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[music] >>Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Comin up on today show, MoneyTalk's Anthony Okolie will take us through the latest Canadian jobs report.
TD Securities Andrew Kelvin will give us his take on whether the Bank of Canada is done with rate hikes and Anna Castro from TD Asset Management will give us her view on the markets heading into the fall.
Plus in today's WebBroker education segment, Jason Hnatyk will show us how you can find dividend information on the platform.
First, an update on the platform and markets.
The short trading week.
the TSX Composite Index down about 1/10 of a percent. A little lacklustre. Let's take a look at some of the movers today on some of the TSX, including Precision Drilling.
Buying energy services brought in $41 million.
That was announced two days ago.
Calling the deal Strategic and accretive.
. Also want to check in on BlackBerry.
Slipping a little. A couple of days ago warned on cyber security for the coming quarter that there are already in right now. Stop down to the 3.6%.
You can see there at the other graph retracing that bump near the end of last month on those unconfirmed reports that a private equity firm was taking a look at making an offer on BlackBerry. So keeping an eye on that one as well. Now, south of the border, investors still try to figure out the economic data as it flows in. What is it actually mean? For central-bank policy, namely the the Fed.
At our Bank this week and we will talk more at a moment's time about that.
The Fed coming up later this month with his own right decision. A bit agreed on the screen.
Looking like it's going to be a money-losing week on Wall Street. The S&P 500 up a modest 12 points a record of a percent.
The tech heavy NASDAQ, checking in on that one as well, let's see what's happening there.
Up about half percent.
Still getting some earnings trickling in, at this time of the year Docusign among them, a bit of a choppy reaction at first but right now the stock down about 3%. And that's your market update.
Canada's latest job reports showing gains from more than double the market expectations. MoneyTalk's Anthony Okolie joins us now with a look at all this.
When I saw this headline this morning I thought "as we look for signs of a cooling economy, I don't know what to make of this one".
>> This was a bit of a surprise. The drive the jobs are a surprise sharp to the upside.
Adding 40000 Jobs in August lifting total unemployed at just over 20,000 here in Canada.
Total employed rather. Driving the majority the gains, full-time job accounted for 81% of the total.
When we look at the unemployment rate, it held steady at 5 1/2% after three consecutive months of increases.
That just leaves it below the 5.7% on appointment rate that we saw in February 2020 just for the pandemic.
When we break things done by sector, the more people working in the professional, scientific and technical services industry, as well as construction, that really helped drive the job gains in August.
That also helped offset some weaknesses in areas like educational services and manufacturing.
Now, in the report, TD Securities noted that wages were up 4.9% on an annual basis versus the 5% we saw back in July.
Now, that is key because the Bank of Canada has repeatedly expressed concern that it's going to be hard to fully tamp down on inflation if wages maintain their current pattern of rising between four and 5%.
That is exactly where we are right now.
Now, Bank of Canada of course, stayed on the sidelines on Wednesday but said on Thursday that it might have to tighten monetary policy further and right now, money markets are pricing in between 44 to 50% chance of another Bank of Canada rate hike by the end of the year. That is up from before the date it was published. So a big picture while gains, job gains reversed, after muscle weakness, TD Economics said population boom is causing labour force growth to outpace.
That's key.
No doubt the jobs report. The number of unemployed workers has actually shot up by more than 120,000 this year.
TD Economics says that while today's jobs does not provide clear evidence that passed rate hikes are working to slow the economy, when we look under the surface, the story still holds. They point to things like consumer spending slowing.
Housing market cooling. It is clear that the market is still looking for more before the Bank of Canada can say that they will end of the rate hike.
>> At that point you raised about robust immigration playing a role in all of this.
That's what made me think that I don't know what to make of this number this morning. We have a lot of guests on the program recently saying that when it comes to trying to cool overall the economy has religious GDP, you say "well you know, can we avoid a recession?
" On headline number, we probably can because you bring more people in the country, they spend, they work and they add to the economy. Same things with the jobs numbers.
… Some of the jobs you've added, part-time jobs, that's really hard to track as well.
TD Economics notes that the report, and I think that, again, the markets are still looking for a clear picture of what is happening with job market.
They are still concerned that particularly with this, it doesn't really give you clear evidence of that.
And jobs number is really, it's not, intends to fluctuate quite a bit.
I think the market is really looking for more evidence before they can finally say that look, the Bank of Canada is done and you know, no more rate hikes and we do see a cooling in the economy and inflation.
>> I'm glad I'm not the one was to write those reports. What you make of all this?
I don't know.
Thanks Anthony.
>> My pleasure.
> MoneyTalk's Anthony Okolie.
Earlier, we heard from TD Securities Andrew Kelvin with his take on whether the Bank of Canada is actually done with its rate hiking cycle. Have a listen.
>> I will say upfront. We do think the Bank of Canada is done.
We think 5% will be the peak rate this cycle.
It will stay there for several quarters now.
The thing the Bank of Canada wanted to avoid here is sending a signal to markets that they are going to quickly turn around and cut rates.
Because that is not their thought process currently.
The hawkish hold is designed to achieve a few goals: first off they want to make sure inflation expectation is well anchored. So they want to reiterate they are committed to bring inflation back to 2%.
Inflation of course, is not currently at 2%.
It's running about 3%.
So it follows that 1/3 target, inflation is about three, they cannot be happy with the state of the world as it is. So, they talk about how they are still lagged impacts of monetary policy and how we are now seeing signs of excess demand easy now. Growth slowing. So there are signs of monetary policies working.
They expected to continue to work further to keep growth on the slow side, to bring inflation lower.
That's why they believe they can stay on hold here. But, if it turns out these lagged impacts of rate hikes, if it turns out the tightening in place is not enough to bring inflation back down to 2%, their mandate requires them to attempt to do more. And that's just a message they are trying to send here.
I don't think it should be a surprise.
It would always be hugely premature for the Bank to declare victory with inflation running about 3%.
Across a variety of metrics.
But, I think in terms of acknowledging that the growth has been a little bit weaker the second quarter, that does show… They are not adamant on lifting rates down the torpedo sort of thing.
>> When they talk of inflation coming down, I look at the Bank of Canada or any central banks will be a straight line to get back to that unit would be a bumpy ride. We started the centre right?
Below three of them back above.
The price of gasoline, the price of benchmark crude have been on the rise lately, we might even see inflation move a little higher from here before goes down.
They seem to be acknowledging that. So I would imagine that would knock them off their course?
Saying they're expecting this?
Inflation higher due to higher gas prices you're right, will not not knock them off their course.
We will get a new forecast in October as well. But if you can buy out some of the other things they're looking at, wage growth, corporate pricing power, these sorts of things. Excess demand… If you have a combination of an uptick in inflation, a broad uptick in inflation, not sort of gasoline prices but core inflation, broadly defined, and you can combine that with stronger GDP or wage growth increasing or the unemployment rates falling again, a combination of those things could bring Bank of Canada hikes back into play in the future. As I said earlier, that's not the base case.
But I think the Bank of Canada wants to make sure everyone is aware that they are not saying that 5% is the top. They are saying they think they've done enough but the data needs to confirm that.
>> What about that persistent underlying inflation? We talked about headline being one thing but as you mentioned wages, they did mention they are saying however wage growth, remaining around 4 to 5%.
