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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, MoneyTalk's Anthony Okolie is going to have a look at whether Canada's economy showed any signs of growth during the summer months.
We are going to hear from TD Asset Management to Justin Flowerday on where the markets are headed as bond yields grind higher this month.
TD Asset Management Evan Chen is going to give us his view on whether the materials sector can handle weakness in China.
Plus, in today's education segment, Hiren Amin is going to chose the types of market data you can find on Advanced Dashboard.
We've got a lot for you but before we get all that let's get you an update on the markets. Last trading day of September.
When we get back to it next week, it will be October. October, November, December, the last three months of the year, I think they call it the fourth quarter in the business.Let's take a look at the TSX Composite Index. It's green on the screen after what's been a choppy week but we are up 13 points or about seven takes right now and among the most actively traded names on the TSX is Denison Mines. I know I show you the same day after dayalong with some other uranium plays, it's been a pretty choppy week for some of these names. Today it's been giveback mode again.
At two bucks and $0.29, down a little more than 2%. Baytex energy getting a bit of a bid in the earlier session. Quite a wild ride for crude oil this week. Just shy of six bucks per share for Baytex, good for a gain of 2 1/2%. South of the border, the Fed's preferred gauge of inflation, we will get to in a couple of moments, PCE, did rise less than expected.
September has not been client for people on the equity markets on bay or Wall Street.
Up eight points on screen today, 1/5 of a percent the upside. The tech heavy NASDAQ, how is it sharing against the broader market? Where up half a percent on The NASDAQ. Nvidia has had quite a year with all the buzz around artificial intelligence. Right now Nvidia is up about 1 1/2%. And that's your market update.
We've got more signs today that Canada's economy may be cooling after all those aggressive rate hikes. MoneyTalk's Anthony Okolie has been digging into the latest GDP numbers.
What are they showing us, Anthony?
> Canada's economy was stuck in neutral in July as the chart shows. We are starting to see a bit of a softer trend. Although there are somedistortions that are making it hard to read but real GDP was nearly unchanged in the second quarter after a strong first-quarter start.
it did stall in July and when we look at the flash estimate for August, coming in at .1%, that means that third-quarter growth is likely to be, this is key, likely to be under Canada's 1.5% estimate.
Again, this is further evidence that the Bank of Canada 10 rate hike since last year is slowly working its way through the economy.
When we break this down by sector, the biggest rate was manufacturing. You can see that here. It's down 1.5%. That's the biggest month over month drop since April 1 of 2021.
This was really impacted by inventories.
As a huge drawdown in inventories in July.
We saw modest negative impact from the BC port strikes.
After the forest fires, mining and quarrying it, excluding oil and gas, along with a combination of food services, both rose in July. So there was some positive growth there.
Because there were these one-time shocks in Canada with the fires, the board strikes, it's tough to see where the activity is trending but the flash estimate points to further cooling in the fourth quarter.
>>another report for those people at the Bank of Canada who decide on interest rates to put on the desk, way with everything else. What's the thinking if we did see a stall in the economy and even if we got a little ticked higher in August, what's the readthrough for rates?
> I think this data really is more signs that the Bank of Canada is making progress on the inflation front and this GDP report, along with the job vacancy report we got earlier in the week,which again, this is another closely watched gauge of labour market health and also has an impact on interest rate policy, that showed signs that the job market is cooling as well. I think these reports point to signs that we are seeing some potential cooling in the markets.
now we still have next week's jobs report, we've got wage growth, September CEPI, these are key metrics to watch but I think the implication is that this is tamping down on expectations for another potential rate hike next month by the Bank of Canada.
>> South of the border, we did get an indication today or maybe even in education, I mentioned briefly during the market update, the PCE, the Fed's preferred gauge of inflation.
Not rising is much as expected.
Gave the market a bit of a boost.
>> This was an interesting report.
The Fed's favourite gauge slow to its lowest level in two years, he came in on an annual basis at the .9%. That's a lot that came in below 4% for the first time since June 2021. When you look at the month over month figures, .1% month over month, the slowest growth since April 2020.
Again, the data showed that consumers pull back and spending significantly in August while incomes ramped up. I think this is a clear indication that the US consumer is starting to showa bit of cooling momentum and now markets are actually pricing and, for the Fed to potentially hold rates in November.
Again, there is some more data to come.
If it doesn't, because of the shutdown… It's going to signs that the Fed and the Bank of Canada could bothpause.
>>encouraging news for investors wondering if the aggressive rate hikes were starting to work from those gauges there. Thanks for that. That's my pleasure.
> MoneyTalk's Anthony Okolie.
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.
Shares of Nike are in the spotlight today.
The running shoe and athletic apparel giant reporting a solid beat on the profit line, despite sales coming in weaker than the streets expectations. You can see a 6% boost on the name. Nike continued to work out his inventory in the water, it's also in forecasting crude margins, saying it has to offer fewer discounts in the current quarter. We have Air Canada pilot staging and information picket at Toronto's Pearson airport today. That as contract negotiations continue between the airline pilots Association and the airline. The union, which represents more than 5000 pilots, is looking for better wages and working conditions.
we want to take a look at shares of Aritzia today getting a substantial boost at the open. They are holding onto those gains, that on the back of a mixed quarterly report.
You're up about 8% on the name right now.
The women's fashion retailer grew its revenue in its most recent quarter.
Management is forecasting sales to be flat to slightly down for this current period.
That said, adjusted earnings came in above the streets expectations. The stock has been under pressure this year so it's getting a bit of a bounce off that news today. A quick check in on the main benchmark indices.
We will start here at home with the TSX Composite Index.
We've got a gain of 40 points or 1/5 of a percent to the upside. the upside. trading day of the month and quarter, we've got the S&P 500 after pretty tough September a little green on the screen, we will call that a points to the upside, about 1/5 of a percent.
U.S. Treasury yields have pushed higher in September as the Fed signals that rates may stay elevated for longer. So what does this mean for equity investors?
Justin Flowerday, managing director and had a fundamental equities at TD Asset Management join me earlier to discuss.
>> And I think it's come as a bit of a surprise for people that central bank policymakers across the world have remained a little more vigilant than a lot of folks thought in terms of the policy rates. And it's because of inflation.
And inflation's come down. It just hasn't come down as quickly as many had thought.
And because of that, financial conditions have started to tighten.
Credit conditions have started to tighten.
Lending standards have started to tighten.
And with that backdrop, one of the things we're focusing on quite a bit right now is quality. And we think that quality-- companies in the market are in particular in a position to outperform.
>> So let's dig a bit deeper into that and maybe even how we define quality, right?
If credit conditions are tightening, people are worried about the economic outlook, what are you looking for? What qualifies as quality?
>> Yeah. So a couple points here. I think going back to first principles, when you think about the different cycles in the market, different companies are going to outperform or perform differently in different cycles of the market. Earlier in this cycle, we had a period where interest rates were very low. Consumers and businesses were incentivized to spend and potentially lever up their balance sheet.
And in that type of cycle, you have investors not necessarily discriminating against-- between companies.
They're really looking for-- they know many companies are not going to fail.
And they're actually looking for companies that may have a higher level of torque to the market as opposed to anything else.
And part of the issue is right now we're not necessarily in that type of phase.
