverses course, it would get us there.
In a trailing stop order, something you're doing is very similar. It's a modified stop order and you are sending a difference rather than an actual price.
In this case, we are using a one dollar difference of the price that we entered the stock at.
So when we buy the stock at 10 with a one dollar difference or Delta, we have a nine dollars stop.
But the key part of this order is the trailing part.
This order in fact gets modified or adjusted every time that the stock rises, so it's essentially just following the stock on the way up, keeping a one dollar difference and adjusting it to a new stock price there.
So this order is more about protecting profits and it automatically adjusts where is this a regular old old vanilla stop order, you will have to do a manual process to adjust the stop order especially if you are on strong trending bull markets there.
That's a trailing stop order big >> That's a really great illustrative video there of how they work and now that we have a better understanding of it, how do we actually enter one on what broker?
>> Absolutely.
I've got Walmart queued up on my screen right here. A big retailer that most of us have probably visited.
I want to show you, we are going to make the assumption that we own 10 long shares of Walmart and we want to protect ourselves, o our Walmart symbol, so will put that here and choose the American one. To enter the quantity they would like to sell, so 10.
In this case we want to keep it up as a sell. In the price tag, you're going to see there are a number different choices and we are actually going to illustrate using a trailing stop market order. This triggered Delta is what you are seeing in us the verbiage that's used. This is essentially what's the difference you want to take based off of the current bid price paid so we could say in this case, look, this stock does tend to move in a 1 to 2 dollar range on a daily basis so I don't want to get stopped out too early so I'm going to set a five dollar triggered Delta. In other words, when I said a five dollar triggered Delta, it will take a five dollar difference off of the current price and establishing that is my stop price.
And that's pretty much it. You can set the time frame that you want for how long this order is going to be in effect and then send the order through.
And keep in mind, every time the stock goes up, it's going to keep adjusting the stop price with that five dollar difference until it no longer is on the rise again and starts reversing course and then we might eventually get stopped out of the stock price does end up meeting our stock price. And that's the basic set up.
> Great stuff as always. Thanks for that.
>> Are welcome.
>> Our thanks to Hiren Amin, Senior 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.
Of course, there plenty of mixed signals out there on the markets these days.
We have some signs inflation of courses easing but then you get this persistent threat and fear of a recession.
So how should investors be navigating this uncertain environment?
I put the question to Brad Simpson, chief will strategist with TD Wealth. Here's our conversation.
>> When I was a kid, I worked in Victoria at the docks of a ferry company. And one day we had a lot of storm, and there was a runaway sailboat. And it was just all over the place. The waves were going, the wind was going all over the place.
And that's kind of what the economic data is like. It's like sitting in this little sailboat, and you're getting thrown all over the place. And every once in a while there's this calm water, and then the wind picks up, and the big waves again.
And I think that when you look at the world in that way, or if you think about that, one of the things we spend a lot of time doing is that I often think that if you looked at an investment market a little bit like racing along a highway, and there's all these signs all over the place, but you don't know which ones to read.
And you've kind of got to choose.
And that's what we do, is we say, OK. When we're doing this, and we're looking at the ballast of the things you want to look at that will help us determine that.
And then it starts to take the noise away a little bit.
And partially what I would like to do when I come on this show is to go, if we can share some of that to go, here's how we want to start thinking about this.
And so starting out is that the environment that we're in, well, when we really look at it, we chart it out, and we sit back, you can look at the economy.
You can look at industrial production, which gives you kind of what's going on with your manufacturing. You've got the consumer spending you can look at.
And then you look at the job market.
And when we look at this, you look on the one side, you can see, well, you see a lot of lines going down.
And really the one that you see pretty good is the consumer and job market.
So what is this telling us is, well, what we do is, every one of these lines is that we build and take every one of those line points and say, OK, let's look at Conference Board Leading Indicators.
And we call it 100. And so 100 is perfect.
It's at 9 right now. 100 is perfect. 0 is out.
Right. Yeah. So it's at a 9. So you'd go, well, that leading indicator doesn't look all that great.
Then you look, you go, what's your PMIs look like?
Well, you're looking at that, you're into the 8s and 9s.
So you go, well, for manufacturing, that's deteriorating.
You look at the services, it's strong, but it's deteriorating as well.
So you go OK, with the economy, well, when you're walking around in it, there is a lot of deteriorating going on. So that's the first one.
So you go, OK. Well, let's look at that and say, OK. So what about industrial production?
And you look at that, and you go, well, let's look at new orders and inventories.