How sticky is that component of inflation?
>> Were going to find out, I suppose. We are seeing wages come through sort of incorporating wage growth in that area.
Part of the growth in Canada is high enough is not high enough that is to support 4 to 5% wage growth without it being inflationary be on the 2% target.
Ultimately, the bet has to be that, as growth slows, the employment rate rises.
Particularly with a very strong population growth. Like we do enjoy strong labour force growth in this country which means if you slow employment growth, not necessarily job losses but if slower increase in jobs, you can start to increase the an employment rate without, you know, actually sending the economy into a recession and in that sort of a world where you have a little bit less of a shortage of labour in some industries the Hope and that would be that wage growth than slows.
That's what the Bank of Canada eyes looking to achieve here.
They said in a statement that the slow growth that were seeing is needed to bring the economy back into the balance and ultimately that's what were trying to keep your. Balance in the economy.
>> When we think of at the banks transcending, obviously that reverberates that's why it's transcending the bond markets and the economy. But what of the bond markets themselves been trying to tell us? This Summer? We have seen those yields pushing higher and pushing higher.
Particularly of the states today, what is the bond market saying were the central banks saying? Leo don't always sing the same tune. Or sometimes they fall out of step with each other.
>> It's always particularly tricky has beheaded to September for two reasons.
First, in Canada at least, you tend to hear a lot of not a lot of Bank of Canada communication in August. The Bank of Canada has a pretty good job of updating markets with mediums incorporating data surprises.
We don't get that head of September meeting. We are kind of left in the dark as to how the Bank of Canada interpreted an upset surprise in the last CPI print.
Now, with the GDP numbers for Q2, I think there was a lot of beauty but that is something a little bit tricky with the month of September.
We have little bit less guidance from Central Bank officials.
Additionally, Summer markets are just notoriously volatile. You have larger moves to data points when you would expect in the spring or fall. And sometimes markets just do strange things for reasons that market participants have a hard time expanding in the month of August.
So you can look at some of those big increases in yields that we've seen over the last month or six weeks as being exacerbated by this trading condition.
Having said that, I think the market is looking at the situation in the US and there perhaps a little less certain of a have it in the past that the Fed is done here and that is helping to push yields higher and at the same time, we talked about the Bank of Canada mentioning that persistence of underlying inflation pressures. I do think there is concern that some corners that with the persistence in underlying inflationary pressures, rates will be at higher levels over the sort of medium-term then perhaps people anticipated. Because I think early in the cycle, some people were perhaps thinking "sure, we get a pop higher interest rates but we quickly reverse".
Now markets are sort of changing their expectations and changing your bets as to how quickly we will return back. I don't want to say rates we had before the pandemic because those were strangely low rates in my view. But how quickly will return to sort of normal or neutral rates.
People tend to revise those expectations.
>> That was Andrew Kelvin, head of Canadian and global rates at TD Securities. Now here's an update on the top stories of business and at take a look at how the markets are trading.
US grocer and pharmacy chain Kroger has said it is agreed to pay $1.2 billion US to settle claims connected to the opioid epidemic. Kroeker joins a list of companies including Walgreens, CVS and Walmart to settle with states and other governments, Kroger says the settlement is not an admission of wrongdoing or liability. Separate from the settlement, Kroeker Kroger also reported lower-than-expected sales in its most recent quarter.
Walmart is cutting starting wages for its workers who stock the shelves and pick out items for online orders. The pay reduction means those new hires are making roughly 1 dollar less an hour than workers hired earlier this year.
In a statement, Walmart said "consistent starting pay results and consistent staffing and better customer service".
Enbridge says it has raised $4.6 billion in an offering that saw it eat issue 102.9 Bill million rather shares at 44.70 a piece. The share offering was announced earlier this week as part of Enbridge's plan to purchase three US natural gas utilities were a total of $14 billion including debt.
And here's how the main benchmarks index of Canada's trading.
… South of the border, checking in on the S&P 500, a little bit agreed on the screen. About 15 points or one third of a percent still.
Giving some of the price action to the downside earlier this week.
Shifting to be a money-losing week on Wall Street.
The central banks may be at a crossroads as we begin to see some signs of economic slowing. What is it mean for the environment for asset prices? Heading into the fall. Anna Castro, managing director of head of retail asset allocation at TD Asset Management join me earlier to discuss.
>> It gives the central-bank options on how to manage the path from here. They want to be data dependent because they have had over a year of aggressive rate increases. Both in Canada, Bank of Canada, and the Federal Reserve. We've seen some economic data slowness from economic activity, spending… Wages increasing not as hot as they were before.
But people still remain employed. On the flipside, inflation is also been trending lower from high single digits before two more of the 4% handle and could be at the high threes towards the end of the year.
However, it is still not totally under control where in the central bankers can move past it and say "we have won the war".
So from here on forward, they want to watch how the data indicates how they're tightening his floated to the system. To the economy, corporations and consumers.
But they want to have flexibility to go back and make sure that inflation is trending to where they would be comfortable in.
>> You get a sense when you hear from either our central-bank Gov. or Jay Powell South of the border, a real reticence to say "mission accomplished" they don't want to declare the fight as one.
That can have dangerous consequences on the other side.
>> Yes. They want to make sure that they have price stability which is an inflation being their priority right now.
The other component of their managers to make sure that there is full employment and employment labour as I mentioned, is pretty strong. So that's not a worry.
Growth is okay and has been resilient. If anything, they want to make sure that they don't have inflationary pressures come back.
Because we have had some of those rear their head and they want to make sure that they really firmly control it.
>> If we take them at their word, they've been telling us that they may not be done yet.
They need to go a little more, they will.
And then they're going to stay there for a while. They will keep interest rates elevated. If that's the reality that we are looking at, maybe no more hikes, maybe a hiker to depend on the data comes in as he said. I think you stay there for a while. What is actually mean for asset prices?
>> In terms of asset prices you have more options for income. In this environment, you have fixed income, bond yields are higher.
Which means on like we have in prior decades, you are now have a higher level of income for example, a basket of bonds, high-quality government and corporate could give you about 5%. Which you have not seen in multiple decades.
That also means you have GICs.
High savings account offering alternatives in terms of high level of income compared to equities. And so, you have more choices in terms of your investment universe.
However, that also means higher bond yields will impact evaluations.
So that will also pressure prices of the equity market which has had a very strong here today. It's all about managing expectations from where we are here.
The other component to, is a high level of interest rate. It's not just about the valuation but also, it's a way to curtail demand.
It's higher cost of debt, higher cost of spending, so this could also impact economic growth and expectations moving forward.
So if we expect higher interest rates than we had before, higher cost of spending, you could have lower economic growth moving forward and that means earnings expectations should also come down.
>> This is what the central banks are trying to engineer.
We had inflation that was way too high for comfort, we need to bring it down.
To do that you slow the economy.
You slow a labour market so at this point, where we are, perhaps at a crossroads for the central banks, are we to crossroads for the economy?
What is the economy telling us where we are in the cycle?
>> We are in the late stage of the cycle.
So far, the economy is been resilient.
Because of the strong labour market.