We're in a phase where central banks around the world are trying to slow down spending, slow down the economy, slow down hiring.
And there's going to be some vulnerable companies out there.
So in terms of how we define quality and what we're looking for, it's a few different things. Number one is pricing power.
Companies that have really solid pricing power means typically that they have really good brands. They have really strong network effects, which allow them to raise price if the costs of their goods have increased. That's a really, really important one.
Balance sheet stability and flexibility is a really important one.
Because you often see in different points of the cycle where management teams are forced to make decisions that may end up deteriorating or destroying shareholder value. value. sheet to be able to avoid that.
Capital allocation, for us, is a really, really important one.
And that just refers to a company's allocation of any excess profits and capital to paying down debt to buying back shares to doing acquisitions to Capex, increasing dividends.
And when you think about the different inflection points in cycles, some of the biggest decisions that management teams are going to make happen at the peaks and the troughs. And they really have the ability to create shareholder value or destroy it during those periods. And so capital allocation for us is a big one.
>> One of the things that I found a bit perplexing this year-- and it makes some sense when you think about what was happening, but central banks just didn't start raising rates yesterday. This has been about a year and a half. And then you come into this year. And the tech shares take off. But then, of course, people got excited about artificial intelligence. As we sort of get deeper into the-- to the AI world, are we overlooking some parts of the market?
Because right now it's clear, right?
NVIDIA makes the chips. They make the GPUs.
They were the beneficiary. Are there other beneficiaries going down the road?
>> Yeah, it's a really good question. And I think there's some general observations around companies that are going to benefit simply from reducing costs in their organization.
And that's going to be across a whole bunch of different industries.
But if you think about companies that are going to be transformed in some ways that folks aren't necessarily paying attention to-- I mean, we've done some work recently on the agriculture sector and AI's application.
And it's kind of a neat one because you have the world's newest industry, essentially, in artificial intelligence with the potential to revolutionize the world's oldest industry, which is agriculture. And the beautiful thing about AI in agriculture is actually that it has the potential to revolutionize every phase of the production cycle.
So planting with seeds-- we plant, fertilize seeds, and then harvest them.
And with planting, I mean they're putting soils in, sorry, sensors in the soil, which allow them to determine, OK, what's the proper overall moisture level? Where's the best place for crops to be planted in order to optimize scheduling and planting location?
In terms of fertilization and kind of weed control, there's some really interesting applications of machine learning, which are allowing some of these kind of new technologies to identify specifically weeds through machine learning and apply any sort of weed control just to the weeds so they don't hit the crops. So you get better yields.
You get better product for consumers, which is a really good one. So we're curious about this. There's a lot of companies we watch that are selling goods and services into this industry. And we think it's quite an exciting opportunity.
>> With my vegetable garden, we don't know. What about manufacturing. If agriculture can be changed in this way, what about manufacturing?
>> It shrunk in the last few decades as services has become a bigger part.
And this isn't necessarily in relation to AI but if you are seeing a bit of an uptick in some of the manufacturing activity in North America, and a lot of it just has to do with the reshoring that's taking place, does nothing that had a lot of attention recently.
Semiconductor plants are being built once again in the US. We have two plants that Intel is building in Arizona, TSMC is building in Arizona.
So you have an uptick in overall manufacturing activity, not all over in all sectors but certain pockets and it's creating a bit of a surge in demand for different areas of the value chain, automation equipment, robotics.
And then some more basic equipment like condensers. And then you have steel plants that each pop up in different areas of the South in order to support the construction activity.
So some interesting things happening there and we are watching them closely.
> That was Justin Flowerday, head of fundamental equities at TD Asset Management.
Now, let's get to the education segment of they day.
in today's education segment, we are having a look at TD's Advanced Dashboard.
Hiren Amin, Senior client education sector TD Direct Investing joins us now.
>> Great to be back again.
Let's talk about stock equity pricing today.
We are going to give a primer first on exactly how stock pricing works.
a lot of investors tend to think that brokerages or market makers determine the price of a stock in the controller. That's actually not the case. See, the price of stocks are really determined by the participants in the marketplace, the buyers and sellers, and the price at which they are willing to trade the stock set.
It simply, well, supply and demand that controls the pricing.
You see our stock market is what we call an auction market.
You have a host of buyers and sellers that are constantly either going to be bidding or going to be offering prices up for sale or for buying, and that actually brings us to the point where I want to take us into Advanced Dashboard to show us this.
I'm going to give an example of this. On Advanced Dashboard, we got the triple cues loaded up. This is an index ETF that tracks the NASDAQ. When you are looking at the price, you see the last traded price but also what's more of concern for investors is really looking at the bid price and the ask price. You might be wondering what exactly this is or may be already know it. The bid, simply think of this as the highest price that someone is willing to pay in the marketplace to buy this particular security.
It's an auction world. There are many different bidders out there.
This represents the best price or what we would call the highest price. And then you ask what we have on the other side, it's the lowest price that a market participant is willing to sell that particular security for this case. In this case, it's going to be the triple Q at this price.
There's always going to be a little bit of a difference between what's being bid and what's being asked for. This is what we call in the general sense the spread between the bid and ask. This is also an indication of market liquidity here as well in the marketplace.
The other thing that's an interesting note here that I want to mention is most of us as traders are what we call market takers and in other words, most retail institutional traders will simply put in a market order.
When they do so, they are either going to be selling at the bid, that's what's being displayed, or they are going to be buying at the offer price or the asking price there when they see that there. Now that leads to another question.
What about those limit orders? If this is what happens with the market orders, what happens with the limit orders? Any guesses?
>> What happens on a limit order?
If you're actually setting conditions, as I would understand, what you are willing to pay, you have to wait until the market comes to you.
>> Exactly.
You got it. This is what we are going to lead to the next feature we have an Advanced Dashboard. It's called market depth. Everyone sees what we call level I pricing. The national best bid and offer price.
But if you put it in a limit order, words that show?
That's where we have a tool called market depth. I want to minimize this. Got another tool loaded up. You can look at this widget using the trading section and is called market depth. We are going to blow this up as well.
You are seeing a lot more pricing over here. What market depth is, let me take you through. Your first going to see the national best bid and offer prices appear.
appear. pricing. So when you put in a limit order let's say to buy a stock on our end, we are buying, that means we would be represented on the bidding side.
You can see over here on the bidding side, it may seem a bit hard to see you, but on this column on the left-hand side, these are all the different bids that are being put in.
You can see that someone is trying to buy an order for triple Q at 333. The lowest price piercings blade is 332 on this order.
The one other thing to be displayed over here is backlogged orders.
About 100 shares to be displayed. This is available for everyone to see in same thing on the asking side.
Now why is this important?
Why do traders look at this and what does it tell them?
One thing is when it comes to a thinly traded stock where they are not seeing a lot of volume and you want to stick in a big order, let's say I'm a big whale in the market and I want to buy about 20,000 shares of triple Q. The national best bid price right now are asking price I should say rather is only showing 100 shares right now or 500 shares, just changed.
I might turn to the the level to to look at that and see the other prices I could potentially fill out. The other thing that traders will use this for us to identifywhere are the large orders sitting and it really indicates demand and supply zones for us and this is important because it tells a day or active traders where are the zones where there is resistance going to be met on the price points or the supply?