We look at new orders and inventories, it's not very good.
If we look at industrial production, it's not very good.
If we look at sales date inventory ratios, not so good.
So the manufacturing is slowing-- and now, I'm just very North American-oriented.
Now if we do that same thing, go through Europe, you'll see the same thing.
If you go through China, it's positive. And it would be pretty darn good in each one of those.
So the good news is you have a diversified economy, which we haven't had for a lot of years. That's interesting globally.
The production side, it kind of lays out the same way.
So then it goes the consumer. And the consumer is pretty darn good still.
So when we look at that and we look at consumers' confidence, it's actually been improving. And now-- >> Is the consumer just-- I don't want to say the word, "ignorant" always has a connotation-- blissfully unaware of some of those other things you're talking about?
>> Yeah, because I think the first two is, they have a lag effect. It takes a little bit of a while before you see it. I was having a couple of nights ago-- this was my conversation before bedtime. I was up and talking to one of my adult children, instead of talking about weather and sports, we had a 45-minute macroeconomics discussion.
I was going like-- and I said, one of the big things is, his question was, has this recession fear subsided?
And I said, no. And I said, the fear of it has.
But there's lots of inputs that continue to point that way.
The consumer's in good shape, in their confidence side.
But if you look at their spending, it's still pretty good.
But if you look at their balance sheet, it's not so positive.
And so if you look at it through that lens, you start to say, well, that's probably going to be making it slow as well.
So then it comes to jobs. Jobs are very positive.
I mean, it is the greatest employment market in 30 years.
It's hard to add all those other things up, extrapolate that nine months out, and go, that'll probably slow.
And so I think if you look at it in that, people go, oh, this is bullish or bearish.
It's neither of those. It's actually a reality of going, OK. Now that I'm racing down that road and looking at these signs-- I think when people get really caught up in the short term of things, the problem is, you just are making stuff up.
You're going with how you feel about something, or a headline that you read.
Two or three days ago, the headline is, "IMF Hard Landing." Well, you've got to read the whole thing.
Yeah, that's one of the outcomes that it could be. But you've just gloss that one.
And then that enters-- And then yesterday, well, "Yellen's Positive." Yellen's positive.
And so I think for a starting point, if you can consistently say, I'm going to look the economy this way. I'm going to look at the manufacturing this way.
I'm going to look at how the consumer is doing in this way. I'm going to look at the job market this way.
And if I keep going back when I'm racing down that macroeconomic road and looking at that way, I can have a really honest view with myself on how I'm going to make decisions.
>> All right. So you make that honest view of how you're going to make decisions. That takes you back to your portfolio and how people are approaching their investments. So with all of that in mind, what should they be thinking about in terms of their portfolio?
>> Well, I think the starting point is that you probably should look at this in terms of saying, OK, all of those things point to a slowdown.
And always remember, recession is something that-- like, a bell doesn't go off, or somebody sends you a note and says, oh, by the way-- >> It has begun.
>> Right.
>> Here we go.
>> So what you know in that environment is-- one of the things that in our principles, risk priority management, is we always say, you've got to think like a business owner.
And if you think like a business owner, one of the things in your intro you said is the Nasdaq heavy continues to be very positive.
Well, why is that? And why is that is, well, my first things that I've walked through is, I think in many ways that there's a lot of people in the market today that have actually never experienced a recession, have never experienced a slowdown, have never thought of it in that way. But what they have seen is a low-growth environment.
And in our low-growth environment, big tech was the only game in town.
And so I think there's a camp writing algos right now that says, OK, great. We're just back to those days again.
And when you look at the performance of the Nasdaq or if you go through the S&P 500, you can see that the majority of names are just absolutely going nowhere.
And you have these names that are written, which I would just call for the most part quant trading going on.
And I think what you do is, you go, OK, well, I'm not going to get caught up on bullish arguments or bearish arguments.
I'm going to actually sit back and go, what if I took and I extrapolated that out, and I said that I'm not going to be investing for the next 24 hours or two weeks, but said, this is when you actually can make money because we know that there's going to be a slowdown.
We know that we're going to do the things to get on the other side of it.
And we know when you come out of the other side of it that there are an awful lot of names that you could go out and you could look at it in areas of the market to invest in.
And so I think when you look at that in terms of the equity market, first and foremost is that you say, I'm not to go all in. And so you go, whatever usual amount I'd invest in, I'll be a little less than that. And then you look at that, and you go, so then I'm going to diversify that.