The key question here is "central banks, when they increase interest rates, they try to impact the Bank but it's very blunt and it takes time to flow through. So we are a little over a year to it" or next to you have more time for this tightening to flow through. In the late stage of the economy, you really need to think about quality of your investments. First of all, you need to think of at the price that you bought that investment because you need the price that you pay impacts your long-term returns in that investment.
Second, having a good source of income helps you whether through you yourself as an investor, higher interest rates and higher inflation or inflation higher than before.
The other component two is to make sure that the companies that you lend to, as well as that you buy, have the capability to whether this wide range of economic environment and be able to stand a weakening economic demand. Can they be able to price pastor price increases if needed?
Have different sources of demand for their goods and services? And have a strong balance sheet to have access to capital and be able to be afford a higher cost of interests when they have to refinance their debt moving forward.
And so, in that type of environment, as an investor, you have to really think through and do your due diligence.
Look at the difference in sources of cash flows of what you're investing into.
Whether it's fixed income, equities, alternatives… And it's important to have either a diversified investment so that you have different sources of returns there and they can take into account different time horizons.
So what I'm saying is not to put all your eggs in one basket and what has worked perhaps, last year or early this year, may not work moving forward. Important to assess really what you're buying into and what you're putting in your portfolio.
> I want to ask about that and what has worked so far in working going forward based on that because certain parts of the equity market, whether text, particularly big tech in the US is that a good read so far this year.
Starting to see oil companies gain off the back of crude.
As the market being a little too optimistic that you get the no landing?
Soft landing? Everybody will be just fine, inflation under control and no one gets hurt?
>> So the fixed income market of seen volatility the past few weeks.
You were seen volatility of the bonsai.
On the equity market, yes we do believe it is more complacent.
You're not seen you're not seeing much volatility there they are expecting, for example, the S&P 500 next year, earnings growth of 12%.
That's quite high later in the cycle.
So, the situation is quite fluid.
What is happened this year, because coming into this year, people expected worse, more of a recession early on. You had a really saying that things are better and the worst is behind us.
What is being priced and is the worst is behind us.
Moving forward, earnings is expected to grow, 12%.
The expectation as well as that you can have easier financial conditions.
In the past few months, you've had a lot of short coverings. So that is why the market, the equity market has done quite well.
I do not case, the price action of both equities and high-yield credit has given people more confidence.
Feeling that the worst is behind us.
But in reality, what we would like to highlight is that the price action is one thing, the other component to be mixed sure that the earnings model of these companies, the sources of cash flows remain resilient as we enter a late stage of the cycle where entering different types of economic outcomes and financial conditions that could be possible.
Or even like, higher, not just higher interest rates but higher than the past inflation rate.
All of this has to come to play before quickly thinking that everything is going to be like it was before. Earnings will accelerate and the Fed will cut and that means lower interest like it was in the past. I think it's important to be prudent and thoughtful in the process.
> That was Anna Castro, managing director at head of retail asset allocation at TD Asset Management.
Now it gets one educational segment of the day.
>> If you're looking to find information about a company's dividend, WebBroker can help.
Joining us now with Maurice Jason Hnatyk, a senior instructor at td direct investing for clients.
>> Thanks for having me as always Greg.
Buy and sell low is something we're familiar with.
Trying to find a steady reparable source of income is also something very common for investors.
Dividend income can be a key strategy and outcome. Dividends are where a company is paying a portion of its revenues back to its shareholders if you're looking to find… Not all companies pay dividends.
Let's jump in WebBroker to identify where that information is and how we can use it to our best advantage.
I'm on the "research in stocks " page in WebBroker. You can find that by clicking on the research tab of the top of the page. You stocks.
Looking at a widely held home improvement retailer on the screen here. We will scroll down on the right hand side. You will see this table of regularly used fundamental information. This is where some key dividend information is held.
Looking at this general area, you have dividend yield, annual dividend rate as well as a couple payment date information.
First of all, the annual dividend rate, that is telling us how much the company is paying back to its shareholder for every share that you own of that particular company. Important to know, the dividend yield is the percentage just above the dollar amount is telling us when we are taking that annual dividend rate, we are dividing it into the share price. It gives us that percentage and allows us to compare apples to apples when looking at other companies that pay dividends so we can see when we are comparing it's different share prices. Moving on next down to the dividend and payment date, the payment date is simply when you can expect that cash dividend to be paid into your account.
The ex dividend date is very important for traders because this is telling us "when we need to own this particular investment?" And actually get paid the dividend. In actuality, you need to own the stock, at least one trading day prior to the ex dividend date to be do that dividend being paid into your account of the schedule on the screen. Bringing us quickly to the top of the page to show you some other very important information, we will choose the "events" tab located just for the love the quote here on the screen.
On this page you get information on earnings, corporate actions, but there is also a dividends tab on this particular page. We get to look at all of the historical dividends, all of their different accent payment dates but importantly what I'm looking forward in this pages I'm looking for a reputable, sustainable dividend even one more importantly were a company is increasing its dividend over time. Showing that it can be interpreted as a sign of stability and whether we know the company is regularly producing revenue so we can continue to expect a greater return on investments.
So lots of information here to work from.
>> Dividends and how to find information on this site, I think you used Home Depot as an example?
You take a look at them and their dividends, what if you started to wonder "what are their peers in the industry paying in terms of dividend? Is there a way to compare on the platform?
>> There most definitely is yes. We want to go smarter not harder with our money and make sure that we are getting that return on investment that we are expecting. Maybe there's a better choice out there for you. So 1 Quick Way to easily do that, back and WebBroker. I will go now from the events tab over to the fundamental step.
This is where you will have access of all the companies, the information they reported our quarterly calls, such as the financial statements, income statements, things like that.
We want to look at the pure comparison tab.
On this particular page, not only Home Depot's comparison to the industry average were getting those competitors that you mentioned there Greg.
Home Depot compared to Lowes and Williams-Sonoma, and others in the same sphere of the economy. If we scroll down on this particular page, we can see if there is an annual dividend information where we can see that total payout as well as how that relates to its closest fear is are they we've got all of the different ratios so you can make an informed decision. One of the clicking to show everybody, maybe want to compare this big of a company to a list of companies that don't happen to be in the same general economic sector. That can be done by using a watchlist.
Quickly access your watchlist and WebBroker. You have the star icon in the very top right hand corner. If we go here, you're the ability to create 10 watchlist.
I got one created here ready to go for us today.
At the top, there are three different functions. You can view certain specific datasets. I want to bring us to the fundamentals tab. Here, we get the opportunity to see all of the different yields for specific companies that I'm curious about. So I can once again, be kept informed and make sure got good information and to have that money work smarter.
Work smarter not harder is what I'm looking for.
>> Alright Jason great stuff as always thanks for that.
>> It's my pleasure.
>> Our thanks to Jason Hnatyk, Senior Client Education Instructor TD Direct Investing.
Make sure to check out the Learning Center and WebBroker for more educational videos, live interactive master classes and upcoming webinars.
It was a choppy summary for equity markets, but the S&P 500 is still up close to 16% this year and the strength of a few big tech stocks. When things go from here?
David Sekera, chief US market strategist with MorningStar research to join me earlier to discuss.
>> I would note that this is coming off of what we thought were very undervalued levels at the beginning of the year… At this point we do still think that the US market remains slightly undervalued.
However I do want to caution investors. I do think that returns at the remainder of this era by me much more muted and in fact I'm also concerned that we might see about of volatility, the latter half of October, maybe beginning of November.
