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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, the US economy once again flexing its muscles. Payrolls are up an employment rate is down.
Our MoneyTalk panel is standing by with analysis. Plus Canada's economy also in focus this week. The BOC decided to keep rates on hold.
Andrew Kelvin has some insights about the BOC's possible next moves.
In today's by broker education segment, Bryan Rogers is going to tell us about ways to transfer securities into a registered account. Before he gets all that, let's get you an update on the markets.
Last trading day of the week. We will start here at home with the TSX Composite Index.
A bit of a wild ride for American benchmark crude prices this week. We are back above $70 a barrel for West Texas intermediate so bit of stability on that part of the market. We've got 10 points on the table, nothing too dramatic to the upside, just five ticks, 20,288. Among most actively traded names at this hour include Baytex and the energy space.
Seeing a bounce back for names that have been hit hard lately. Baytex at 441 per share, up almost 2%.
Kinross Gold, we are going to talk about the US jobs report in a minute and the effects it has had on the markets.
Seeing a bit of gentle pressure on the downside for some of the gold-mining names. At 779 per share for Kinross, it is down 1 1/2%. South of the border, let's check in on the S&P 500 and the NASDAQ.
The market has been making bets about central banking on hold and cuts coming next year. On the wake of the jobs report, pretty much just flat on the S&P 500, not even down a full point at this hour.
Jacobi NASDAQ, you're down about 11 points, 1/10 of a percent. Did notice some money moving towards the automakers, including Ford. Let's check in on this name right now. At 10 bucks and $0.99 per share, it's not all that much but it is to the upside to the tune of 1 1/2%. And that's a market update.
Those US jobs numbers coming in a little stronger-than-expected this morning.
Joining me now for some analysis, MoneyTalk DIY editor Susan Prince and markets editor Anthony Okolie. The Friday chat. A pleasure to have you back.
>> Pleasure to be here.
>> Nice to be back.
>> This is an interesting report. The market seemed to be taking it in stride.
It's not the kind of report that the central bank perhaps wants to see or investors want to see if they think cuts are in the offing anytime early next year.
Woka so the numbers, Anthony.
>> I think these numbers kind of highlight that the US economy is on solid footing despite the Fed hikes that we've seen. I will highlight some key numbers. The headline for number coming in just a tick under 200,000, 199000 Jobs Added in November, that compares to the 185,000 that was expected by Wall Street, also higher than 150000 Jobs Added in October.
This marked the second straight month of job gains falling under the 2022 average.
The job strikes and added about 30,000 jobs back to the November payrolls as well. The unemployment rate edged lower to 3.7%. It's still near historic lows despite the fact that more people were entering the labour force. When we look at average hourly earnings, keep in mind that the Fed is focused on inflation and wage growth plays a big part of that, average hourly earnings were up .4% month over month, that compares to the .2% that we saw in October. That is likely skewed by the upside to the strike resolution.
When we look at the 12 month rate, it helps to look at the year-over-year, that's above pre-pandemic rates and it began to outpace inflation around midyear but still a slowdown from 2022, 2023 games. Those are some of the key highlights from the data.
>> Susan, when I think about the market reaction today, I saw the headline, of course it's kind of the report where you can take what you want to read. A stronger job growth, this is good. Oh wait, maybe we get a softer landing because the workforce is resilient.
>> You look at the perspectives and it's kind of a picture economist, which way you want to go. To your point, the headlines after this came out, the New York Times says that US job growth continues to be robust and we can interpret that that might not be good for what happens next with the Federal Reserve. Wall Street Journal, US hiring slowed from earlier this year.
There's the soft landing scenario. So it's sort of what could this mean? It can be characterized as a cooling off of the market. If you take out those striking workers who went back to work, you take out those numbers, they certainly are weaker.
People are looking at that number.
What we are looking at though ends up being the symphony that the Fed wants to hear, and that's what is hiring, spending and investment. He wants to hear them all playing at a slightly slower tempo before we see rates being cut.
>> When I think of the bond market reaction to another headline, you see a big jump in 10 year treasury yield is the on employment rate unexpected lead declines. Yes, it's up 13 basis points on my screen right now to 4.26%. Last week in our conversation, it wasn't that many weeks ago before people were sitting around saying 5% yield on the 10 year, we haven't seen this in ages. He put it in perspective and see that things have been heading in that direction. This moves us in the direction of next Wednesday, the Federal Reserve rate decision.
>> That's right.
We will talk about where markets are pricing and movements right now. Future markets are pricing and that the Fed will hold next week. They are pricing in that they see cuts next year as early as March and right now they are pricing in about 125 basis points cut by the end of 2024.
We spoke with TD Securities. They think that there is going to be a hold next week with cuts expected around June 2024. They are expecting much more aggressive cuts because they are pricing in a potential recession in the second quarter of next year.
>> Interesting thing about a central bank meeting, like we had this week from the Bank of Canada where you don't get a change in policy, it all becomes the nuances. What are you going to be watching for on Wednesday?
>> I'm going to be watching for what the numbers, what Powell says he feels the numbers mean.
And are we going to see some changing in the parsing of the wording and he holds it for one more..
I look at it and one of the things I am frustrated about the new cycle is we want information more quickly.
140 characters used to be the length of a tweet. If you could just take a step back and say, okay, you know what? These numbers are coming in at the kinds of objectives that both the Bank of Canada and the Federal Reserve set about wanting gradual slowing. You don't want it to be like the bus of the streetcar that's going along and then breaks really hard and everyone stumbles over.
So if you take a step back and look at these numbers, it's like, look, the economy is doing what they said they hoped would happen to get things to slow down without it being a recession.
So now the question is, to the people who are making the questions at the Federal Reserve, do they feel confident that the pace they are going at is an appropriate one?
>> All right. Lots happening this week and next week. Our panel, it's always a pleasure to have you here.
>> I also just want to mention that we will have full coverage about reaction to the Fed decision next Wednesday. We will be interviewing Derek Burleton, deputy chief economist with TD with analysis and outlook going for.
>> Thank you both very much.
Susan Prince and 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 lululemon in the spotlight today. The athletic leisure wear retailer handed in a strong quarterly report but investors had first appeared a little more concerned with the holiday forecast.
Lululemon provided sales guidance have fell short of expectations, with the company citing broader economic uncertainty. As we check in on Lulu, and shrugged off those concerns they had earlier in the day. The stock is up about 6%. It was a strong quarter.
They didn't say was going to be a bad holiday period, they are just being a little cautious with their outlook. Let's take a look at First Quantum. Looking to lay off some 4000 Workers in Panama. The move comes of course after the Canadian-based minor suspended operations at its massive copper mine in the country.
Considerable opposition to that and protest directed at the mine. Canada's top court ruled First Quantum's contract is unconstitutional. Right now you got First Quantum down about 1%. A lot of damage has been done to the share throughout the saga that played out in the fall.
Multibillion dollar investment in the artificial intelligence base today. At Malaysian conglomerate why TL is partnering with Nvidia to build AI infrastructure in that country. Project includes a $4.3 billion investment to build supercomputers and a large language model for the Southeast Asian country.
Nvidia today at 474 bucks per share, off its recent highs but again of almost 2% in the session.
We'll take a look at the markets. We will start with the Decon. Last trading day of the week. Crude oil is starting to stabilize. Back above 70 bucks per barrel for W BTI. Right now the TSX is up 66.
South of the border, as investors try to digest this latest jobs report and what it means out of the Fed decision next week, you're pretty much flat on the S&P 500, down .05.
Earlier this week, the Bank of Canada kept its trendsetting rate on hold at 5%. They have also hit the pause button now for three consecutive meetings. They are seeing higher borrowing costs are doing what they are supposed to do but they don't want to declare mission accomplished just yet. Earlier this week I spoke with Andrew Kelvin, head of Canadian and global rate strategy with TD Securities but what stood out for him in the statement.
>> It was very short, first of all.
They didn't have a whole lot to say. And it was, I think, largely as expected tonally. They do seem quite a bit more comfortable with the idea that perhaps they have done enough to bring inflation back to target. The language suggested that they think they are another step or two down the path towards 2% inflation.