Resistance means where you see a lot of supply outstripping demand and support zones are where you see demand outstripping supply.
We can glean and say this is a bit of a support zone over here because we see someone is trying to step up and tore up the whole number of shares if it gets down to this price.
Similarly on the top side, we can see there's a big order sitting there waiting to execute those shares if it gets up to this price level there.
So that's a little bit of holistic look at pricing data for you, Greg, as will as level II.
>> As well as level II. Fascinating stuff.
I'm glad I got your question right. Thanks for that.
>> Yeah.
>> Hiren Amin, senior client education instructor at 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.
It's been a tough September for the market. Investors are weighing the impact of freight potentially sing higher for longer. Earlier I was joined by Peter Hodson, founder and head of research at 5i research to discuss what he feels the current conditions are just part of the normal business cycle.
>> I think what investors need to do is they have to look back 20 or 30 years.
So, absolutely, rates are much higher than they were two years ago because they were at 0%. So now, you've had this huge spike up in rates. And everyone, for lack of a better phrase, is panicking. It's like, what am I going to do now? But historically, they're not as bad, they're not as high as they've been in the past.
They were much, much higher in the 80s, of course, in the giant inflationary period then.
And we're only back to, I think, 2006, 2007 levels. So if you turn things around, it's like, would you like to have been a buyer in 2006, of equities? Probably.
Other than the financial crisis, you're still going to be ahead from that period of time. So what happens in an economy, things are doing well. The economy grows.
There's high employment. There's higher inflation. And then the central banks tap the brakes. They put on the brakes.
They're going down this hill. They don't want to miss the curve at the bottom of the hill. So they tap the brakes some more. They tap the brakes some more. And that's the interest rate hikes that we've seen over the past couple of years. And then you either get a hard landing or a soft landing, or you don't get any recession at all. And you just kind of skate through that corner and continue on your way. So I really think investors need to stop looking at rates.
Obviously, if you're a homeowner with a mortgage, rates are important to you. But if you're an investor in a stock, in a company, you actually own a company, and if that company does not have any debt, then rates are not really going to impact them that much, as long as their customers keep coming in. Now, of course, there's a whole economic scenario where high rates means lower consumer spending. But what's happening right now is just a normal business cycle, economics 101, back in my university days.
This is what happens. Rates go higher. The economy slows down. And then you carry on from there. And most people are worried about recessions. Recessions are typically 12 months or less. And we've been talking about recession now for two years. I'm getting a little tired of talking about it. So some of it's priced in. Whether it's 1% priced in or 150% priced in, I can't tell you. But the pessimism there I think is a little bit too much, based on what companies are doing.
>> Now, if we want to be forward-looking investors, I understand, a part of the market you keep an eye on to try to figure out, not what people are trying to do in the here and now, but where we might be headed is private equity and some of their moves. Well, why is that a useful strategy?
>> I think it's useful because investors these days, as you know, are far too short-term-oriented. It's like, what is this company doing for me this quarter?
Did this company beat expectations or miss expectations? And, oh my gosh, I have to react to that. But what private equity does, and corporations themselves, they look at longer term scenarios. So if you're a private equity player and you want to buy a company, and you're going to buy that company for the next 50 years, maybe it's cheap right now.
Maybe you can finance it at 5%. And that's a long-term growing company. The market's not valuing that company properly. So you're like, you know what? I'll take that company. I'll take it private. And I'll make all that cash flow for the next 30 years. So they look long term.
So we really like to watch what companies like Blackstone and BlackRock and Brookfield are doing because they've got a ton of capital right now.
So if they decide to deploy that, then it means, well, at least there's an entity that doesn't think the world's going to end tomorrow. And they're willing to go for the longer term. Keep an eye on what Buffett does. He's sitting on a bunch of cash as well.
And at some point, that's going to be deployed because the valuations are getting attractive for anyone looking beyond the current cycle.
>> Are they showing us anything interesting right now in terms of where we might be headed, or are they waiting and watching?
>> They're probably a little bit more waiting. But they do have a lot of capital to deploy. But you're also seeing corporations. So Cisco the other day made a $28 billion acquisition. That's their largest acquisition they've ever done. So they're not worried too much about what's happening. And it was what I would have said as a higher valuation versus some of the peers. But they don't care.
They're like, this is a company. We're going to buy it for the next 10 years and see what happens. And so I would like to see a little bit more M&A action. The IPO action is a little bit, it's positive.
People are willing to give money to new companies. But I would like to see-- I'd like to wake up on a Monday morning and see five or six deals. That would be ideal for us.
>> That used to be a regular Monday morning in our business.
>> It used to be regular day.
>> You on your investing side, or me on the journalism side. M&A Mondays, we haven't had a lot of it. You mentioned the IPOs. It's interesting, we had Arm Holdings. We also had Instacart. There was an appetite right out of the gate. And then some people got a little critical, again, in the short term. They didn't like the second or the third day. I mean, how do you judge the health right now?
>> Well, I mean, the IPOs are always kind of wacko. And they get a lot of media attention. And really, there's some good ones, some bad ones. But I think just the fact that these are being done is a good sign. Obviously, there's so much speculation on the first week of trading.
We just ignore that. It's like, look at it a month or two later and see how they're doing. But the appetite is there for risk, which is a little bit contradictory to the pessimism that's out there.
So any time you see an investor come up and say, OK, I'm going to make an investment in a brand new public company, it totally contradicts the fact that they're worried about everything. And we get a lot of incoming data feeds. And just the other day, somebody we follow closely basically said, we can't find anything positive to say.
And that, by default, is a positive because it means that maybe any positive news is going to be a super boost, when, actually, something good happens. So I think IPOs are always important to watch.
But in the grand scheme of things, they're such a small slice of the market. I'd rather look at the rest of the companies.
>> Now, with the kind of September we had, we talked off the top, living up to its reputation, a bit of volatility in the markets.
You talk about in terms of not wanting to take too many risks. You watch the IPO market to see what the risk appetite is.
But from an investor perspective, do you need to be sticking your neck out at this moment?
>> No, I don't think you do. And we watch the IPO market. But we don't usually participate in it. I mean, I'd rather buy a company that's been around for a hundred years that's got a public track record.
But absolutely, the valuations have changed so much. If you ex out the large seven mega-caps in the US, the S&P really hasn't done anything in two years.
And so, now, it's a situation where you can get a giant $100 billion market cap company that's been around for 50 years, that pays a dividend, that's got no debt, trading at very low valuations compared to the historical valuations. So there's really no need to buy a micro-cap or buy a concept company or a company that's trading at $1 billion that has no revenue.
And there's lots and lots of those still out there.
Why not instead buy an established company that's been through five recessions, that pays you a dividend and has no debt? I mean, you really don't have to put yourself-- you don't have to be a hero.
There's no need to gamble. There's no need to take a risk when other companies are trading at decent valuations.
>> Now, circle back to the top of our conversation, the fact that we're seeing bond yields move higher. People are worried about rates-- higher for longer.
When we entered this year, a lot of market pundits, the markets themselves, were thinking that we'd be in the cutting territory by now. Is this a matter of just staying patient for longer? It didn't happen as quickly as perhaps we were anticipating.
>> I think so. And you can also look at it, if you want to put your rose-colored glasses on, every time we get a rate hike, it means we're closer to the top, just by default, obviously.