The reason for that is the US economy has been much stronger-than-expected.
Even our above consist consensus estimate that a big little too low but you know, tight monetary policy is to take its toll.
At this point, our base case is that the rate of economic growth in the US will start to slow here in the fourth quarter.
So my concern is that would management teams started giving out their third-quarter earnings and start giving guidance for the fourth quarter, maybe even start talking about 2024, I think the market might be disappointed.
>> So perhaps some turbulence ahead.
What got us to this point where the magnificent seven.
It's not uncommon when you see a market rally talk with the lack of breath. Let's go through the magnificent Seven entrances of the run they had a where they may go from here.
>> Through the end of August, those seven, they come from over 60% of the total market gains year to date. So according to our valuations, six of those seven that comprised the magnificent seven were very significantly undervalued coming into the year. All of them have run up on very substantially since then so at this point, still undervalued but looking at the rest of them, five are now what we consider to be fair value territory and one is actually just move too far to the upside in our view and that's not well into overvalued territory.
>> Of those big names, those big tech names in the magnificent seven can obviously push around the top line number, the S&P 500, the NASDAQ, but what about potential for more breath in the market.
They've been getting all the attention from investors. Is there a chance sort of widen out?
> That's what we do think.
We started talking about that in our June market Outlook.
Really for the market rally to continue from here does need to brought an outage of the water market.
So from a valuation standpoint, looking at the magnificent seven, I think the stocks have run their course. In fact, when I look at the charts I suspect a lot of those are actually just running out of steam at this point.
So I do think we will see an increase in the market breath going forward.
>> Let's talk about an increase in the market suggesting that perhaps there are some areas in the market that could be undervalued and perhaps overlooked because of Nvidia and all those other big tech names.
>> I would highlight value sacs, they significantly like the market rally thus far this year. In our view that's where we see the most attractive opportunities. For investors today.
We also see good value in the mid-cap and small-cap space. Both of those of lag behind this year as well.
For people looking for investments in specific sectors, I would highlight Communications, real estate, financials.
In our view those aldermen undervalued.
Another one I highlighted his utilities.
Utilities got hurt pretty bad last month with the rise of interest rates and that's one area that it's now getting beaten up enough I think that's starting to look attractive as well.
On the other side of the coin, highlight technology, that is a sector that we think is slightly overvalued at this point in time.
I think that was a good time for investors to take a look through your portfolio.
You will look through it for those stocks that are overvalued and overextended. I think they'll be a good time to lock in some profits on those types of names.
Then the other two I would highlight will be the energy and industrial sector. Those are both pretty fully valued at this point.
I do think that both of those could be in some trouble if we do have the fourth-quarter selloff once the economy begins to slow.
>> You mentioned energy and that's interesting because I feel like the sector started taking off over the last little while. It sounds like they made up a lot of ground in a short period of time.
>> Yes and with the energy sector, I think you have to look past with oil and prices are doing the short term. You really need to look at what oil prices are going to do over the course of a fall economic cycle.
So what we do agree with the market, oil is tight right now. That's gonna keep oil prices hi here in the short term. When we start looking out over the next, five, seven or 10 years, we think oil prices will be coming down and we do think that towards the latter half of this decade, with electric vehicles, becoming a greater and greater portion of new vehicle sales as well as number of cars on the road, we do expect that by the end of this decade, we do see a decrease in oil demand.
We also expect an oil supply to come up, just a lot of companies have been spending too much on shareholder returns.
Spending a lot of money on dividends, spending a lot of money on share buybacks.
I think you to start looking more towards growth start doing some more exploration production over the next few years.
>> You mentioned briefly off the top but you could be in for a bit of bumpy ride as we get further into the fall and towards the winter. Let's talk about the third quarter. What's the expectation there?
>> Third-quarter earnings, I think there actually look pretty good. The economy is holding up much better than anyone.
Ourselves included have expected. In fact, our economics team just bumped up their third quarter GDP estimate so again, I think the risk this fall isn't going to be the company's fall short of third-quarter earnings. But really the guidance of the management team provided a totally separate 2024. So, is that sort of the overwhelming factor? One thing to come out and say "hey, look at the three months behind us and we did better than the market was expecting depending on the company" but looking ahead not too sure. I feel we've been on that narrative for a while.
Companies are saying "looking ahead to this recession" that has not shown up yet.
> That is been our forecast as well.
Earlier in the year we thought, and again, we are not in the recession. Our base case is still no recession.
We've been advocating the soft landing. I think since towards the end of last year.
But again, when you start thinking about what's going on, out there, we have high interest rates. In fact the highest interest we've had since the global financial crisis, banks are definitely pulling in lending and I think that's all going to really combine in order to soften the economy later this year.
In fact, we think there's going to be three sequential quarters of softening over the next three quarters. Getting to the second quarter of 2024 which is where we kind of expect the economy to get to almost stall speed but not stall out and that it won't be until the second half of 2024 that we look for the economy really to turn around and start moving upwards again.
Having said all that, our GDP forecast for 2024 right now is only 1.4%.
>> So if that's the macroeconomic conditions in the slowdown of the economy, that comes to pass, what is the fed to do with that information?
The big question we always get his window the central-bank start cutting after all this?
>> We think the Fed is done.
We have noted that for a couple of months now. We think that their job is done.
The of hiked interest rates enough that they will start throwing flowing through the economy. We also think inflation will continue to keep moderating over the course of this year. We think by early next year, the Fed will get inflation down to the 2% target.
In fact when we look at all of 2024, our economics team thinks the average inflation rate next year will actually be slightly below their 2% target. So I think the combination of economic slowing as well as inflation continuing to calm down, not only is the Fed not going to raise rates over the next couple months, I think that actually sets them up for some time in the first quarter next year to turn around and start cutting rates.
>> That was David Sekera, chief US market strategist with MorningStar research.
Now for an update on the markets.
^this is Tete's advanced dashboard available for investors. This is the heat map function.
Screening to the TSX 60, looking at price and volumes. What's happening out there today on this last trading day of the week? We have some green on the screen and the energy space. It's modest but it is green.
You have Enbridge up a little shy of a full percent. Sort of a trap in the same position.
If you've been around long enough.
TC energy up about a percent as well.
Cenovus Energy down there in the corner a little bit stronger than one.
Not all green on the screen though.
Notably here in the technology space, your Shopify down a little more than 2% in the basic materials, bucket, your First Quantum they are down about 2 1/2%.
You could use the heat map in the screen a number of ways.
Let's take a look at the S&P 100 and see what's happening south of the border right now. It's a bit of a mixed picture.
This interesting.
You have Ford up to the tune of… It's really the tech space catching my eye today in terms of it just being a real mixed bucket.
Little bit of upward strength and Apple up the top corner and then you've got Nvidia under pressure in recent days.
Just modestly to the downside.
You can find more information by visiting td.com/advanced dashboard.
Stay tuned for Monday's show, Leslie Preston, Senior Economist at TD will be our guest take your questions about the economy. A lot has been happening.
So I know you will have questions for her.
And a reminder they can get a head start by emailing your questions to moneytalklive@td.com.
That's all the time we have for today thanks for watching a show on a daily basis that's all her time for today thanks for watching and to have a good day.