If you go back to last October, they talked about inflation risks worsening.
The minutes from the October meeting suggested that some members of the governing council weren't convinced that rates were actually high enough to achieve their inflation target.
That sort of lack of comfort, I would say, with the inflation backdrop I think was really evident in that October statement.
December was, I think, much more muted.
They talked about the Canadian economy seeing growth stall over the last few quarters. They talked about slower growth globally.
They several times talked about how high rates were effective in quelling household spending. It just seems like they're much more comfortable that they are in fact done hiking rates.
Now you mentioned that they did say, well, we will hike rates again if we need to.
Inflation is not low enough. And it's true that inflation is not low enough. Their target's 2%.
Inflation's around 3%. So I'd be concerned if they were saying that-- >> That's right. Mission accomplished, victory lap. Don't worry about it. Enjoy the holidays.
>> Exactly. It might make it very nice holidays but it would probably be irresponsible central banking.
The thing with talking about being willing to hike rates again is as long as you have that threat out there, however theoretically, it constrains market pricing of cuts. If they had taken away the line about being willing to hike again if needed, markets would have taken that as an indication that rate cuts were imminent. And you would have seen bond yields move lower across the front end of the yield curve, loosening financial conditions.
In order to get the most impact out of the hikes that are already in the system, and therefore, in order for them to be able to avoid hiking more, they need to maintain this sort of threat, credible as it may be, that they will hike rates again if needed to prevent markets from becoming too complacent, to prevent households from getting too complacent.
Because ultimately what they want is these rates to produce more savings, less spending. And by threatening to raise rates if we don't get back to 2% inflation, it just allows them to have the maximum impact from those hikes.
>> Now as you said, we got a statement today, not a very long one. We didn't get the press conference. There was no monetary policy report. So there wasn't a chance to ask questions of Governor Tiff Macklem. If there had been, I imagine someone in that room-- and I used to be in that room in my former job-- would say, so when are the cuts coming? And he's been pretty consistent with saying, much too early to start talking about that. But of course, TD Securities has a view on when the cuts are coming.
>> Certainly. And every meeting that we go, we get a little bit closer to the date of rate cuts. Now we still see this as a mid 2024 scenario. We still look for the first rate cut to occur in July. We think there will be about 100 basis points of cuts next year. Whether that starts in July or June or April, that will really depend on the path of inflation. For the Bank of Canada to cut rates, they need to have achieved both, be well on the way to achieving their inflation target.
So they don't need to be at 2% year-over-year headline inflation, and they've said that.
But they need to be extremely comfortable that they are going to get to 2%. And they need to be in a still sluggish growth environment with excess supply in the economy, of slack in the economy.
Now, growth certainly sluggish. I would argue with the unemployment rate where it is, we are now back to balance in the economy. So if growth remains slow, as we expect it will in Q4 and in the early part of 2024, we will go into excess supply.
There will be some actual slack into the economy. So from a growth standpoint, the economy is probably weak enough for them to justify taking away a little bit of this tightening.
But from inflation, you look at the underlying trend in inflation, it's sort of consistent with 3% inflation as a steady state. And that's still too high, which is why the Bank of Canada just has a little bit more work to do holding rates at these levels until we can keep inflation moving along that path to 2%.
The risk they run is if they were to cut too early and we settle at a level of inflation that is above 2%, they run the risk of having to actually reverse course sometime down the road. And I think you absolutely do not want to see in the context of an economy with really significant mortgage resets coming in 2025 is a central bank hiking into 2025.
That would be a pretty negative scenario for the economy, just in terms of it would really lock in tight financing conditions for a lot of households for a long period of time. And it would also limit the Bank of Canada's ability to influence the economy between 2025 and 2030, as people get locked into these higher mortgage rates. And lastly, and probably most importantly from their perspective, if they start cutting too quickly, after having missed their target for as many years as-- >> We're going to lose faith, right, in their ability to control their mission.
>> And ultimately that gets reflected in wage negotiations. That gets reflected in contracts with suppliers for firms. And it just builds that inflation into the system and it makes their ultimate job that much harder.
So I would make the argument that they would probably rather start cutting one or two meetings too late then cut one or two meetings too soon. They'd rather make well and sure that they are on track to 2% inflation rather than sort of risking it and moving a little bit early to let the sort of pressure off the economy a little bit.
>> So now we have the last rate decision of the year from the Bank of Canada in our hands. We're able to go through it, dissect it, as we have. We still got the Fed coming up next week. Is it going to be pretty much the same story from them? Are there different factors in the States?
>> Well, I think the different factor in the States is that the US economy in the third quarter was quite robust. You actually have fairly similar market contexts, where people are looking for around the same amount of Fed cuts next year as they're looking for the BOC. It is that sort of same story that central banks are telling, central banks in developed markets, like we broadly believe they are done here, with the exception of Japan.
Now it's a question of just trying to push back on very near term rate cut expectations, because no central bank wants to cut too early. And the Fed is always very focused on financial conditions. As yields have moved lower, financial conditions have loosened.
And they wouldn't want to encourage further loosening in financial conditions.
So I think the message will be much the same. We have made progress on the inflation front. The economy was stronger in the US, however, which makes it almost a little bit easier for them to push back on near term rate cut discussions.
>> That was Andrew Kelvin, head of Canadian and global rate strategy with TD Securities.
Now, let's get our educational segment of the day.
You may already know everything you need to know about transferring cash into your registered accounts, what about securities? Bryan Rogers, senior client education instructor at TD Direct Investing is here to tell us all about it, the do's and don'ts as well as the pros and cons. Always great to have you here.
Walk us through it.
>> Thanks. This is definitely one of those timely topics because we know we're getting into the end of the year and what we are thinking about what are we going to do for contributions into our RRSP or even your TFSAs so you can reduce your taxable income if you are using RRSP or TFSA, maybe you could have something grow tax-free over time so definitely things to think about contributions. A lot of people don't realize you can do that contribution in kind.
What we mean by in-kind as you can move securities from say a taxable account, if you had a stock, if you had TD soccer Apple stock or whatever it may be, you can move those shares without actually even selling them and move them into a TFSA or an RRSP. There different ways to do it. We will jump into a broker and I will show you how to do that. Then we will talk about some of the things you want to consider as well.
If you're in a broker, remember you can go to the accounts tab.
This is where you do your transfers.
Many of you may be familiar with this already. This is where you are going to do your cash transfers if you are transferring from your TD Canada trust account. You can do that right from here.
You can do interact each transfer if you're transferring from outside TD, transferring cash. In the same location, you click on this transfer cash within TD, including… You click on an icon that is going to pull up a tool where now you can transfer additionally because it defaults to cash so I can transfer from any account. This is just a demo. You will see all your bank accounts here under from or some of your direct investing accounts as long as they are all connected.
But if you want to do this from outside TD or what we are talking about today, security transfers, you're going to go right here and you are going to go from account and to account and then follow the steps.
Another picture to show you because this account doesn't have anything in it but if you're in your own account, look something like this and you can use this as well so you can figure out some answers you might want answered. You can look at the eligible securities because some may not necessarily be eligible.
But if you scroll down you can see there is a screenshot here to show you what it might look like. There is an example where we have ABC holdings and XYZ, our two favourite stocks that we love to talk about.
Then you can see in your own account you will see her holdings listed there and you can decide, I want to transfer or go in-kind 100 shares, 200 shares, safety, you can do whatever amount as long as it's a whole number of shares and will give you the value and you can move it into the other camp.
>> If someone is thinking of actually moving their stocks sorry. Part of me. In kind, what are the tax implications?
>> Yeah. I'm going to jump back into a broker.
I can show you. If we do go here and we look at the screen, where we are showing the dollar amounts, when you see the dollar amount, this is an example, you want to be careful on, okay, there are two things. Tax implications can only occur if you are going from a taxable account, you are in an account that is taxable and you want to move that stock and you say an RRSP or a TFSA, you want to be cautious on that because it is called a deemed disposition, it's like selling a stock.