And certainly, the economy's been much stronger than people expected. A lot of people, as we're saying, have been expecting a recession for 18 months now.
And so the central banks have to be careful because there's a lag effect on all these rate hikes.
And you're starting to see it in consumer sentiment. You're starting to see it in some of the retailers. They're reporting not great numbers. Unfortunately, oil is ticking up, which is worrying people on inflation again. But certainly, there's not a lot of massive borrowing going on right now at the new rates when people are trying to get by and buy their groceries.
So I think that lag effect will impact.
And I think patience is key. But it should be the key anyway.
The investments that you're making right now, you should be able to survive for the next five years because you don't know what's going to happen for the next five years. So I think it's just a matter of time.
Inflation, it went from nine to four.
Maybe it hovers around four. And the central bank stays higher for longer. But again, that thought is working its way through the market.
And so it's starting to adjust for that as well. So it's not a great market. But again, what will be something good that happens? Maybe it's better margins, lower inflation, lower rates one day. Bond yields could come down. China could grow again. There's lots of things that could happen. But everybody's looking at all the bad stuff right now.
>> That was Peter Hodson, founder and head of research at 5i research.
Now, for an update on the markets.
We are back into Advanced Dashboard, taking a look at the heat map function here. It gives you a view of the market movers. Gonna screen to the TSX 60 by price and volume to start.
We saw some signs in this country that perhaps interest rates are working to slow the economy. South of the border, the Fed's preferred gauge of inflation, PCE, also not taking up as high on a monthly basis as the market was expecting. Using a bit of a bid to the tech stocks on both sides of the border.
Here, of course, we have Shopify on the TSX 60, it's up a little more than 3%.
Take a look across the other sectors. It's a choppy space.
We are talking about energy now, it's a mixed bag.
It's been pretty choppy in the uranium place this week.
Jody Denison off the top of the show. You can see Cameco is down about 2%.
This has been a choppy part of the market.
South of the border, want to check in on the S&P 100, this is the last trading day of the month of September, the last trading day of the quarter.
Although we do have some green on the screen and the headline S&P 500, it is shaping up to be not only a money-losing month but a money-losing quarter for both Bay and Wall Street. Today, you could take a look at a name like Nike up a little bit more than 6%. This is on the back of his earnings and a bit of a bid into some of the technology names today as well.
It's a little bit mixed with some of the chipmakers including Nvidia or maybe even Intel or AMD showing strength to the upside.
You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Economic weakness in China, this is been a headwind for the materials space but some names in the sector may be better poised to handle the challenges and others.
Our Anthony Okolie had the chance to discuss with Evan Chen, associate for portfolio research at TD Asset Management.
They started the conversation with a look at what actually makes up the materials space.
>> Well, you know, it's farthest upstream in the value chain for a lot of different things, I guess. So this building that we're in has steel beams. That's iron ore.
It's met coal.
This chair that we're sitting on has plastics, so that's a commodity chemical companies. A cabinet in your home has wood, so that's paper and forestry. So these material companies are very cyclical and commodity driven.
A lot of them have-- you know, they don't have full control over their destiny because they have no pricing power.
So if we look at the index, MSCI All Country World Index, about 50-ish percent is commodity driven.
So that's 30% in mining, 20% in commodity chemicals, and, you know, commodity chemicals is right there in the name, it's a commodity.
So you don't have any pricing power. But what I want to talk about today is the other companies in the index that may not be commodity driven and may not be as cyclical. So, so far in the year, materials hasn't done too well, and that's because of some weakness in China and rising rates.
>> So let's talk about China because we know that China is a major consumer of commodities. How has their current economic weakness impacted this space?
>> Yeah, so, you know, a really good rule of thumb is China consumes about 50% of the world's metals. So you can imagine that's a pretty big impact on everything that goes on. So the major ones would be copper, iron ore, aluminum.
So for instance, for copper if the property market in China is not doing too well, then there's less need for copper wiring, copper pipes. In white goods, such as refrigerators, AC units, those all require copper, and if there's less economic activity, then there's less need for it. The price goes down, and that hurts the sector as a whole.
>> OK, now you also said that not all the materials space is so exposed to cyclical trends though. Can you expand on that for us?
>> Yeah, so there are some really great companies in the materials sector that I wouldn't say are overlooked, but people don't think about when you say materials.
So the biggest one would be Linde. It's $180 billion, the biggest name in the space, and it's for good reason. So it's an industrial gas company.
And you may be wondering, what is an industrial gas? Well, it goes into everything, just like the other materials we were talking about earlier.
>> So it's a pretty important company?
>> For sure. So these TV screens that are behind us, they have gas to make the flat screens. In the supermarket, you have industrial gases to make your food fresher, in fridges, wine making even, like I could go on and on.
>> OK, now another stock that you highlight is Sika. What can you tell us about this name?
>> Yeah, so Sika is a construction chemical company, and it's one of the largest, 15% of the market. And what they do is they sell chemicals for construction sites. So this can be a lot of things, admixtures so it affects concrete and different properties so it make it stronger and make it look better.
They sell adhesives, so sticking a window together or sticking plastics together.
Also, they sell waterproofing, so if you have a roof and you want to make it waterproof, then they sell that. So where I think it's less cyclical is because their products are better than the competition.
What does this mean? So if you're on a construction site and maybe it takes you four people two hours to do something. So let's say applying adhesives to a roofing solution, you might need two applications of whatever chemical you have and you need to hold it for two hours.
With a Sika product you could use two people and it would be done in one hour, and this is just because they spend more in R&D. So because they're so big, they can spread that R&D across a wide base, and then start cross-selling other products into different businesses. So instead of being linked to commodity prices, like oil, Sika is more levered to infrastructure-- infrastructure, global construction, and all of that goes around that, you know, we're seeing.
>> OK, so you talked about some of the benefits of some of these companies. What about the risks to some of these companies? Why don't you start with Sika?
>> Yeah, for Sika, it's definitely just construction volumes and lower infrastructure spending. So what we're seeing in the US is some-- housing has been strong. If that slows, that's a risk.
And in the EU, we're seeing some risks there to construction.
Housing is down 20-30% in various regions.
China is also slowing. We talked about the property market in the beginning. So all of those are risks to Sika, but I think longer term, the business is very sound and will continue to grow.
>> OK talk about Linde. What are some of the risks you see there?
>> Yeah so on Linde, I want to touch on some of the strengths first. So Linde, industrial gases company, what they do is they place facilities onto their customer sites. And these are necessary for their customers' operations. And they're underpinned by long-term contracts.
These contracts have minimum spending agreements plus a built-in cost escalator.
So you have really good visibility on the long-term earnings of Linde as well. The biggest risk to them would be that these customers go out of business. But it's going to be the last bill that you pay, really, in someone's bill payments because you need it to run your facility.
>> That was Evan Chen, associate for portfolio research at TD Asset Management.
On a programming note, there will be no show on Monday as we mark Truth and Reconciliation Day.
We will be back on Tuesday, October 3, with Michael Craig, head of asset allocation at TD Asset Management. He want to take your questions about asset allocation. A reminder that you can get a head start with those questions. Just email moneytalklive@td.com. On behalf of me and Anthony in front of the camera and everyone behind the scenes producing the show every day, thank you for watching and we will see you next week.