[music]
Comin up on today show, MoneyTalk's Anthony Okolie will take us through the latest Canadian jobs report.
TD Securities Andrew Kelvin will give us his take on whether the Bank of Canada is done with rate hikes and Anna Castro from TD Asset Management will give us her view on the markets heading into the fall.
Plus in today's WebBroker education segment, Jason Hnatyk will show us how you can find dividend information on the platform.
First, an update on the platform and markets.
The short trading week.
the TSX Composite Index down about 1/10 of a percent. A little lacklustre. Let's take a look at some of the movers today on some of the TSX, including Precision Drilling.
Buying energy services brought in $41 million.
That was announced two days ago.
Calling the deal Strategic and accretive.
. Also want to check in on BlackBerry.
Slipping a little. A couple of days ago warned on cyber security for the coming quarter that there are already in right now. Stop down to the 3.6%.
You can see there at the other graph retracing that bump near the end of last month on those unconfirmed reports that a private equity firm was taking a look at making an offer on BlackBerry. So keeping an eye on that one as well. Now, south of the border, investors still try to figure out the economic data as it flows in. What is it actually mean? For central-bank policy, namely the the Fed.
At our Bank this week and we will talk more at a moment's time about that.
The Fed coming up later this month with his own right decision. A bit agreed on the screen.
Looking like it's going to be a money-losing week on Wall Street. The S&P 500 up a modest 12 points a record of a percent.
The tech heavy NASDAQ, checking in on that one as well, let's see what's happening there.
Up about half percent.
Still getting some earnings trickling in, at this time of the year Docusign among them, a bit of a choppy reaction at first but right now the stock down about 3%. And that's your market update.
Canada's latest job reports showing gains from more than double the market expectations. MoneyTalk's Anthony Okolie joins us now with a look at all this.
When I saw this headline this morning I thought "as we look for signs of a cooling economy, I don't know what to make of this one".
>> This was a bit of a surprise. The drive the jobs are a surprise sharp to the upside.
Adding 40000 Jobs in August lifting total unemployed at just over 20,000 here in Canada.
Total employed rather. Driving the majority the gains, full-time job accounted for 81% of the total.
When we look at the unemployment rate, it held steady at 5 1/2% after three consecutive months of increases.
That just leaves it below the 5.7% on appointment rate that we saw in February 2020 just for the pandemic.
When we break things done by sector, the more people working in the professional, scientific and technical services industry, as well as construction, that really helped drive the job gains in August.
That also helped offset some weaknesses in areas like educational services and manufacturing.
Now, in the report, TD Securities noted that wages were up 4.9% on an annual basis versus the 5% we saw back in July.
Now, that is key because the Bank of Canada has repeatedly expressed concern that it's going to be hard to fully tamp down on inflation if wages maintain their current pattern of rising between four and 5%.
That is exactly where we are right now.
Now, Bank of Canada of course, stayed on the sidelines on Wednesday but said on Thursday that it might have to tighten monetary policy further and right now, money markets are pricing in between 44 to 50% chance of another Bank of Canada rate hike by the end of the year. That is up from before the date it was published. So a big picture while gains, job gains reversed, after muscle weakness, TD Economics said population boom is causing labour force growth to outpace.
That's key.
No doubt the jobs report. The number of unemployed workers has actually shot up by more than 120,000 this year.
TD Economics says that while today's jobs does not provide clear evidence that passed rate hikes are working to slow the economy, when we look under the surface, the story still holds. They point to things like consumer spending slowing.
Housing market cooling. It is clear that the market is still looking for more before the Bank of Canada can say that they will end of the rate hike.
>> At that point you raised about robust immigration playing a role in all of this.
That's what made me think that I don't know what to make of this number this morning. We have a lot of guests on the program recently saying that when it comes to trying to cool overall the economy has religious GDP, you say "well you know, can we avoid a recession?
" On headline number, we probably can because you bring more people in the country, they spend, they work and they add to the economy. Same things with the jobs numbers.
… Some of the jobs you've added, part-time jobs, that's really hard to track as well.
TD Economics notes that the report, and I think that, again, the markets are still looking for a clear picture of what is happening with job market.
They are still concerned that particularly with this, it doesn't really give you clear evidence of that.
And jobs number is really, it's not, intends to fluctuate quite a bit.
I think the market is really looking for more evidence before they can finally say that look, the Bank of Canada is done and you know, no more rate hikes and we do see a cooling in the economy and inflation.
>> I'm glad I'm not the one was to write those reports. What you make of all this?
I don't know.
Thanks Anthony.
>> My pleasure.
> MoneyTalk's Anthony Okolie.
Earlier, we heard from TD Securities Andrew Kelvin with his take on whether the Bank of Canada is actually done with its rate hiking cycle. Have a listen.
>> I will say upfront. We do think the Bank of Canada is done.
We think 5% will be the peak rate this cycle.
It will stay there for several quarters now.
The thing the Bank of Canada wanted to avoid here is sending a signal to markets that they are going to quickly turn around and cut rates.
Because that is not their thought process currently.
The hawkish hold is designed to achieve a few goals: first off they want to make sure inflation expectation is well anchored. So they want to reiterate they are committed to bring inflation back to 2%.
Inflation of course, is not currently at 2%.
It's running about 3%.
So it follows that 1/3 target, inflation is about three, they cannot be happy with the state of the world as it is. So, they talk about how they are still lagged impacts of monetary policy and how we are now seeing signs of excess demand easy now. Growth slowing. So there are signs of monetary policies working.
They expected to continue to work further to keep growth on the slow side, to bring inflation lower.
That's why they believe they can stay on hold here. But, if it turns out these lagged impacts of rate hikes, if it turns out the tightening in place is not enough to bring inflation back down to 2%, their mandate requires them to attempt to do more. And that's just a message they are trying to send here.
I don't think it should be a surprise.
It would always be hugely premature for the Bank to declare victory with inflation running about 3%.
Across a variety of metrics.
But, I think in terms of acknowledging that the growth has been a little bit weaker the second quarter, that does show… They are not adamant on lifting rates down the torpedo sort of thing.
>> When they talk of inflation coming down, I look at the Bank of Canada or any central banks will be a straight line to get back to that unit would be a bumpy ride. We started the centre right?
Below three of them back above.
The price of gasoline, the price of benchmark crude have been on the rise lately, we might even see inflation move a little higher from here before goes down.
They seem to be acknowledging that. So I would imagine that would knock them off their course?
Saying they're expecting this?
Inflation higher due to higher gas prices you're right, will not not knock them off their course.
We will get a new forecast in October as well. But if you can buy out some of the other things they're looking at, wage growth, corporate pricing power, these sorts of things. Excess demand… If you have a combination of an uptick in inflation, a broad uptick in inflation, not sort of gasoline prices but core inflation, broadly defined, and you can combine that with stronger GDP or wage growth increasing or the unemployment rates falling again, a combination of those things could bring Bank of Canada hikes back into play in the future. As I said earlier, that's not the base case.
But I think the Bank of Canada wants to make sure everyone is aware that they are not saying that 5% is the top. They are saying they think they've done enough but the data needs to confirm that.
>> What about that persistent underlying inflation? We talked about headline being one thing but as you mentioned wages, they did mention they are saying however wage growth, remaining around 4 to 5%.