You could have capital gain.
The perfect time to do this I would say, you could factor and if you're going to have again, you can just pay the taxes on the game, but another thing is if you have a stock and you're in a situation where it's down a little bit, this bit of a loss or if it's down a lot you may want to reconsider because then you can't carry forward those losses against other capital gains in the future, so you may want to check with the tax advisor. Anything you're moving in-kind into a TFSA or an RSP would have tax implications meaning there could be a capital gain if they are there. If it's a loss, the need to sacrifice that loss and that's okay.
If it's a small loss, at least removing those shares into something that's tax-deferred. Or you are moving into a TFSA where you are now going to have no tax implications at all.
In the future, anyway.
You will be able to grow it without taxes.
Always check with your tax advisor just in case but remember if you do have something that has a little bit of a loss and you're okay with moving it into one of those counts, you're going to get the benefit of the RRSP or TFSA potentially by moving those shares.
>> Very interesting stuff and important caveats there about contacting someone for advice if you need it. Thanks, Bryan.
>> All right. Thanks, Greg.
>> Bryan Rogers, 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.
Well, it's been a pretty choppy ride for the TSX this year. So what might we expect in 2024? Earlier I spoke with Michael O'Brien, managing Dir. and head of the core Canadian equity team at TD Asset Management about some of this recent volatility we have been seeing.
>> I mean, when you get into these types of periods where you have these violent moves, it can be pretty disorienting.
You forget those first principles around valuation and momentum.
And so it's fascinating when you look.
Obviously, November-- it was a huge month, a huge month. But like you say, September, October were really pretty dark times. It just never ceases to amaze me the swings in sentiment.
And so it's not so much that fundamentals were detached from those moves. It was more that when sentiment gets on board, things can get amplified or taken to extremes. And that's where-- I think that's where we need to step back and say, wait a second, let's put this in perspective.
And so despite all these ups and downs, when you really step back, these markets have been rangebound for the last couple of years. You look at the TSX. We peaked-- I think it was in April of 2022. So this is almost two years now. The S&P peaked a little bit before that in January of 2022.
So for the better part of two years, you've had this churning, sideways market.
And I think when you look at it, it makes sense because that coincided with the beginning of the rate hike cycles both in Canada and the US. And so it does make sense when you think of it in that concept, in that framework. This rangebound trading is because we've all been trying to figure out how much work do the central banks have to do, how are the economies going to respond, how are earnings going to respond.
And it's still not quite clear what the outcome is. But I think as we head into 2024, we're a little bit closer to that conclusion. But it's just-- I think it's always helpful-- I find it always helpful just to step back and try to put it in that bigger picture perspective that, look, for all the excitement, all the running we've been doing, we're all out of breath. We haven't gotten anywhere in two years. So it's just important to put that in perspective.
>> Up and down, up and down. So as we head into next year, there's two ideas that are in my mind just from having gone through reports and thinking what economists are saying, what strategists are saying-- that we're probably going to see rate cuts from the central banks, including ours, maybe even as early as the spring from the Bank of Canada.
But we're also going to see a slowing economy. If I put those two thoughts together in my head, what am I supposed to think about the markets? What about the TSX?
>> When I look at it-- and you're right.
Obviously, investors-- a big part of the move that we've seen in recent weeks has been investors hoping, believing, speculating that rate cuts are going to come. But at the same time, they're wishing for those rate cuts without the thing that would typically trigger a rate cut, which is a really nasty downturn, which would impact company earnings and impact employment.
So there are a little-- some inconsistencies, I would say, just in terms of how the market necessarily is looking at that.
But bigger picture, clearly, the viewpoint is that rate hikes are behind us. And it's a question of if and when rate cuts will arrive.
I would look at that and say, in the Canadian context, I suspect that there will be rate cuts by the time we get to the middle of the year. And the reason I think that is because I think the economy needs those. I think it's becoming more clear that the Canadian economy is slowing.
And when you look forward, there are some pretty obvious headwinds on the horizon that we're going to have to work through.
It doesn't mean that it's all doom and gloom. But realistically, I think the outlook for 2024 has to be a pretty sober one, where we would expect in Canada to have pretty sluggish growth. By extension, you shouldn't expect a real blowout earnings year for the Canadian companies, by and large. This is going to be one of just churning through a lot of headwinds.
>> Let's talk about one sector in particular I know you want to illustrate in terms of what we could expect to see in this kind of environment, what's happening with the banks. We've just been through banks earnings season. They've been warning us they're getting ready for a bit tougher time next year.
>> Yeah. And so again, this is one of those ones-- you want to have a balanced perspective on this because on the one hand, the bank earnings numbers were a bit disappointing. It was a mixed bag, I guess you would describe it. And clearly, what we saw was continued increase in PCLs, or loan losses, not to alarming levels. But the trend has been higher.
We're seeing more pressure on loan growth.
Loan growth is slowing. We're also seeing pressure on capital levels. Just people don't want to let their guards down. And so all of those things are conspiring to keep pressure on the earnings outlook.
So like I said, about, I think, three of the six banks beat expectations. Three of the six missed. The more important thing is earnings estimates for the calendar 2024 and fiscal 2024 are still coming down. They're still being reduced. And expectations now are pretty modest for the year.
On the other hand, though, when you look at the way the banks have been trading and some of the sentiment around them, they're trading, a lot of them, below 10 times earnings, 5%-ish type dividend yields.
They're pricing in a lot of negativity.
And so when you go through and say, is that well founded in the results we just saw.
The areas that you would typically get most alarmed about, things like how is credit unfolding, are they in a position where they have to actually raise capital or they're offside on capital-- and those boxes-- they still look very solid. The credit picture, by and large, is holding together, I would say, better than the bears would have thought.
Credit or capital-wise, obviously, people want to guard their capital cautiously in these types of environments. But they're all sitting there extremely well capitalized. So those real tail risk downside scenarios don't seem to be in the cards at all right now. So that's, to me, quite reassuring.
So like I say, it wasn't a great earnings season for the banks. The outlook isn't great.
But it's not terrible, either. So again, more of that churning sideways market-- that might continue for a little while with the banks in particular until people get a stronger view that the worst is behind them.
>> Could that set us up-- now I'm going to be probably too optimistic. You said don't be too optimistic, don't be too pessimistic heading into next year.
>> We don't have to be all sour.
>> But could that set us up in the sense that if things-- if we stick the perfect landing next year-- the economy doesn't crash and the Bank of Canada is able to ease off of restrictive policy and we get that perfect soft landing-- could that mean better things than perhaps we're expecting for the TSX? The financial's such a heavy weighting in the index.
>> And the short answer is yes. If we get a soft landing, if inflation comes down without excessive job losses, if economic growth bottoms at a reasonable level and then begins to tick higher, if interest rates are cut by the central bank, then yes, there's absolutely upside in the market. The question we always have to ask ourselves is, how realistic is that set of outcomes?
And so it's not impossible. But it's probably not the most likely outcome.
There will probably be one or two wheels that fall off at some point. And you have to put them back on.
And so that's when I frame it up like it's-- the markets are at a point where in the Canadian context, valuations aren't demanding. Valuations aren't really the problem. They're reflecting cautious expectations. It's just the most likely outcome, at least with the data we have today, is that it probably will be a difficult year next year in terms of earnings growth. It probably will be a difficult period of time for the Canadian economy, for the Canadian consumer, for those Canadian households that see mortgage renewals coming in 2024, 2025, 2026 that will squeeze the cash flow they have available to spend on other things-- to spend on entertainment, groceries, new cars.
So all of those things suggest that we're probably into a period where growth will be a bit sluggish for a while. But if we get one of those pleasant surprises-- and the market never ceases to humble us. The market never ceases to surprise us. If we get one of those outcomes, then absolutely there's upside because the markets are not, at least in the Canadian context-- the markets are not reflecting an exuberant outcome.
>> That was Michael O'Brien, managing Dir.
and head of the core Canadian equity team at TD Asset Management.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This, of course, is the heat map function.