[music]
coming up on today's show, MoneyTalk's Anthony Okolie is going to have a look at whether Canada's economy showed any signs of growth during the summer months.
We are going to hear from TD Asset Management to Justin Flowerday on where the markets are headed as bond yields grind higher this month.
TD Asset Management Evan Chen is going to give us his view on whether the materials sector can handle weakness in China.
Plus, in today's education segment, Hiren Amin is going to chose the types of market data you can find on Advanced Dashboard.
We've got a lot for you but before we get all that let's get you an update on the markets. Last trading day of September.
When we get back to it next week, it will be October. October, November, December, the last three months of the year, I think they call it the fourth quarter in the business.Let's take a look at the TSX Composite Index. It's green on the screen after what's been a choppy week but we are up 13 points or about seven takes right now and among the most actively traded names on the TSX is Denison Mines. I know I show you the same day after dayalong with some other uranium plays, it's been a pretty choppy week for some of these names. Today it's been giveback mode again.
At two bucks and $0.29, down a little more than 2%. Baytex energy getting a bit of a bid in the earlier session. Quite a wild ride for crude oil this week. Just shy of six bucks per share for Baytex, good for a gain of 2 1/2%. South of the border, the Fed's preferred gauge of inflation, we will get to in a couple of moments, PCE, did rise less than expected.
September has not been client for people on the equity markets on bay or Wall Street.
Up eight points on screen today, 1/5 of a percent the upside. The tech heavy NASDAQ, how is it sharing against the broader market? Where up half a percent on The NASDAQ. Nvidia has had quite a year with all the buzz around artificial intelligence. Right now Nvidia is up about 1 1/2%. And that's your market update.
We've got more signs today that Canada's economy may be cooling after all those aggressive rate hikes. MoneyTalk's Anthony Okolie has been digging into the latest GDP numbers.
What are they showing us, Anthony?
> Canada's economy was stuck in neutral in July as the chart shows. We are starting to see a bit of a softer trend. Although there are somedistortions that are making it hard to read but real GDP was nearly unchanged in the second quarter after a strong first-quarter start.
it did stall in July and when we look at the flash estimate for August, coming in at .1%, that means that third-quarter growth is likely to be, this is key, likely to be under Canada's 1.5% estimate.
Again, this is further evidence that the Bank of Canada 10 rate hike since last year is slowly working its way through the economy.
When we break this down by sector, the biggest rate was manufacturing. You can see that here. It's down 1.5%. That's the biggest month over month drop since April 1 of 2021.
This was really impacted by inventories.
As a huge drawdown in inventories in July.
We saw modest negative impact from the BC port strikes.
After the forest fires, mining and quarrying it, excluding oil and gas, along with a combination of food services, both rose in July. So there was some positive growth there.
Because there were these one-time shocks in Canada with the fires, the board strikes, it's tough to see where the activity is trending but the flash estimate points to further cooling in the fourth quarter.
>>another report for those people at the Bank of Canada who decide on interest rates to put on the desk, way with everything else. What's the thinking if we did see a stall in the economy and even if we got a little ticked higher in August, what's the readthrough for rates?
> I think this data really is more signs that the Bank of Canada is making progress on the inflation front and this GDP report, along with the job vacancy report we got earlier in the week,which again, this is another closely watched gauge of labour market health and also has an impact on interest rate policy, that showed signs that the job market is cooling as well. I think these reports point to signs that we are seeing some potential cooling in the markets.
now we still have next week's jobs report, we've got wage growth, September CEPI, these are key metrics to watch but I think the implication is that this is tamping down on expectations for another potential rate hike next month by the Bank of Canada.
>> South of the border, we did get an indication today or maybe even in education, I mentioned briefly during the market update, the PCE, the Fed's preferred gauge of inflation.
Not rising is much as expected.
Gave the market a bit of a boost.
>> This was an interesting report.
The Fed's favourite gauge slow to its lowest level in two years, he came in on an annual basis at the .9%. That's a lot that came in below 4% for the first time since June 2021. When you look at the month over month figures, .1% month over month, the slowest growth since April 2020.
Again, the data showed that consumers pull back and spending significantly in August while incomes ramped up. I think this is a clear indication that the US consumer is starting to showa bit of cooling momentum and now markets are actually pricing and, for the Fed to potentially hold rates in November.
Again, there is some more data to come.
If it doesn't, because of the shutdown… It's going to signs that the Fed and the Bank of Canada could bothpause.
>>encouraging news for investors wondering if the aggressive rate hikes were starting to work from those gauges there. Thanks for that. That's my pleasure.
> MoneyTalk's Anthony Okolie.
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.
Shares of Nike are in the spotlight today.
The running shoe and athletic apparel giant reporting a solid beat on the profit line, despite sales coming in weaker than the streets expectations. You can see a 6% boost on the name. Nike continued to work out his inventory in the water, it's also in forecasting crude margins, saying it has to offer fewer discounts in the current quarter. We have Air Canada pilot staging and information picket at Toronto's Pearson airport today. That as contract negotiations continue between the airline pilots Association and the airline. The union, which represents more than 5000 pilots, is looking for better wages and working conditions.
we want to take a look at shares of Aritzia today getting a substantial boost at the open. They are holding onto those gains, that on the back of a mixed quarterly report.
You're up about 8% on the name right now.
The women's fashion retailer grew its revenue in its most recent quarter.
Management is forecasting sales to be flat to slightly down for this current period.
That said, adjusted earnings came in above the streets expectations. The stock has been under pressure this year so it's getting a bit of a bounce off that news today. A quick check in on the main benchmark indices.
We will start here at home with the TSX Composite Index.
We've got a gain of 40 points or 1/5 of a percent to the upside. the upside. trading day of the month and quarter, we've got the S&P 500 after pretty tough September a little green on the screen, we will call that a points to the upside, about 1/5 of a percent.
U.S. Treasury yields have pushed higher in September as the Fed signals that rates may stay elevated for longer. So what does this mean for equity investors?
Justin Flowerday, managing director and had a fundamental equities at TD Asset Management join me earlier to discuss.
>> And I think it's come as a bit of a surprise for people that central bank policymakers across the world have remained a little more vigilant than a lot of folks thought in terms of the policy rates. And it's because of inflation.
And inflation's come down. It just hasn't come down as quickly as many had thought.
And because of that, financial conditions have started to tighten.
Credit conditions have started to tighten.
Lending standards have started to tighten.
And with that backdrop, one of the things we're focusing on quite a bit right now is quality. And we think that quality-- companies in the market are in particular in a position to outperform.
>> So let's dig a bit deeper into that and maybe even how we define quality, right?
If credit conditions are tightening, people are worried about the economic outlook, what are you looking for? What qualifies as quality?
>> Yeah. So a couple points here. I think going back to first principles, when you think about the different cycles in the market, different companies are going to outperform or perform differently in different cycles of the market. Earlier in this cycle, we had a period where interest rates were very low. Consumers and businesses were incentivized to spend and potentially lever up their balance sheet.
And in that type of cycle, you have investors not necessarily discriminating against-- between companies.
They're really looking for-- they know many companies are not going to fail.
And they're actually looking for companies that may have a higher level of torque to the market as opposed to anything else.
And part of the issue is right now we're not necessarily in that type of phase.