And I just said, China's in a different economic cycle.
So hey, why don't I add a little bit more to that?
And you go, oh, yeah. But I read in the press every day how difficult it is there.
Well, it is difficult there right now. There is geopolitical strife going on.
The market still runs, though.
So the way I look at it as the starting point is that I would say that in the equity market, let's think about being underweighted.
You don't only have to own investments that are on market going up.
You can also run investments that are market neutral, are long/short.
You can be long and short, shorting the market to offset your risk that you're doing, using hedging strategies.
I think in the equity market today that's a really wise thing to do.
>> That was Brad Simpson, chief wealth strategist with TD Wealth.
Let's check in on the markets. We will start with the TSX Composite Index. You are seeing some downward pressure on the price of gold today.
Nothing too dramatic on the top line number of the TSX, 35 points in the whole, a little shy of 1/5 of a percent.
Although there is some strength in the trade weighted US back today putting some pressure on the price of gold which has been rallying as of late along with some of the names we have seen some get back in the space, including B2Gold at 5625 per share today, down about 2 1/4%. Noticing some of the timber plays are getting a bid today, including West Fraser Timber at hundred and three bucks and changed per share, it is apples 2%. No south of the border, earning season has kicked off some of the big Wall Street banks beating earnings expectations. A rally in some of those names but for the broader market, a bit of a slump on this last trading day of the week. Still, nothing too dramatic.
He got 25 points in the S&P 500, a little more than 1/2 of a percent for the tech heavy NASDAQ, the NASDAQ had a pretty strong rally yesterday, giving some of it back today, now down hundred and five points, a little shy of a percent. Lucid group, we talked at the top of the shadow of the EV maker falling short of both production and deliveries in its latest quarter, and at 764 per share, you're seeing a pullback about 7%.
We did get those US retail sales numbers today and noticed some pretty interesting pullback in the month of June, sorry, I'm getting ahead of myself, aren't I?
It's so hot outside, I think it's the summer. In the month of March, consumers pulling back after the banking crisis.
Our Anthony Okolie has been digging into the latest numbers and what TD Economics has to say about the outlook for interest rates in the economy. You and I are sort of in our summer you're already.
So in my head, it's already June. It's only me.
>> It feels like June. Absolutely.
Retail sales used in March. This was the second consecutive month of decline for US right retail sales.
If I'll 1%.
Much more than the .4% expected decline that Wall Street was looking for. When we break down the numbers, the decline might indicate the effects of the Fed's interest rate hikes to tame inflation are continuing to work its way through the economy.
Americans spent less on things like vehicles, furniture and other big-ticket items like appliances and electronics as well.
Sales in the auto sector actually fell for the second month in a row.
That was largely driven by auto sales at car dealerships, automotive parts and tire stores as well.
We take out the volatile auto sales, sales were down just a little bit under 1%. They fell .8% in March. And again, a pullback in consumer spending is worrying for the broader economy if it continues to persist.
Of course, US household consumption represent roughly 70% of total economic output, so this is something that certainly the Fed will be keeping an eye on.
Spending increased on things like online sales, they rose slightly, at bars and restaurants.
This is the only service category in the report.
In fact, most of the gains came through sales and restaurants in the March report. Overall though, not surprising to see spending giving back some gainsfrom earlier in the quarter. Again, after a strong start to the year. And the drop in retail sales among the recent data on wholesale and consumer inflation continue to provide good news on the inflation front for the said, which is awaiting its next move ahead of the next FOMC meeting in May. Greg it?
>> So given all of that that we saw, the slowdown in the consumer, what are we thinking here about not only the consumer spending going forward but what interest rates might look like?
>> TD Economics expects the Fed to raise interest rates and other 25 Basis Points in May before pausing to assess the effects of the past nine hikes on the economy. In terms of consumer spending, they expected to slow from about 4.2% in the first quarter to a stall speed by the second quarter. Now they also note a wildcard in their outlook which is credit tightening, following the banking crisis back in March. The additional tightening of credit conditions could still weigh on consumer confidence according to TD Economics and that could further impact American spending behaviour that's already becoming cautious.
>> Interesting stuff. Thanks.
>> My pleasure.
>> You want to stay tuned. On Monday, TD economist Rishi Sondhi is going to be on the show, you will be taking your questions about the housing market. You can get a head start with this question. Just email moneytalklive@td.com.
That's all the time have the show today. On behalf of Anthony and me here on the desk and everyone behind the scenes that bring to the show every day, thanks for watching. We will see you on Monday.
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