He gives us a view of market movers. We are going to start with the TSX 60, screening my price and volume.
With American benchmark crude stabilizing, we are just shy of 71 bucks per barrel in West Texas intermediate, we are seeing some positivity in energy names.
In the wake of the latest jobs were poured out of the states coming in stronger-than-expected, bond yields pushing up a bit on the news, seeing some of the gold miners pullback including Barrick Gold, ABX, down almost 3% on the session. South of the border, let's see what's happening with the S&P 100. I want to check in on some of the technology names. A bit of a bumpy ride in that space again this week but today you're getting some of the chipmakers bouncing back. Got Nvidia up almost 2% although AMD, which made some nice gains yesterday, sort of sitting flat.
As I said earlier, some of the automakers are making gains, traditional names including General Motors up or Ford.
You can find more information about TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Sticking with markets, technology stocks have certainly had a good run this year, with the tech heavy NASDAQ op. cit. more than 37%. But will that performance continue into 2024?
Vitali Mossounov's VP, Dir. and code lead of fundamental equity research, TD Asset Management.
>> I remember we sat here in mid-January talking about how this is a make or break year for tech.
. It had been a bad 2023, and we were looking for the litmus test. The way we described it was, will revenue growth accelerate, and will these companies get costs under control? 11 months later, the words, the numbers speak for themselves.
They did it. And share prices have acted in a very predictable way when you deliver above expectations in the stock market.
>> OK, a lot of those expectations, though, heading into the year weren't that great, and then you had the Magnificent Seven show up and artificial intelligence show up.
>> That really showed up.
>> A lot of people have said there's not been a lot of market breadth, though. How do we read it that way?
>> Well, before we talk about breadth, let's just look at the numbers to put things in context. And we have a chart for that showing-- it's a simple chart-- year to date returns. And that's one that really stands out.
Magnificent Seven up 98% for the year.
These are big, sophisticated companies doubling in less than a year.
Look, the performance has been good in other places, in fact, great. The NASDAQ 100 up 46. The S&P still up 21. Those are great numbers as well.
But, yes, you could say the breadth hasn't been there. But, still, it's been OK. We could dive into breadth a little bit more.
>> Yeah, because that's a pretty telling chart, right?
You take the Magnificent Seven, and they're just way-- even if you're not a chart analyst, you can see way up here, everyone else not bad, but down here.
>> Different postal code there. Yeah, different postal code.
Yeah, and as far as breadth is concerned, look, it's a fair statement. And I've got another chart I wanted to share. It's a little different. It's the advancers and decliners. So any given day, you measure how many stocks go up, how many stocks go down. If there's more going up than down, then that line is positive. If it's negative, that means there's more stocks going down.
So you'd expect, typically, that to be a positive number. There should be, on any given day, more stocks increasing in value than falling. The markets tend to go up over time.
And what you see there in that 10-year chart, on average, the horizontal line, on average, there are 65 more stocks going up than going down in price. But over the course of time, that has changed a little.
So if you look at 2023 specifically, if you looked at that without knowing the performance of stocks, what would your first guess be? How did stocks do when you see that line all the way there at the bottom?
>> You'd think not very well.
>> You'd think not very well.
>> I don't like to see things go down. I like to see them go up.
>> What that tells you is most stocks spent this year, or most of the year, we've seen more stocks falling than rising. And yet we just saw that 98% of the Mag Seven and the great returns for the NASDAQ. So, indeed, the breadth hasn't been there. But I think we can extract some optimism out of that as well, because we're heading into a new year, we're turning a new leaf, and there are a lot of companies that have still kept growing their earnings, that have still gone on conducting their business rather well, and their shares have not been rewarded. So from a breadth perspective, we could certainly see a 2024 where the Magnificent Seven take a bit of a pause and the rest of the market has a chance to make its move higher.
>> All right, so an argument there that perhaps, even though we don't like to see lines and big chunks of a graph go negative, that there's a pretty good setup outside of the Magnificent Seven. How do you hand off the baton? What would have to happen for those other stocks to say, now give us a bit of the limelight?
>> Well, flip that question, actually, on you and say, well, what would have to happen for the Big Seven not to perform so well, right?
And that is the million dollar question in my mind. They're both valid questions.
But I did bring a table to walk us through that as well, and how we started the year with a litmus test. Let's see if there's a natural handover from '23 to '24. And I have five variables I wanted to look at.
These are the variables that typically do drive these stocks.
So let's compare the setup for '23 with the setup for '24.
>> All right, so here we go. The Driver column, we got your five, accelerating revenue growth, falling costs, attractive valuations, falling discount rate, and a good story. 2023 and 2024 I feel like this. So let's play the game.
>> Let's play the game. Well, 2023 revenue growth was really bad heading into the year.
If you look at the back end of '24, the big tech companies, their revenue growth was close to zero. After Q3, it's as good as 12%, 13%. So we got our accelerating revenue growth. That was a good setup for the stocks.
Heading into 2024, I wouldn't bank on that. They might. They might not. But more or less, they're growing in the low- to mid-teens. That's more appropriate for these companies.
So on the first factor, the setup for '23 was better than the setup we're getting for '24.
>> Right, the next one on the list is falling costs, I believe, and you talk about some cost discipline. So-- >> That's right.
>> --let's compare the two years.
>> Heading into 2023, again, let's go back to the fourth quarter of 2022. These companies' spending, we've said this before, like drunken sailors. Costs were up 20% year over year, 30 for some businesses. Year of efficiency, year of discipline, not just at Meta. As you exit the third quarter of this year, for the big five tech companies, expenses grew just 2% for the group. So falling costs, investors like that, because that's more profits in our pockets, that was a nice catalyst for the stocks.
Heading into 2024, you're not going to get that again. These are growth businesses.
They're going to need to invest back into the business. I don't think there's any way they can grow expenses as little as 2% next year. So, again, an incrementally worse setup than we had heading into '23.
>> That's the first two. Let's get to number three now and see how we set up.
They found some religion on costs. What about attractive valuations?
>> Another one that I think we're going to give the nod to '23 over '24. Heading into 2023, valuations were down to about 20 times earnings for the NASDAQ 100, again, those big tech companies trading in the US. That is a historical low, as far as measured at least from the 2018 period.
Today the stocks have done well. The earnings have done well. But the stocks, they've seen some multiple expansion.
Sentiment is higher. You're paying 24, 25 times, not egregious in a historical context. But, again, a lower valuation, all else equal, is better than a higher valuation. And heading into '23, investors had a better set up. They were paying less for businesses.
>> All right, I feel like '23 is winning this game.
>> Winning 3 to nothing so far.
>> Let's go back. We're at number four now. I believe it was a falling discount rate. So how does this size up?
>> Well, this is one we've talked about now ad nauseam for a couple of years. And rates have been rising and rising and rising and rising far longer than many observers expected. And, of course, with some of the growth of your companies, their cash flows are further out into the future. And in the market in general, for companies, their cash flows are in the future. So the higher the rate that is competing with those cash flows, both in terms of putting your money in a GIC, or simply discounting those cash flows back, the less that company is worth.
'23 had a real headwind. Rates kept rising and rising and rising. They just rolled over a few weeks ago. But heading into 2024, it looks like rates are falling, which is an exogenous variable, but an important one for these stocks, and could act as a tailwind.
>> All right, 2024 finally gets a check mark. The final thing is investors. We look at fundamentals. We look at numbers.
We'll say, we like a good story, though, as well.
>> We like a good story. And I am not being facetious with this one. It is true.
Stocks do well, but they need to have a good story to do well. You cannot just have a bad story and do well.
And heading into '23, there was no story.
It was really early for AI. Some had begun to talk about it. But it was mostly bad, bad, bad.
Heading into '24, AI is becoming real, you could say. Product launches are coming.
It's not just talk. Alphabet, Google last night with its Gemini. We can talk about that in a bit. But there's a really good AI story heading into 2024. So when I compare the quality of the narratives and what can support sentiment in stock prices, I think 2024 wins on that one again.