We're in a phase where central banks around the world are trying to slow down spending, slow down the economy, slow down hiring.
And there's going to be some vulnerable companies out there.
So in terms of how we define quality and what we're looking for, it's a few different things. Number one is pricing power.
Companies that have really solid pricing power means typically that they have really good brands. They have really strong network effects, which allow them to raise price if the costs of their goods have increased. That's a really, really important one.
Balance sheet stability and flexibility is a really important one.
Because you often see in different points of the cycle where management teams are forced to make decisions that may end up deteriorating or destroying shareholder value. value. sheet to be able to avoid that.
Capital allocation, for us, is a really, really important one.
And that just refers to a company's allocation of any excess profits and capital to paying down debt to buying back shares to doing acquisitions to Capex, increasing dividends.
And when you think about the different inflection points in cycles, some of the biggest decisions that management teams are going to make happen at the peaks and the troughs. And they really have the ability to create shareholder value or destroy it during those periods. And so capital allocation for us is a big one.
>> One of the things that I found a bit perplexing this year-- and it makes some sense when you think about what was happening, but central banks just didn't start raising rates yesterday. This has been about a year and a half. And then you come into this year. And the tech shares take off. But then, of course, people got excited about artificial intelligence. As we sort of get deeper into the-- to the AI world, are we overlooking some parts of the market?
Because right now it's clear, right?
NVIDIA makes the chips. They make the GPUs.
They were the beneficiary. Are there other beneficiaries going down the road?
>> Yeah, it's a really good question. And I think there's some general observations around companies that are going to benefit simply from reducing costs in their organization.
And that's going to be across a whole bunch of different industries.
But if you think about companies that are going to be transformed in some ways that folks aren't necessarily paying attention to-- I mean, we've done some work recently on the agriculture sector and AI's application.
And it's kind of a neat one because you have the world's newest industry, essentially, in artificial intelligence with the potential to revolutionize the world's oldest industry, which is agriculture. And the beautiful thing about AI in agriculture is actually that it has the potential to revolutionize every phase of the production cycle.
So planting with seeds-- we plant, fertilize seeds, and then harvest them.
And with planting, I mean they're putting soils in, sorry, sensors in the soil, which allow them to determine, OK, what's the proper overall moisture level? Where's the best place for crops to be planted in order to optimize scheduling and planting location?
In terms of fertilization and kind of weed control, there's some really interesting applications of machine learning, which are allowing some of these kind of new technologies to identify specifically weeds through machine learning and apply any sort of weed control just to the weeds so they don't hit the crops. So you get better yields.
You get better product for consumers, which is a really good one. So we're curious about this. There's a lot of companies we watch that are selling goods and services into this industry. And we think it's quite an exciting opportunity.
>> With my vegetable garden, we don't know. What about manufacturing. If agriculture can be changed in this way, what about manufacturing?
>> It shrunk in the last few decades as services has become a bigger part.
And this isn't necessarily in relation to AI but if you are seeing a bit of an uptick in some of the manufacturing activity in North America, and a lot of it just has to do with the reshoring that's taking place, does nothing that had a lot of attention recently.
Semiconductor plants are being built once again in the US. We have two plants that Intel is building in Arizona, TSMC is building in Arizona.
So you have an uptick in overall manufacturing activity, not all over in all sectors but certain pockets and it's creating a bit of a surge in demand for different areas of the value chain, automation equipment, robotics.
And then some more basic equipment like condensers. And then you have steel plants that each pop up in different areas of the South in order to support the construction activity.
So some interesting things happening there and we are watching them closely.
> That was Justin Flowerday, head of fundamental equities at TD Asset Management.
Now, let's get to the education segment of they day.
in today's education segment, we are having a look at TD's Advanced Dashboard.
Hiren Amin, Senior client education sector TD Direct Investing joins us now.
>> Great to be back again.
Let's talk about stock equity pricing today.
We are going to give a primer first on exactly how stock pricing works.
a lot of investors tend to think that brokerages or market makers determine the price of a stock in the controller. That's actually not the case. See, the price of stocks are really determined by the participants in the marketplace, the buyers and sellers, and the price at which they are willing to trade the stock set.
It simply, well, supply and demand that controls the pricing.
You see our stock market is what we call an auction market.
You have a host of buyers and sellers that are constantly either going to be bidding or going to be offering prices up for sale or for buying, and that actually brings us to the point where I want to take us into Advanced Dashboard to show us this.
I'm going to give an example of this. On Advanced Dashboard, we got the triple cues loaded up. This is an index ETF that tracks the NASDAQ. When you are looking at the price, you see the last traded price but also what's more of concern for investors is really looking at the bid price and the ask price. You might be wondering what exactly this is or may be already know it. The bid, simply think of this as the highest price that someone is willing to pay in the marketplace to buy this particular security.
It's an auction world. There are many different bidders out there.
This represents the best price or what we would call the highest price. And then you ask what we have on the other side, it's the lowest price that a market participant is willing to sell that particular security for this case. In this case, it's going to be the triple Q at this price.
There's always going to be a little bit of a difference between what's being bid and what's being asked for. This is what we call in the general sense the spread between the bid and ask. This is also an indication of market liquidity here as well in the marketplace.
The other thing that's an interesting note here that I want to mention is most of us as traders are what we call market takers and in other words, most retail institutional traders will simply put in a market order.
When they do so, they are either going to be selling at the bid, that's what's being displayed, or they are going to be buying at the offer price or the asking price there when they see that there. Now that leads to another question.
What about those limit orders? If this is what happens with the market orders, what happens with the limit orders? Any guesses?
>> What happens on a limit order?
If you're actually setting conditions, as I would understand, what you are willing to pay, you have to wait until the market comes to you.
>> Exactly.
You got it. This is what we are going to lead to the next feature we have an Advanced Dashboard. It's called market depth. Everyone sees what we call level I pricing. The national best bid and offer price.
But if you put it in a limit order, words that show?
That's where we have a tool called market depth. I want to minimize this. Got another tool loaded up. You can look at this widget using the trading section and is called market depth. We are going to blow this up as well.
You are seeing a lot more pricing over here. What market depth is, let me take you through. Your first going to see the national best bid and offer prices appear.
appear. pricing. So when you put in a limit order let's say to buy a stock on our end, we are buying, that means we would be represented on the bidding side.
You can see over here on the bidding side, it may seem a bit hard to see you, but on this column on the left-hand side, these are all the different bids that are being put in.
You can see that someone is trying to buy an order for triple Q at 333. The lowest price piercings blade is 332 on this order.
The one other thing to be displayed over here is backlogged orders.
About 100 shares to be displayed. This is available for everyone to see in same thing on the asking side.
Now why is this important?
Why do traders look at this and what does it tell them?
One thing is when it comes to a thinly traded stock where they are not seeing a lot of volume and you want to stick in a big order, let's say I'm a big whale in the market and I want to buy about 20,000 shares of triple Q. The national best bid price right now are asking price I should say rather is only showing 100 shares right now or 500 shares, just changed.
I might turn to the the level to to look at that and see the other prices I could potentially fill out. The other thing that traders will use this for us to identifywhere are the large orders sitting and it really indicates demand and supply zones for us and this is important because it tells a day or active traders where are the zones where there is resistance going to be met on the price points or the supply?