How sticky is that component of inflation?
>> Were going to find out, I suppose. We are seeing wages come through sort of incorporating wage growth in that area.
Part of the growth in Canada is high enough is not high enough that is to support 4 to 5% wage growth without it being inflationary be on the 2% target.
Ultimately, the bet has to be that, as growth slows, the employment rate rises.
Particularly with a very strong population growth. Like we do enjoy strong labour force growth in this country which means if you slow employment growth, not necessarily job losses but if slower increase in jobs, you can start to increase the an employment rate without, you know, actually sending the economy into a recession and in that sort of a world where you have a little bit less of a shortage of labour in some industries the Hope and that would be that wage growth than slows.
That's what the Bank of Canada eyes looking to achieve here.
They said in a statement that the slow growth that were seeing is needed to bring the economy back into the balance and ultimately that's what were trying to keep your. Balance in the economy.
>> When we think of at the banks transcending, obviously that reverberates that's why it's transcending the bond markets and the economy. But what of the bond markets themselves been trying to tell us? This Summer? We have seen those yields pushing higher and pushing higher.
Particularly of the states today, what is the bond market saying were the central banks saying? Leo don't always sing the same tune. Or sometimes they fall out of step with each other.
>> It's always particularly tricky has beheaded to September for two reasons.
First, in Canada at least, you tend to hear a lot of not a lot of Bank of Canada communication in August. The Bank of Canada has a pretty good job of updating markets with mediums incorporating data surprises.
We don't get that head of September meeting. We are kind of left in the dark as to how the Bank of Canada interpreted an upset surprise in the last CPI print.
Now, with the GDP numbers for Q2, I think there was a lot of beauty but that is something a little bit tricky with the month of September.
We have little bit less guidance from Central Bank officials.
Additionally, Summer markets are just notoriously volatile. You have larger moves to data points when you would expect in the spring or fall. And sometimes markets just do strange things for reasons that market participants have a hard time expanding in the month of August.
So you can look at some of those big increases in yields that we've seen over the last month or six weeks as being exacerbated by this trading condition.
Having said that, I think the market is looking at the situation in the US and there perhaps a little less certain of a have it in the past that the Fed is done here and that is helping to push yields higher and at the same time, we talked about the Bank of Canada mentioning that persistence of underlying inflation pressures. I do think there is concern that some corners that with the persistence in underlying inflationary pressures, rates will be at higher levels over the sort of medium-term then perhaps people anticipated. Because I think early in the cycle, some people were perhaps thinking "sure, we get a pop higher interest rates but we quickly reverse".
Now markets are sort of changing their expectations and changing your bets as to how quickly we will return back. I don't want to say rates we had before the pandemic because those were strangely low rates in my view. But how quickly will return to sort of normal or neutral rates.
People tend to revise those expectations.
>> That was Andrew Kelvin, head of Canadian and global rates at TD Securities. Now here's an update on the top stories of business and at take a look at how the markets are trading.
US grocer and pharmacy chain Kroger has said it is agreed to pay $1.2 billion US to settle claims connected to the opioid epidemic. Kroeker joins a list of companies including Walgreens, CVS and Walmart to settle with states and other governments, Kroger says the settlement is not an admission of wrongdoing or liability. Separate from the settlement, Kroeker Kroger also reported lower-than-expected sales in its most recent quarter.
Walmart is cutting starting wages for its workers who stock the shelves and pick out items for online orders. The pay reduction means those new hires are making roughly 1 dollar less an hour than workers hired earlier this year.
In a statement, Walmart said "consistent starting pay results and consistent staffing and better customer service".
Enbridge says it has raised $4.6 billion in an offering that saw it eat issue 102.9 Bill million rather shares at 44.70 a piece. The share offering was announced earlier this week as part of Enbridge's plan to purchase three US natural gas utilities were a total of $14 billion including debt.
And here's how the main benchmarks index of Canada's trading.
… South of the border, checking in on the S&P 500, a little bit agreed on the screen. About 15 points or one third of a percent still.
Giving some of the price action to the downside earlier this week.
Shifting to be a money-losing week on Wall Street.
The central banks may be at a crossroads as we begin to see some signs of economic slowing. What is it mean for the environment for asset prices? Heading into the fall. Anna Castro, managing director of head of retail asset allocation at TD Asset Management join me earlier to discuss.
>> It gives the central-bank options on how to manage the path from here. They want to be data dependent because they have had over a year of aggressive rate increases. Both in Canada, Bank of Canada, and the Federal Reserve. We've seen some economic data slowness from economic activity, spending… Wages increasing not as hot as they were before.
But people still remain employed. On the flipside, inflation is also been trending lower from high single digits before two more of the 4% handle and could be at the high threes towards the end of the year.
However, it is still not totally under control where in the central bankers can move past it and say "we have won the war".
So from here on forward, they want to watch how the data indicates how they're tightening his floated to the system. To the economy, corporations and consumers.
But they want to have flexibility to go back and make sure that inflation is trending to where they would be comfortable in.
>> You get a sense when you hear from either our central-bank Gov. or Jay Powell South of the border, a real reticence to say "mission accomplished" they don't want to declare the fight as one.
That can have dangerous consequences on the other side.
>> Yes. They want to make sure that they have price stability which is an inflation being their priority right now.
The other component of their managers to make sure that there is full employment and employment labour as I mentioned, is pretty strong. So that's not a worry.
Growth is okay and has been resilient. If anything, they want to make sure that they don't have inflationary pressures come back.
Because we have had some of those rear their head and they want to make sure that they really firmly control it.
>> If we take them at their word, they've been telling us that they may not be done yet.
They need to go a little more, they will.
And then they're going to stay there for a while. They will keep interest rates elevated. If that's the reality that we are looking at, maybe no more hikes, maybe a hiker to depend on the data comes in as he said. I think you stay there for a while. What is actually mean for asset prices?
>> In terms of asset prices you have more options for income. In this environment, you have fixed income, bond yields are higher.
Which means on like we have in prior decades, you are now have a higher level of income for example, a basket of bonds, high-quality government and corporate could give you about 5%. Which you have not seen in multiple decades.
That also means you have GICs.
High savings account offering alternatives in terms of high level of income compared to equities. And so, you have more choices in terms of your investment universe.
However, that also means higher bond yields will impact evaluations.
So that will also pressure prices of the equity market which has had a very strong here today. It's all about managing expectations from where we are here.
The other component to, is a high level of interest rate. It's not just about the valuation but also, it's a way to curtail demand.
It's higher cost of debt, higher cost of spending, so this could also impact economic growth and expectations moving forward.
So if we expect higher interest rates than we had before, higher cost of spending, you could have lower economic growth moving forward and that means earnings expectations should also come down.
>> This is what the central banks are trying to engineer.
We had inflation that was way too high for comfort, we need to bring it down.
To do that you slow the economy.
You slow a labour market so at this point, where we are, perhaps at a crossroads for the central banks, are we to crossroads for the economy?
What is the economy telling us where we are in the cycle?
>> We are in the late stage of the cycle.
So far, the economy is been resilient.
Because of the strong labour market.