>> That was Vitali Mossounov, VP, Dir. and coleader fundamental equity research at TD Asset Management.
He wants to stay tuned. We'll be back on Monday with Daniel Ghali, VP commodity strategy at TD Securities to talk about the outlook for commodities. A reminder, of course, you can get a head start. Just email moneytalklive@td.com.
That's all the time we have for the show today. On behalf of me here in front of the camera and everyone behind the camera who brings you the show every day, thanks for watching.
We will see you after the weekend.
[music]
coming up on today's show, the US economy once again flexing its muscles. Payrolls are up an employment rate is down.
Our MoneyTalk panel is standing by with analysis. Plus Canada's economy also in focus this week. The BOC decided to keep rates on hold.
Andrew Kelvin has some insights about the BOC's possible next moves.
In today's by broker education segment, Bryan Rogers is going to tell us about ways to transfer securities into a registered account. Before he gets all that, let's get you an update on the markets.
Last trading day of the week. We will start here at home with the TSX Composite Index.
A bit of a wild ride for American benchmark crude prices this week. We are back above $70 a barrel for West Texas intermediate so bit of stability on that part of the market. We've got 10 points on the table, nothing too dramatic to the upside, just five ticks, 20,288. Among most actively traded names at this hour include Baytex and the energy space.
Seeing a bounce back for names that have been hit hard lately. Baytex at 441 per share, up almost 2%.
Kinross Gold, we are going to talk about the US jobs report in a minute and the effects it has had on the markets.
Seeing a bit of gentle pressure on the downside for some of the gold-mining names. At 779 per share for Kinross, it is down 1 1/2%. South of the border, let's check in on the S&P 500 and the NASDAQ.
The market has been making bets about central banking on hold and cuts coming next year. On the wake of the jobs report, pretty much just flat on the S&P 500, not even down a full point at this hour.
Jacobi NASDAQ, you're down about 11 points, 1/10 of a percent. Did notice some money moving towards the automakers, including Ford. Let's check in on this name right now. At 10 bucks and $0.99 per share, it's not all that much but it is to the upside to the tune of 1 1/2%. And that's a market update.
Those US jobs numbers coming in a little stronger-than-expected this morning.
Joining me now for some analysis, MoneyTalk DIY editor Susan Prince and markets editor Anthony Okolie. The Friday chat. A pleasure to have you back.
>> Pleasure to be here.
>> Nice to be back.
>> This is an interesting report. The market seemed to be taking it in stride.
It's not the kind of report that the central bank perhaps wants to see or investors want to see if they think cuts are in the offing anytime early next year.
Woka so the numbers, Anthony.
>> I think these numbers kind of highlight that the US economy is on solid footing despite the Fed hikes that we've seen. I will highlight some key numbers. The headline for number coming in just a tick under 200,000, 199000 Jobs Added in November, that compares to the 185,000 that was expected by Wall Street, also higher than 150000 Jobs Added in October.
This marked the second straight month of job gains falling under the 2022 average.
The job strikes and added about 30,000 jobs back to the November payrolls as well. The unemployment rate edged lower to 3.7%. It's still near historic lows despite the fact that more people were entering the labour force. When we look at average hourly earnings, keep in mind that the Fed is focused on inflation and wage growth plays a big part of that, average hourly earnings were up .4% month over month, that compares to the .2% that we saw in October. That is likely skewed by the upside to the strike resolution.
When we look at the 12 month rate, it helps to look at the year-over-year, that's above pre-pandemic rates and it began to outpace inflation around midyear but still a slowdown from 2022, 2023 games. Those are some of the key highlights from the data.
>> Susan, when I think about the market reaction today, I saw the headline, of course it's kind of the report where you can take what you want to read. A stronger job growth, this is good. Oh wait, maybe we get a softer landing because the workforce is resilient.
>> You look at the perspectives and it's kind of a picture economist, which way you want to go. To your point, the headlines after this came out, the New York Times says that US job growth continues to be robust and we can interpret that that might not be good for what happens next with the Federal Reserve. Wall Street Journal, US hiring slowed from earlier this year.
There's the soft landing scenario. So it's sort of what could this mean? It can be characterized as a cooling off of the market. If you take out those striking workers who went back to work, you take out those numbers, they certainly are weaker.
People are looking at that number.
What we are looking at though ends up being the symphony that the Fed wants to hear, and that's what is hiring, spending and investment. He wants to hear them all playing at a slightly slower tempo before we see rates being cut.
>> When I think of the bond market reaction to another headline, you see a big jump in 10 year treasury yield is the on employment rate unexpected lead declines. Yes, it's up 13 basis points on my screen right now to 4.26%. Last week in our conversation, it wasn't that many weeks ago before people were sitting around saying 5% yield on the 10 year, we haven't seen this in ages. He put it in perspective and see that things have been heading in that direction. This moves us in the direction of next Wednesday, the Federal Reserve rate decision.
>> That's right.
We will talk about where markets are pricing and movements right now. Future markets are pricing and that the Fed will hold next week. They are pricing in that they see cuts next year as early as March and right now they are pricing in about 125 basis points cut by the end of 2024.
We spoke with TD Securities. They think that there is going to be a hold next week with cuts expected around June 2024. They are expecting much more aggressive cuts because they are pricing in a potential recession in the second quarter of next year.
>> Interesting thing about a central bank meeting, like we had this week from the Bank of Canada where you don't get a change in policy, it all becomes the nuances. What are you going to be watching for on Wednesday?
>> I'm going to be watching for what the numbers, what Powell says he feels the numbers mean.
And are we going to see some changing in the parsing of the wording and he holds it for one more..
I look at it and one of the things I am frustrated about the new cycle is we want information more quickly.
140 characters used to be the length of a tweet. If you could just take a step back and say, okay, you know what? These numbers are coming in at the kinds of objectives that both the Bank of Canada and the Federal Reserve set about wanting gradual slowing. You don't want it to be like the bus of the streetcar that's going along and then breaks really hard and everyone stumbles over.
So if you take a step back and look at these numbers, it's like, look, the economy is doing what they said they hoped would happen to get things to slow down without it being a recession.
So now the question is, to the people who are making the questions at the Federal Reserve, do they feel confident that the pace they are going at is an appropriate one?
>> All right. Lots happening this week and next week. Our panel, it's always a pleasure to have you here.
>> I also just want to mention that we will have full coverage about reaction to the Fed decision next Wednesday. We will be interviewing Derek Burleton, deputy chief economist with TD with analysis and outlook going for.
>> Thank you both very much.
Susan Prince and 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 lululemon in the spotlight today. The athletic leisure wear retailer handed in a strong quarterly report but investors had first appeared a little more concerned with the holiday forecast.
Lululemon provided sales guidance have fell short of expectations, with the company citing broader economic uncertainty. As we check in on Lulu, and shrugged off those concerns they had earlier in the day. The stock is up about 6%. It was a strong quarter.
They didn't say was going to be a bad holiday period, they are just being a little cautious with their outlook. Let's take a look at First Quantum. Looking to lay off some 4000 Workers in Panama. The move comes of course after the Canadian-based minor suspended operations at its massive copper mine in the country.
Considerable opposition to that and protest directed at the mine. Canada's top court ruled First Quantum's contract is unconstitutional. Right now you got First Quantum down about 1%. A lot of damage has been done to the share throughout the saga that played out in the fall.
Multibillion dollar investment in the artificial intelligence base today. At Malaysian conglomerate why TL is partnering with Nvidia to build AI infrastructure in that country. Project includes a $4.3 billion investment to build supercomputers and a large language model for the Southeast Asian country.
Nvidia today at 474 bucks per share, off its recent highs but again of almost 2% in the session.
We'll take a look at the markets. We will start with the Decon. Last trading day of the week. Crude oil is starting to stabilize. Back above 70 bucks per barrel for W BTI. Right now the TSX is up 66.
South of the border, as investors try to digest this latest jobs report and what it means out of the Fed decision next week, you're pretty much flat on the S&P 500, down .05.