Resistance means where you see a lot of supply outstripping demand and support zones are where you see demand outstripping supply.
We can glean and say this is a bit of a support zone over here because we see someone is trying to step up and tore up the whole number of shares if it gets down to this price.
Similarly on the top side, we can see there's a big order sitting there waiting to execute those shares if it gets up to this price level there.
So that's a little bit of holistic look at pricing data for you, Greg, as will as level II.
>> As well as level II. Fascinating stuff.
I'm glad I got your question right. Thanks for that.
>> Yeah.
>> Hiren Amin, senior client education instructor at 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.
It's been a tough September for the market. Investors are weighing the impact of freight potentially sing higher for longer. Earlier I was joined by Peter Hodson, founder and head of research at 5i research to discuss what he feels the current conditions are just part of the normal business cycle.
>> I think what investors need to do is they have to look back 20 or 30 years.
So, absolutely, rates are much higher than they were two years ago because they were at 0%. So now, you've had this huge spike up in rates. And everyone, for lack of a better phrase, is panicking. It's like, what am I going to do now? But historically, they're not as bad, they're not as high as they've been in the past.
They were much, much higher in the 80s, of course, in the giant inflationary period then.
And we're only back to, I think, 2006, 2007 levels. So if you turn things around, it's like, would you like to have been a buyer in 2006, of equities? Probably.
Other than the financial crisis, you're still going to be ahead from that period of time. So what happens in an economy, things are doing well. The economy grows.
There's high employment. There's higher inflation. And then the central banks tap the brakes. They put on the brakes.
They're going down this hill. They don't want to miss the curve at the bottom of the hill. So they tap the brakes some more. They tap the brakes some more. And that's the interest rate hikes that we've seen over the past couple of years. And then you either get a hard landing or a soft landing, or you don't get any recession at all. And you just kind of skate through that corner and continue on your way. So I really think investors need to stop looking at rates.
Obviously, if you're a homeowner with a mortgage, rates are important to you. But if you're an investor in a stock, in a company, you actually own a company, and if that company does not have any debt, then rates are not really going to impact them that much, as long as their customers keep coming in. Now, of course, there's a whole economic scenario where high rates means lower consumer spending. But what's happening right now is just a normal business cycle, economics 101, back in my university days.
This is what happens. Rates go higher. The economy slows down. And then you carry on from there. And most people are worried about recessions. Recessions are typically 12 months or less. And we've been talking about recession now for two years. I'm getting a little tired of talking about it. So some of it's priced in. Whether it's 1% priced in or 150% priced in, I can't tell you. But the pessimism there I think is a little bit too much, based on what companies are doing.
>> Now, if we want to be forward-looking investors, I understand, a part of the market you keep an eye on to try to figure out, not what people are trying to do in the here and now, but where we might be headed is private equity and some of their moves. Well, why is that a useful strategy?
>> I think it's useful because investors these days, as you know, are far too short-term-oriented. It's like, what is this company doing for me this quarter?
Did this company beat expectations or miss expectations? And, oh my gosh, I have to react to that. But what private equity does, and corporations themselves, they look at longer term scenarios. So if you're a private equity player and you want to buy a company, and you're going to buy that company for the next 50 years, maybe it's cheap right now.
Maybe you can finance it at 5%. And that's a long-term growing company. The market's not valuing that company properly. So you're like, you know what? I'll take that company. I'll take it private. And I'll make all that cash flow for the next 30 years. So they look long term.
So we really like to watch what companies like Blackstone and BlackRock and Brookfield are doing because they've got a ton of capital right now.
So if they decide to deploy that, then it means, well, at least there's an entity that doesn't think the world's going to end tomorrow. And they're willing to go for the longer term. Keep an eye on what Buffett does. He's sitting on a bunch of cash as well.
And at some point, that's going to be deployed because the valuations are getting attractive for anyone looking beyond the current cycle.
>> Are they showing us anything interesting right now in terms of where we might be headed, or are they waiting and watching?
>> They're probably a little bit more waiting. But they do have a lot of capital to deploy. But you're also seeing corporations. So Cisco the other day made a $28 billion acquisition. That's their largest acquisition they've ever done. So they're not worried too much about what's happening. And it was what I would have said as a higher valuation versus some of the peers. But they don't care.
They're like, this is a company. We're going to buy it for the next 10 years and see what happens. And so I would like to see a little bit more M&A action. The IPO action is a little bit, it's positive.
People are willing to give money to new companies. But I would like to see-- I'd like to wake up on a Monday morning and see five or six deals. That would be ideal for us.
>> That used to be a regular Monday morning in our business.
>> It used to be regular day.
>> You on your investing side, or me on the journalism side. M&A Mondays, we haven't had a lot of it. You mentioned the IPOs. It's interesting, we had Arm Holdings. We also had Instacart. There was an appetite right out of the gate. And then some people got a little critical, again, in the short term. They didn't like the second or the third day. I mean, how do you judge the health right now?
>> Well, I mean, the IPOs are always kind of wacko. And they get a lot of media attention. And really, there's some good ones, some bad ones. But I think just the fact that these are being done is a good sign. Obviously, there's so much speculation on the first week of trading.
We just ignore that. It's like, look at it a month or two later and see how they're doing. But the appetite is there for risk, which is a little bit contradictory to the pessimism that's out there.
So any time you see an investor come up and say, OK, I'm going to make an investment in a brand new public company, it totally contradicts the fact that they're worried about everything. And we get a lot of incoming data feeds. And just the other day, somebody we follow closely basically said, we can't find anything positive to say.
And that, by default, is a positive because it means that maybe any positive news is going to be a super boost, when, actually, something good happens. So I think IPOs are always important to watch.
But in the grand scheme of things, they're such a small slice of the market. I'd rather look at the rest of the companies.
>> Now, with the kind of September we had, we talked off the top, living up to its reputation, a bit of volatility in the markets.
You talk about in terms of not wanting to take too many risks. You watch the IPO market to see what the risk appetite is.
But from an investor perspective, do you need to be sticking your neck out at this moment?
>> No, I don't think you do. And we watch the IPO market. But we don't usually participate in it. I mean, I'd rather buy a company that's been around for a hundred years that's got a public track record.
But absolutely, the valuations have changed so much. If you ex out the large seven mega-caps in the US, the S&P really hasn't done anything in two years.
And so, now, it's a situation where you can get a giant $100 billion market cap company that's been around for 50 years, that pays a dividend, that's got no debt, trading at very low valuations compared to the historical valuations. So there's really no need to buy a micro-cap or buy a concept company or a company that's trading at $1 billion that has no revenue.
And there's lots and lots of those still out there.
Why not instead buy an established company that's been through five recessions, that pays you a dividend and has no debt? I mean, you really don't have to put yourself-- you don't have to be a hero.
There's no need to gamble. There's no need to take a risk when other companies are trading at decent valuations.
>> Now, circle back to the top of our conversation, the fact that we're seeing bond yields move higher. People are worried about rates-- higher for longer.
When we entered this year, a lot of market pundits, the markets themselves, were thinking that we'd be in the cutting territory by now. Is this a matter of just staying patient for longer? It didn't happen as quickly as perhaps we were anticipating.
>> I think so. And you can also look at it, if you want to put your rose-colored glasses on, every time we get a rate hike, it means we're closer to the top, just by default, obviously.