The key question here is "central banks, when they increase interest rates, they try to impact the Bank but it's very blunt and it takes time to flow through. So we are a little over a year to it" or next to you have more time for this tightening to flow through. In the late stage of the economy, you really need to think about quality of your investments. First of all, you need to think of at the price that you bought that investment because you need the price that you pay impacts your long-term returns in that investment.
Second, having a good source of income helps you whether through you yourself as an investor, higher interest rates and higher inflation or inflation higher than before.
The other component two is to make sure that the companies that you lend to, as well as that you buy, have the capability to whether this wide range of economic environment and be able to stand a weakening economic demand. Can they be able to price pastor price increases if needed?
Have different sources of demand for their goods and services? And have a strong balance sheet to have access to capital and be able to be afford a higher cost of interests when they have to refinance their debt moving forward.
And so, in that type of environment, as an investor, you have to really think through and do your due diligence.
Look at the difference in sources of cash flows of what you're investing into.
Whether it's fixed income, equities, alternatives… And it's important to have either a diversified investment so that you have different sources of returns there and they can take into account different time horizons.
So what I'm saying is not to put all your eggs in one basket and what has worked perhaps, last year or early this year, may not work moving forward. Important to assess really what you're buying into and what you're putting in your portfolio.
> I want to ask about that and what has worked so far in working going forward based on that because certain parts of the equity market, whether text, particularly big tech in the US is that a good read so far this year.
Starting to see oil companies gain off the back of crude.
As the market being a little too optimistic that you get the no landing?
Soft landing? Everybody will be just fine, inflation under control and no one gets hurt?
>> So the fixed income market of seen volatility the past few weeks.
You were seen volatility of the bonsai.
On the equity market, yes we do believe it is more complacent.
You're not seen you're not seeing much volatility there they are expecting, for example, the S&P 500 next year, earnings growth of 12%.
That's quite high later in the cycle.
So, the situation is quite fluid.
What is happened this year, because coming into this year, people expected worse, more of a recession early on. You had a really saying that things are better and the worst is behind us.
What is being priced and is the worst is behind us.
Moving forward, earnings is expected to grow, 12%.
The expectation as well as that you can have easier financial conditions.
In the past few months, you've had a lot of short coverings. So that is why the market, the equity market has done quite well.
I do not case, the price action of both equities and high-yield credit has given people more confidence.
Feeling that the worst is behind us.
But in reality, what we would like to highlight is that the price action is one thing, the other component to be mixed sure that the earnings model of these companies, the sources of cash flows remain resilient as we enter a late stage of the cycle where entering different types of economic outcomes and financial conditions that could be possible.
Or even like, higher, not just higher interest rates but higher than the past inflation rate.
All of this has to come to play before quickly thinking that everything is going to be like it was before. Earnings will accelerate and the Fed will cut and that means lower interest like it was in the past. I think it's important to be prudent and thoughtful in the process.
> That was Anna Castro, managing director at head of retail asset allocation at TD Asset Management.
Now it gets one educational segment of the day.
>> If you're looking to find information about a company's dividend, WebBroker can help.
Joining us now with Maurice Jason Hnatyk, a senior instructor at td direct investing for clients.
>> Thanks for having me as always Greg.
Buy and sell low is something we're familiar with.
Trying to find a steady reparable source of income is also something very common for investors.
Dividend income can be a key strategy and outcome. Dividends are where a company is paying a portion of its revenues back to its shareholders if you're looking to find… Not all companies pay dividends.
Let's jump in WebBroker to identify where that information is and how we can use it to our best advantage.
I'm on the "research in stocks " page in WebBroker. You can find that by clicking on the research tab of the top of the page. You stocks.
Looking at a widely held home improvement retailer on the screen here. We will scroll down on the right hand side. You will see this table of regularly used fundamental information. This is where some key dividend information is held.
Looking at this general area, you have dividend yield, annual dividend rate as well as a couple payment date information.
First of all, the annual dividend rate, that is telling us how much the company is paying back to its shareholder for every share that you own of that particular company. Important to know, the dividend yield is the percentage just above the dollar amount is telling us when we are taking that annual dividend rate, we are dividing it into the share price. It gives us that percentage and allows us to compare apples to apples when looking at other companies that pay dividends so we can see when we are comparing it's different share prices. Moving on next down to the dividend and payment date, the payment date is simply when you can expect that cash dividend to be paid into your account.
The ex dividend date is very important for traders because this is telling us "when we need to own this particular investment?" And actually get paid the dividend. In actuality, you need to own the stock, at least one trading day prior to the ex dividend date to be do that dividend being paid into your account of the schedule on the screen. Bringing us quickly to the top of the page to show you some other very important information, we will choose the "events" tab located just for the love the quote here on the screen.
On this page you get information on earnings, corporate actions, but there is also a dividends tab on this particular page. We get to look at all of the historical dividends, all of their different accent payment dates but importantly what I'm looking forward in this pages I'm looking for a reputable, sustainable dividend even one more importantly were a company is increasing its dividend over time. Showing that it can be interpreted as a sign of stability and whether we know the company is regularly producing revenue so we can continue to expect a greater return on investments.
So lots of information here to work from.
>> Dividends and how to find information on this site, I think you used Home Depot as an example?
You take a look at them and their dividends, what if you started to wonder "what are their peers in the industry paying in terms of dividend? Is there a way to compare on the platform?
>> There most definitely is yes. We want to go smarter not harder with our money and make sure that we are getting that return on investment that we are expecting. Maybe there's a better choice out there for you. So 1 Quick Way to easily do that, back and WebBroker. I will go now from the events tab over to the fundamental step.
This is where you will have access of all the companies, the information they reported our quarterly calls, such as the financial statements, income statements, things like that.
We want to look at the pure comparison tab.
On this particular page, not only Home Depot's comparison to the industry average were getting those competitors that you mentioned there Greg.
Home Depot compared to Lowes and Williams-Sonoma, and others in the same sphere of the economy. If we scroll down on this particular page, we can see if there is an annual dividend information where we can see that total payout as well as how that relates to its closest fear is are they we've got all of the different ratios so you can make an informed decision. One of the clicking to show everybody, maybe want to compare this big of a company to a list of companies that don't happen to be in the same general economic sector. That can be done by using a watchlist.
Quickly access your watchlist and WebBroker. You have the star icon in the very top right hand corner. If we go here, you're the ability to create 10 watchlist.
I got one created here ready to go for us today.
At the top, there are three different functions. You can view certain specific datasets. I want to bring us to the fundamentals tab. Here, we get the opportunity to see all of the different yields for specific companies that I'm curious about. So I can once again, be kept informed and make sure got good information and to have that money work smarter.
Work smarter not harder is what I'm looking for.
>> Alright Jason great stuff as always thanks for that.
>> It's my pleasure.
>> Our thanks to Jason Hnatyk, Senior Client Education Instructor TD Direct Investing.
Make sure to check out the Learning Center and WebBroker for more educational videos, live interactive master classes and upcoming webinars.
It was a choppy summary for equity markets, but the S&P 500 is still up close to 16% this year and the strength of a few big tech stocks. When things go from here?
David Sekera, chief US market strategist with MorningStar research to join me earlier to discuss.
>> I would note that this is coming off of what we thought were very undervalued levels at the beginning of the year… At this point we do still think that the US market remains slightly undervalued.
However I do want to caution investors. I do think that returns at the remainder of this era by me much more muted and in fact I'm also concerned that we might see about of volatility, the latter half of October, maybe beginning of November.