Earlier this week, the Bank of Canada kept its trendsetting rate on hold at 5%. They have also hit the pause button now for three consecutive meetings. They are seeing higher borrowing costs are doing what they are supposed to do but they don't want to declare mission accomplished just yet. Earlier this week I spoke with Andrew Kelvin, head of Canadian and global rate strategy with TD Securities but what stood out for him in the statement.
>> It was very short, first of all.
They didn't have a whole lot to say. And it was, I think, largely as expected tonally. They do seem quite a bit more comfortable with the idea that perhaps they have done enough to bring inflation back to target. The language suggested that they think they are another step or two down the path towards 2% inflation.
If you go back to last October, they talked about inflation risks worsening.
The minutes from the October meeting suggested that some members of the governing council weren't convinced that rates were actually high enough to achieve their inflation target.
That sort of lack of comfort, I would say, with the inflation backdrop I think was really evident in that October statement.
December was, I think, much more muted.
They talked about the Canadian economy seeing growth stall over the last few quarters. They talked about slower growth globally.
They several times talked about how high rates were effective in quelling household spending. It just seems like they're much more comfortable that they are in fact done hiking rates.
Now you mentioned that they did say, well, we will hike rates again if we need to.
Inflation is not low enough. And it's true that inflation is not low enough. Their target's 2%.
Inflation's around 3%. So I'd be concerned if they were saying that-- >> That's right. Mission accomplished, victory lap. Don't worry about it. Enjoy the holidays.
>> Exactly. It might make it very nice holidays but it would probably be irresponsible central banking.
The thing with talking about being willing to hike rates again is as long as you have that threat out there, however theoretically, it constrains market pricing of cuts. If they had taken away the line about being willing to hike again if needed, markets would have taken that as an indication that rate cuts were imminent. And you would have seen bond yields move lower across the front end of the yield curve, loosening financial conditions.
In order to get the most impact out of the hikes that are already in the system, and therefore, in order for them to be able to avoid hiking more, they need to maintain this sort of threat, credible as it may be, that they will hike rates again if needed to prevent markets from becoming too complacent, to prevent households from getting too complacent.
Because ultimately what they want is these rates to produce more savings, less spending. And by threatening to raise rates if we don't get back to 2% inflation, it just allows them to have the maximum impact from those hikes.
>> Now as you said, we got a statement today, not a very long one. We didn't get the press conference. There was no monetary policy report. So there wasn't a chance to ask questions of Governor Tiff Macklem. If there had been, I imagine someone in that room-- and I used to be in that room in my former job-- would say, so when are the cuts coming? And he's been pretty consistent with saying, much too early to start talking about that. But of course, TD Securities has a view on when the cuts are coming.
>> Certainly. And every meeting that we go, we get a little bit closer to the date of rate cuts. Now we still see this as a mid 2024 scenario. We still look for the first rate cut to occur in July. We think there will be about 100 basis points of cuts next year. Whether that starts in July or June or April, that will really depend on the path of inflation. For the Bank of Canada to cut rates, they need to have achieved both, be well on the way to achieving their inflation target.
So they don't need to be at 2% year-over-year headline inflation, and they've said that.
But they need to be extremely comfortable that they are going to get to 2%. And they need to be in a still sluggish growth environment with excess supply in the economy, of slack in the economy.
Now, growth certainly sluggish. I would argue with the unemployment rate where it is, we are now back to balance in the economy. So if growth remains slow, as we expect it will in Q4 and in the early part of 2024, we will go into excess supply.
There will be some actual slack into the economy. So from a growth standpoint, the economy is probably weak enough for them to justify taking away a little bit of this tightening.
But from inflation, you look at the underlying trend in inflation, it's sort of consistent with 3% inflation as a steady state. And that's still too high, which is why the Bank of Canada just has a little bit more work to do holding rates at these levels until we can keep inflation moving along that path to 2%.
The risk they run is if they were to cut too early and we settle at a level of inflation that is above 2%, they run the risk of having to actually reverse course sometime down the road. And I think you absolutely do not want to see in the context of an economy with really significant mortgage resets coming in 2025 is a central bank hiking into 2025.
That would be a pretty negative scenario for the economy, just in terms of it would really lock in tight financing conditions for a lot of households for a long period of time. And it would also limit the Bank of Canada's ability to influence the economy between 2025 and 2030, as people get locked into these higher mortgage rates. And lastly, and probably most importantly from their perspective, if they start cutting too quickly, after having missed their target for as many years as-- >> We're going to lose faith, right, in their ability to control their mission.
>> And ultimately that gets reflected in wage negotiations. That gets reflected in contracts with suppliers for firms. And it just builds that inflation into the system and it makes their ultimate job that much harder.
So I would make the argument that they would probably rather start cutting one or two meetings too late then cut one or two meetings too soon. They'd rather make well and sure that they are on track to 2% inflation rather than sort of risking it and moving a little bit early to let the sort of pressure off the economy a little bit.
>> So now we have the last rate decision of the year from the Bank of Canada in our hands. We're able to go through it, dissect it, as we have. We still got the Fed coming up next week. Is it going to be pretty much the same story from them? Are there different factors in the States?
>> Well, I think the different factor in the States is that the US economy in the third quarter was quite robust. You actually have fairly similar market contexts, where people are looking for around the same amount of Fed cuts next year as they're looking for the BOC. It is that sort of same story that central banks are telling, central banks in developed markets, like we broadly believe they are done here, with the exception of Japan.
Now it's a question of just trying to push back on very near term rate cut expectations, because no central bank wants to cut too early. And the Fed is always very focused on financial conditions. As yields have moved lower, financial conditions have loosened.
And they wouldn't want to encourage further loosening in financial conditions.
So I think the message will be much the same. We have made progress on the inflation front. The economy was stronger in the US, however, which makes it almost a little bit easier for them to push back on near term rate cut discussions.
>> That was Andrew Kelvin, head of Canadian and global rate strategy with TD Securities.
Now, let's get our educational segment of the day.
You may already know everything you need to know about transferring cash into your registered accounts, what about securities? Bryan Rogers, senior client education instructor at TD Direct Investing is here to tell us all about it, the do's and don'ts as well as the pros and cons. Always great to have you here.
Walk us through it.
>> Thanks. This is definitely one of those timely topics because we know we're getting into the end of the year and what we are thinking about what are we going to do for contributions into our RRSP or even your TFSAs so you can reduce your taxable income if you are using RRSP or TFSA, maybe you could have something grow tax-free over time so definitely things to think about contributions. A lot of people don't realize you can do that contribution in kind.
What we mean by in-kind as you can move securities from say a taxable account, if you had a stock, if you had TD soccer Apple stock or whatever it may be, you can move those shares without actually even selling them and move them into a TFSA or an RRSP. There different ways to do it. We will jump into a broker and I will show you how to do that. Then we will talk about some of the things you want to consider as well.
If you're in a broker, remember you can go to the accounts tab.
This is where you do your transfers.
Many of you may be familiar with this already. This is where you are going to do your cash transfers if you are transferring from your TD Canada trust account. You can do that right from here.
You can do interact each transfer if you're transferring from outside TD, transferring cash. In the same location, you click on this transfer cash within TD, including… You click on an icon that is going to pull up a tool where now you can transfer additionally because it defaults to cash so I can transfer from any account. This is just a demo. You will see all your bank accounts here under from or some of your direct investing accounts as long as they are all connected.
But if you want to do this from outside TD or what we are talking about today, security transfers, you're going to go right here and you are going to go from account and to account and then follow the steps.
Another picture to show you because this account doesn't have anything in it but if you're in your own account, look something like this and you can use this as well so you can figure out some answers you might want answered. You can look at the eligible securities because some may not necessarily be eligible.
But if you scroll down you can see there is a screenshot here to show you what it might look like. There is an example where we have ABC holdings and XYZ, our two favourite stocks that we love to talk about.
Then you can see in your own account you will see her holdings listed there and you can decide, I want to transfer or go in-kind 100 shares, 200 shares, safety, you can do whatever amount as long as it's a whole number of shares and will give you the value and you can move it into the other camp.