And certainly, the economy's been much stronger than people expected. A lot of people, as we're saying, have been expecting a recession for 18 months now.
And so the central banks have to be careful because there's a lag effect on all these rate hikes.
And you're starting to see it in consumer sentiment. You're starting to see it in some of the retailers. They're reporting not great numbers. Unfortunately, oil is ticking up, which is worrying people on inflation again. But certainly, there's not a lot of massive borrowing going on right now at the new rates when people are trying to get by and buy their groceries.
So I think that lag effect will impact.
And I think patience is key. But it should be the key anyway.
The investments that you're making right now, you should be able to survive for the next five years because you don't know what's going to happen for the next five years. So I think it's just a matter of time.
Inflation, it went from nine to four.
Maybe it hovers around four. And the central bank stays higher for longer. But again, that thought is working its way through the market.
And so it's starting to adjust for that as well. So it's not a great market. But again, what will be something good that happens? Maybe it's better margins, lower inflation, lower rates one day. Bond yields could come down. China could grow again. There's lots of things that could happen. But everybody's looking at all the bad stuff right now.
>> That was Peter Hodson, founder and head of research at 5i research.
Now, for an update on the markets.
We are back into Advanced Dashboard, taking a look at the heat map function here. It gives you a view of the market movers. Gonna screen to the TSX 60 by price and volume to start.
We saw some signs in this country that perhaps interest rates are working to slow the economy. South of the border, the Fed's preferred gauge of inflation, PCE, also not taking up as high on a monthly basis as the market was expecting. Using a bit of a bid to the tech stocks on both sides of the border.
Here, of course, we have Shopify on the TSX 60, it's up a little more than 3%.
Take a look across the other sectors. It's a choppy space.
We are talking about energy now, it's a mixed bag.
It's been pretty choppy in the uranium place this week.
Jody Denison off the top of the show. You can see Cameco is down about 2%.
This has been a choppy part of the market.
South of the border, want to check in on the S&P 100, this is the last trading day of the month of September, the last trading day of the quarter.
Although we do have some green on the screen and the headline S&P 500, it is shaping up to be not only a money-losing month but a money-losing quarter for both Bay and Wall Street. Today, you could take a look at a name like Nike up a little bit more than 6%. This is on the back of his earnings and a bit of a bid into some of the technology names today as well.
It's a little bit mixed with some of the chipmakers including Nvidia or maybe even Intel or AMD showing strength to the upside.
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Economic weakness in China, this is been a headwind for the materials space but some names in the sector may be better poised to handle the challenges and others.
Our Anthony Okolie had the chance to discuss with Evan Chen, associate for portfolio research at TD Asset Management.
They started the conversation with a look at what actually makes up the materials space.
>> Well, you know, it's farthest upstream in the value chain for a lot of different things, I guess. So this building that we're in has steel beams. That's iron ore.
It's met coal.
This chair that we're sitting on has plastics, so that's a commodity chemical companies. A cabinet in your home has wood, so that's paper and forestry. So these material companies are very cyclical and commodity driven.
A lot of them have-- you know, they don't have full control over their destiny because they have no pricing power.
So if we look at the index, MSCI All Country World Index, about 50-ish percent is commodity driven.
So that's 30% in mining, 20% in commodity chemicals, and, you know, commodity chemicals is right there in the name, it's a commodity.
So you don't have any pricing power. But what I want to talk about today is the other companies in the index that may not be commodity driven and may not be as cyclical. So, so far in the year, materials hasn't done too well, and that's because of some weakness in China and rising rates.
>> So let's talk about China because we know that China is a major consumer of commodities. How has their current economic weakness impacted this space?
>> Yeah, so, you know, a really good rule of thumb is China consumes about 50% of the world's metals. So you can imagine that's a pretty big impact on everything that goes on. So the major ones would be copper, iron ore, aluminum.
So for instance, for copper if the property market in China is not doing too well, then there's less need for copper wiring, copper pipes. In white goods, such as refrigerators, AC units, those all require copper, and if there's less economic activity, then there's less need for it. The price goes down, and that hurts the sector as a whole.
>> OK, now you also said that not all the materials space is so exposed to cyclical trends though. Can you expand on that for us?
>> Yeah, so there are some really great companies in the materials sector that I wouldn't say are overlooked, but people don't think about when you say materials.
So the biggest one would be Linde. It's $180 billion, the biggest name in the space, and it's for good reason. So it's an industrial gas company.
And you may be wondering, what is an industrial gas? Well, it goes into everything, just like the other materials we were talking about earlier.
>> So it's a pretty important company?
>> For sure. So these TV screens that are behind us, they have gas to make the flat screens. In the supermarket, you have industrial gases to make your food fresher, in fridges, wine making even, like I could go on and on.
>> OK, now another stock that you highlight is Sika. What can you tell us about this name?
>> Yeah, so Sika is a construction chemical company, and it's one of the largest, 15% of the market. And what they do is they sell chemicals for construction sites. So this can be a lot of things, admixtures so it affects concrete and different properties so it make it stronger and make it look better.
They sell adhesives, so sticking a window together or sticking plastics together.
Also, they sell waterproofing, so if you have a roof and you want to make it waterproof, then they sell that. So where I think it's less cyclical is because their products are better than the competition.
What does this mean? So if you're on a construction site and maybe it takes you four people two hours to do something. So let's say applying adhesives to a roofing solution, you might need two applications of whatever chemical you have and you need to hold it for two hours.
With a Sika product you could use two people and it would be done in one hour, and this is just because they spend more in R&D. So because they're so big, they can spread that R&D across a wide base, and then start cross-selling other products into different businesses. So instead of being linked to commodity prices, like oil, Sika is more levered to infrastructure-- infrastructure, global construction, and all of that goes around that, you know, we're seeing.
>> OK, so you talked about some of the benefits of some of these companies. What about the risks to some of these companies? Why don't you start with Sika?
>> Yeah, for Sika, it's definitely just construction volumes and lower infrastructure spending. So what we're seeing in the US is some-- housing has been strong. If that slows, that's a risk.
And in the EU, we're seeing some risks there to construction.
Housing is down 20-30% in various regions.
China is also slowing. We talked about the property market in the beginning. So all of those are risks to Sika, but I think longer term, the business is very sound and will continue to grow.
>> OK talk about Linde. What are some of the risks you see there?
>> Yeah so on Linde, I want to touch on some of the strengths first. So Linde, industrial gases company, what they do is they place facilities onto their customer sites. And these are necessary for their customers' operations. And they're underpinned by long-term contracts.
These contracts have minimum spending agreements plus a built-in cost escalator.
So you have really good visibility on the long-term earnings of Linde as well. The biggest risk to them would be that these customers go out of business. But it's going to be the last bill that you pay, really, in someone's bill payments because you need it to run your facility.
>> That was Evan Chen, associate for portfolio research at TD Asset Management.
On a programming note, there will be no show on Monday as we mark Truth and Reconciliation Day.
We will be back on Tuesday, October 3, with Michael Craig, head of asset allocation at TD Asset Management. He want to take your questions about asset allocation. A reminder that you can get a head start with those questions. Just email moneytalklive@td.com. On behalf of me and Anthony in front of the camera and everyone behind the scenes producing the show every day, thank you for watching and we will see you next week.
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