The reason for that is the US economy has been much stronger-than-expected.
Even our above consist consensus estimate that a big little too low but you know, tight monetary policy is to take its toll.
At this point, our base case is that the rate of economic growth in the US will start to slow here in the fourth quarter.
So my concern is that would management teams started giving out their third-quarter earnings and start giving guidance for the fourth quarter, maybe even start talking about 2024, I think the market might be disappointed.
>> So perhaps some turbulence ahead.
What got us to this point where the magnificent seven.
It's not uncommon when you see a market rally talk with the lack of breath. Let's go through the magnificent Seven entrances of the run they had a where they may go from here.
>> Through the end of August, those seven, they come from over 60% of the total market gains year to date. So according to our valuations, six of those seven that comprised the magnificent seven were very significantly undervalued coming into the year. All of them have run up on very substantially since then so at this point, still undervalued but looking at the rest of them, five are now what we consider to be fair value territory and one is actually just move too far to the upside in our view and that's not well into overvalued territory.
>> Of those big names, those big tech names in the magnificent seven can obviously push around the top line number, the S&P 500, the NASDAQ, but what about potential for more breath in the market.
They've been getting all the attention from investors. Is there a chance sort of widen out?
> That's what we do think.
We started talking about that in our June market Outlook.
Really for the market rally to continue from here does need to brought an outage of the water market.
So from a valuation standpoint, looking at the magnificent seven, I think the stocks have run their course. In fact, when I look at the charts I suspect a lot of those are actually just running out of steam at this point.
So I do think we will see an increase in the market breath going forward.
>> Let's talk about an increase in the market suggesting that perhaps there are some areas in the market that could be undervalued and perhaps overlooked because of Nvidia and all those other big tech names.
>> I would highlight value sacs, they significantly like the market rally thus far this year. In our view that's where we see the most attractive opportunities. For investors today.
We also see good value in the mid-cap and small-cap space. Both of those of lag behind this year as well.
For people looking for investments in specific sectors, I would highlight Communications, real estate, financials.
In our view those aldermen undervalued.
Another one I highlighted his utilities.
Utilities got hurt pretty bad last month with the rise of interest rates and that's one area that it's now getting beaten up enough I think that's starting to look attractive as well.
On the other side of the coin, highlight technology, that is a sector that we think is slightly overvalued at this point in time.
I think that was a good time for investors to take a look through your portfolio.
You will look through it for those stocks that are overvalued and overextended. I think they'll be a good time to lock in some profits on those types of names.
Then the other two I would highlight will be the energy and industrial sector. Those are both pretty fully valued at this point.
I do think that both of those could be in some trouble if we do have the fourth-quarter selloff once the economy begins to slow.
>> You mentioned energy and that's interesting because I feel like the sector started taking off over the last little while. It sounds like they made up a lot of ground in a short period of time.
>> Yes and with the energy sector, I think you have to look past with oil and prices are doing the short term. You really need to look at what oil prices are going to do over the course of a fall economic cycle.
So what we do agree with the market, oil is tight right now. That's gonna keep oil prices hi here in the short term. When we start looking out over the next, five, seven or 10 years, we think oil prices will be coming down and we do think that towards the latter half of this decade, with electric vehicles, becoming a greater and greater portion of new vehicle sales as well as number of cars on the road, we do expect that by the end of this decade, we do see a decrease in oil demand.
We also expect an oil supply to come up, just a lot of companies have been spending too much on shareholder returns.
Spending a lot of money on dividends, spending a lot of money on share buybacks.
I think you to start looking more towards growth start doing some more exploration production over the next few years.
>> You mentioned briefly off the top but you could be in for a bit of bumpy ride as we get further into the fall and towards the winter. Let's talk about the third quarter. What's the expectation there?
>> Third-quarter earnings, I think there actually look pretty good. The economy is holding up much better than anyone.
Ourselves included have expected. In fact, our economics team just bumped up their third quarter GDP estimate so again, I think the risk this fall isn't going to be the company's fall short of third-quarter earnings. But really the guidance of the management team provided a totally separate 2024. So, is that sort of the overwhelming factor? One thing to come out and say "hey, look at the three months behind us and we did better than the market was expecting depending on the company" but looking ahead not too sure. I feel we've been on that narrative for a while.
Companies are saying "looking ahead to this recession" that has not shown up yet.
> That is been our forecast as well.
Earlier in the year we thought, and again, we are not in the recession. Our base case is still no recession.
We've been advocating the soft landing. I think since towards the end of last year.
But again, when you start thinking about what's going on, out there, we have high interest rates. In fact the highest interest we've had since the global financial crisis, banks are definitely pulling in lending and I think that's all going to really combine in order to soften the economy later this year.
In fact, we think there's going to be three sequential quarters of softening over the next three quarters. Getting to the second quarter of 2024 which is where we kind of expect the economy to get to almost stall speed but not stall out and that it won't be until the second half of 2024 that we look for the economy really to turn around and start moving upwards again.
Having said all that, our GDP forecast for 2024 right now is only 1.4%.
>> So if that's the macroeconomic conditions in the slowdown of the economy, that comes to pass, what is the fed to do with that information?
The big question we always get his window the central-bank start cutting after all this?
>> We think the Fed is done.
We have noted that for a couple of months now. We think that their job is done.
The of hiked interest rates enough that they will start throwing flowing through the economy. We also think inflation will continue to keep moderating over the course of this year. We think by early next year, the Fed will get inflation down to the 2% target.
In fact when we look at all of 2024, our economics team thinks the average inflation rate next year will actually be slightly below their 2% target. So I think the combination of economic slowing as well as inflation continuing to calm down, not only is the Fed not going to raise rates over the next couple months, I think that actually sets them up for some time in the first quarter next year to turn around and start cutting rates.
>> That was David Sekera, chief US market strategist with MorningStar research.
Now for an update on the markets.
^this is Tete's advanced dashboard available for investors. This is the heat map function.
Screening to the TSX 60, looking at price and volumes. What's happening out there today on this last trading day of the week? We have some green on the screen and the energy space. It's modest but it is green.
You have Enbridge up a little shy of a full percent. Sort of a trap in the same position.
If you've been around long enough.
TC energy up about a percent as well.
Cenovus Energy down there in the corner a little bit stronger than one.
Not all green on the screen though.
Notably here in the technology space, your Shopify down a little more than 2% in the basic materials, bucket, your First Quantum they are down about 2 1/2%.
You could use the heat map in the screen a number of ways.
Let's take a look at the S&P 100 and see what's happening south of the border right now. It's a bit of a mixed picture.
This interesting.
You have Ford up to the tune of… It's really the tech space catching my eye today in terms of it just being a real mixed bucket.
Little bit of upward strength and Apple up the top corner and then you've got Nvidia under pressure in recent days.
Just modestly to the downside.
You can find more information by visiting td.com/advanced dashboard.
Stay tuned for Monday's show, Leslie Preston, Senior Economist at TD will be our guest take your questions about the economy. A lot has been happening.
So I know you will have questions for her.
And a reminder they can get a head start by emailing your questions to moneytalklive@td.com.
That's all the time we have for today thanks for watching a show on a daily basis that's all her time for today thanks for watching and to have a good day.
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