>> If someone is thinking of actually moving their stocks sorry. Part of me. In kind, what are the tax implications?
>> Yeah. I'm going to jump back into a broker.
I can show you. If we do go here and we look at the screen, where we are showing the dollar amounts, when you see the dollar amount, this is an example, you want to be careful on, okay, there are two things. Tax implications can only occur if you are going from a taxable account, you are in an account that is taxable and you want to move that stock and you say an RRSP or a TFSA, you want to be cautious on that because it is called a deemed disposition, it's like selling a stock.
You could have capital gain.
The perfect time to do this I would say, you could factor and if you're going to have again, you can just pay the taxes on the game, but another thing is if you have a stock and you're in a situation where it's down a little bit, this bit of a loss or if it's down a lot you may want to reconsider because then you can't carry forward those losses against other capital gains in the future, so you may want to check with the tax advisor. Anything you're moving in-kind into a TFSA or an RSP would have tax implications meaning there could be a capital gain if they are there. If it's a loss, the need to sacrifice that loss and that's okay.
If it's a small loss, at least removing those shares into something that's tax-deferred. Or you are moving into a TFSA where you are now going to have no tax implications at all.
In the future, anyway.
You will be able to grow it without taxes.
Always check with your tax advisor just in case but remember if you do have something that has a little bit of a loss and you're okay with moving it into one of those counts, you're going to get the benefit of the RRSP or TFSA potentially by moving those shares.
>> Very interesting stuff and important caveats there about contacting someone for advice if you need it. Thanks, Bryan.
>> All right. Thanks, Greg.
>> Bryan Rogers, 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.
Well, it's been a pretty choppy ride for the TSX this year. So what might we expect in 2024? Earlier I spoke with Michael O'Brien, managing Dir. and head of the core Canadian equity team at TD Asset Management about some of this recent volatility we have been seeing.
>> I mean, when you get into these types of periods where you have these violent moves, it can be pretty disorienting.
You forget those first principles around valuation and momentum.
And so it's fascinating when you look.
Obviously, November-- it was a huge month, a huge month. But like you say, September, October were really pretty dark times. It just never ceases to amaze me the swings in sentiment.
And so it's not so much that fundamentals were detached from those moves. It was more that when sentiment gets on board, things can get amplified or taken to extremes. And that's where-- I think that's where we need to step back and say, wait a second, let's put this in perspective.
And so despite all these ups and downs, when you really step back, these markets have been rangebound for the last couple of years. You look at the TSX. We peaked-- I think it was in April of 2022. So this is almost two years now. The S&P peaked a little bit before that in January of 2022.
So for the better part of two years, you've had this churning, sideways market.
And I think when you look at it, it makes sense because that coincided with the beginning of the rate hike cycles both in Canada and the US. And so it does make sense when you think of it in that concept, in that framework. This rangebound trading is because we've all been trying to figure out how much work do the central banks have to do, how are the economies going to respond, how are earnings going to respond.
And it's still not quite clear what the outcome is. But I think as we head into 2024, we're a little bit closer to that conclusion. But it's just-- I think it's always helpful-- I find it always helpful just to step back and try to put it in that bigger picture perspective that, look, for all the excitement, all the running we've been doing, we're all out of breath. We haven't gotten anywhere in two years. So it's just important to put that in perspective.
>> Up and down, up and down. So as we head into next year, there's two ideas that are in my mind just from having gone through reports and thinking what economists are saying, what strategists are saying-- that we're probably going to see rate cuts from the central banks, including ours, maybe even as early as the spring from the Bank of Canada.
But we're also going to see a slowing economy. If I put those two thoughts together in my head, what am I supposed to think about the markets? What about the TSX?
>> When I look at it-- and you're right.
Obviously, investors-- a big part of the move that we've seen in recent weeks has been investors hoping, believing, speculating that rate cuts are going to come. But at the same time, they're wishing for those rate cuts without the thing that would typically trigger a rate cut, which is a really nasty downturn, which would impact company earnings and impact employment.
So there are a little-- some inconsistencies, I would say, just in terms of how the market necessarily is looking at that.
But bigger picture, clearly, the viewpoint is that rate hikes are behind us. And it's a question of if and when rate cuts will arrive.
I would look at that and say, in the Canadian context, I suspect that there will be rate cuts by the time we get to the middle of the year. And the reason I think that is because I think the economy needs those. I think it's becoming more clear that the Canadian economy is slowing.
And when you look forward, there are some pretty obvious headwinds on the horizon that we're going to have to work through.
It doesn't mean that it's all doom and gloom. But realistically, I think the outlook for 2024 has to be a pretty sober one, where we would expect in Canada to have pretty sluggish growth. By extension, you shouldn't expect a real blowout earnings year for the Canadian companies, by and large. This is going to be one of just churning through a lot of headwinds.
>> Let's talk about one sector in particular I know you want to illustrate in terms of what we could expect to see in this kind of environment, what's happening with the banks. We've just been through banks earnings season. They've been warning us they're getting ready for a bit tougher time next year.
>> Yeah. And so again, this is one of those ones-- you want to have a balanced perspective on this because on the one hand, the bank earnings numbers were a bit disappointing. It was a mixed bag, I guess you would describe it. And clearly, what we saw was continued increase in PCLs, or loan losses, not to alarming levels. But the trend has been higher.
We're seeing more pressure on loan growth.
Loan growth is slowing. We're also seeing pressure on capital levels. Just people don't want to let their guards down. And so all of those things are conspiring to keep pressure on the earnings outlook.
So like I said, about, I think, three of the six banks beat expectations. Three of the six missed. The more important thing is earnings estimates for the calendar 2024 and fiscal 2024 are still coming down. They're still being reduced. And expectations now are pretty modest for the year.
On the other hand, though, when you look at the way the banks have been trading and some of the sentiment around them, they're trading, a lot of them, below 10 times earnings, 5%-ish type dividend yields.
They're pricing in a lot of negativity.
And so when you go through and say, is that well founded in the results we just saw.
The areas that you would typically get most alarmed about, things like how is credit unfolding, are they in a position where they have to actually raise capital or they're offside on capital-- and those boxes-- they still look very solid. The credit picture, by and large, is holding together, I would say, better than the bears would have thought.
Credit or capital-wise, obviously, people want to guard their capital cautiously in these types of environments. But they're all sitting there extremely well capitalized. So those real tail risk downside scenarios don't seem to be in the cards at all right now. So that's, to me, quite reassuring.
So like I say, it wasn't a great earnings season for the banks. The outlook isn't great.
But it's not terrible, either. So again, more of that churning sideways market-- that might continue for a little while with the banks in particular until people get a stronger view that the worst is behind them.
>> Could that set us up-- now I'm going to be probably too optimistic. You said don't be too optimistic, don't be too pessimistic heading into next year.
>> We don't have to be all sour.
>> But could that set us up in the sense that if things-- if we stick the perfect landing next year-- the economy doesn't crash and the Bank of Canada is able to ease off of restrictive policy and we get that perfect soft landing-- could that mean better things than perhaps we're expecting for the TSX? The financial's such a heavy weighting in the index.
>> And the short answer is yes. If we get a soft landing, if inflation comes down without excessive job losses, if economic growth bottoms at a reasonable level and then begins to tick higher, if interest rates are cut by the central bank, then yes, there's absolutely upside in the market. The question we always have to ask ourselves is, how realistic is that set of outcomes?
And so it's not impossible. But it's probably not the most likely outcome.
There will probably be one or two wheels that fall off at some point. And you have to put them back on.
And so that's when I frame it up like it's-- the markets are at a point where in the Canadian context, valuations aren't demanding. Valuations aren't really the problem. They're reflecting cautious expectations. It's just the most likely outcome, at least with the data we have today, is that it probably will be a difficult year next year in terms of earnings growth. It probably will be a difficult period of time for the Canadian economy, for the Canadian consumer, for those Canadian households that see mortgage renewals coming in 2024, 2025, 2026 that will squeeze the cash flow they have available to spend on other things-- to spend on entertainment, groceries, new cars.
So all of those things suggest that we're probably into a period where growth will be a bit sluggish for a while. But if we get one of those pleasant surprises-- and the market never ceases to humble us. The market never ceases to surprise us. If we get one of those outcomes, then absolutely there's upside because the markets are not, at least in the Canadian context-- the markets are not reflecting an exuberant outcome.
>> That was Michael O'Brien, managing Dir.
and head of the core Canadian equity team at TD Asset Management.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This, of course, is the heat map function.
He gives us a view of market movers. We are going to start with the TSX 60, screening my price and volume.
With American benchmark crude stabilizing, we are just shy of 71 bucks per barrel in West Texas intermediate, we are seeing some positivity in energy names.
In the wake of the latest jobs were poured out of the states coming in stronger-than-expected, bond yields pushing up a bit on the news, seeing some of the gold miners pullback including Barrick Gold, ABX, down almost 3% on the session. South of the border, let's see what's happening with the S&P 100. I want to check in on some of the technology names. A bit of a bumpy ride in that space again this week but today you're getting some of the chipmakers bouncing back. Got Nvidia up almost 2% although AMD, which made some nice gains yesterday, sort of sitting flat.
As I said earlier, some of the automakers are making gains, traditional names including General Motors up or Ford.
You can find more information about TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Sticking with markets, technology stocks have certainly had a good run this year, with the tech heavy NASDAQ op. cit. more than 37%. But will that performance continue into 2024?
Vitali Mossounov's VP, Dir. and code lead of fundamental equity research, TD Asset Management.
>> I remember we sat here in mid-January talking about how this is a make or break year for tech.
. It had been a bad 2023, and we were looking for the litmus test. The way we described it was, will revenue growth accelerate, and will these companies get costs under control? 11 months later, the words, the numbers speak for themselves.
They did it. And share prices have acted in a very predictable way when you deliver above expectations in the stock market.
>> OK, a lot of those expectations, though, heading into the year weren't that great, and then you had the Magnificent Seven show up and artificial intelligence show up.
>> That really showed up.
>> A lot of people have said there's not been a lot of market breadth, though. How do we read it that way?
>> Well, before we talk about breadth, let's just look at the numbers to put things in context. And we have a chart for that showing-- it's a simple chart-- year to date returns. And that's one that really stands out.
Magnificent Seven up 98% for the year.
These are big, sophisticated companies doubling in less than a year.
Look, the performance has been good in other places, in fact, great. The NASDAQ 100 up 46. The S&P still up 21. Those are great numbers as well.
But, yes, you could say the breadth hasn't been there. But, still, it's been OK. We could dive into breadth a little bit more.
>> Yeah, because that's a pretty telling chart, right?
You take the Magnificent Seven, and they're just way-- even if you're not a chart analyst, you can see way up here, everyone else not bad, but down here.
>> Different postal code there. Yeah, different postal code.
Yeah, and as far as breadth is concerned, look, it's a fair statement. And I've got another chart I wanted to share. It's a little different. It's the advancers and decliners. So any given day, you measure how many stocks go up, how many stocks go down. If there's more going up than down, then that line is positive. If it's negative, that means there's more stocks going down.
So you'd expect, typically, that to be a positive number. There should be, on any given day, more stocks increasing in value than falling. The markets tend to go up over time.
And what you see there in that 10-year chart, on average, the horizontal line, on average, there are 65 more stocks going up than going down in price. But over the course of time, that has changed a little.
So if you look at 2023 specifically, if you looked at that without knowing the performance of stocks, what would your first guess be? How did stocks do when you see that line all the way there at the bottom?
>> You'd think not very well.
>> You'd think not very well.
>> I don't like to see things go down. I like to see them go up.
>> What that tells you is most stocks spent this year, or most of the year, we've seen more stocks falling than rising. And yet we just saw that 98% of the Mag Seven and the great returns for the NASDAQ. So, indeed, the breadth hasn't been there. But I think we can extract some optimism out of that as well, because we're heading into a new year, we're turning a new leaf, and there are a lot of companies that have still kept growing their earnings, that have still gone on conducting their business rather well, and their shares have not been rewarded. So from a breadth perspective, we could certainly see a 2024 where the Magnificent Seven take a bit of a pause and the rest of the market has a chance to make its move higher.
>> All right, so an argument there that perhaps, even though we don't like to see lines and big chunks of a graph go negative, that there's a pretty good setup outside of the Magnificent Seven. How do you hand off the baton? What would have to happen for those other stocks to say, now give us a bit of the limelight?
>> Well, flip that question, actually, on you and say, well, what would have to happen for the Big Seven not to perform so well, right?
And that is the million dollar question in my mind. They're both valid questions.
But I did bring a table to walk us through that as well, and how we started the year with a litmus test. Let's see if there's a natural handover from '23 to '24. And I have five variables I wanted to look at.
These are the variables that typically do drive these stocks.
So let's compare the setup for '23 with the setup for '24.
>> All right, so here we go. The Driver column, we got your five, accelerating revenue growth, falling costs, attractive valuations, falling discount rate, and a good story. 2023 and 2024 I feel like this. So let's play the game.
>> Let's play the game. Well, 2023 revenue growth was really bad heading into the year.
If you look at the back end of '24, the big tech companies, their revenue growth was close to zero. After Q3, it's as good as 12%, 13%. So we got our accelerating revenue growth. That was a good setup for the stocks.
Heading into 2024, I wouldn't bank on that. They might. They might not. But more or less, they're growing in the low- to mid-teens. That's more appropriate for these companies.
So on the first factor, the setup for '23 was better than the setup we're getting for '24.
>> Right, the next one on the list is falling costs, I believe, and you talk about some cost discipline. So-- >> That's right.
>> --let's compare the two years.
>> Heading into 2023, again, let's go back to the fourth quarter of 2022. These companies' spending, we've said this before, like drunken sailors. Costs were up 20% year over year, 30 for some businesses. Year of efficiency, year of discipline, not just at Meta. As you exit the third quarter of this year, for the big five tech companies, expenses grew just 2% for the group. So falling costs, investors like that, because that's more profits in our pockets, that was a nice catalyst for the stocks.
Heading into 2024, you're not going to get that again. These are growth businesses.
They're going to need to invest back into the business. I don't think there's any way they can grow expenses as little as 2% next year. So, again, an incrementally worse setup than we had heading into '23.
>> That's the first two. Let's get to number three now and see how we set up.
They found some religion on costs. What about attractive valuations?
>> Another one that I think we're going to give the nod to '23 over '24. Heading into 2023, valuations were down to about 20 times earnings for the NASDAQ 100, again, those big tech companies trading in the US. That is a historical low, as far as measured at least from the 2018 period.
Today the stocks have done well. The earnings have done well. But the stocks, they've seen some multiple expansion.
Sentiment is higher. You're paying 24, 25 times, not egregious in a historical context. But, again, a lower valuation, all else equal, is better than a higher valuation. And heading into '23, investors had a better set up. They were paying less for businesses.
>> All right, I feel like '23 is winning this game.
>> Winning 3 to nothing so far.
>> Let's go back. We're at number four now. I believe it was a falling discount rate. So how does this size up?
>> Well, this is one we've talked about now ad nauseam for a couple of years. And rates have been rising and rising and rising and rising far longer than many observers expected. And, of course, with some of the growth of your companies, their cash flows are further out into the future. And in the market in general, for companies, their cash flows are in the future. So the higher the rate that is competing with those cash flows, both in terms of putting your money in a GIC, or simply discounting those cash flows back, the less that company is worth.
'23 had a real headwind. Rates kept rising and rising and rising. They just rolled over a few weeks ago. But heading into 2024, it looks like rates are falling, which is an exogenous variable, but an important one for these stocks, and could act as a tailwind.
>> All right, 2024 finally gets a check mark. The final thing is investors. We look at fundamentals. We look at numbers.
We'll say, we like a good story, though, as well.
>> We like a good story. And I am not being facetious with this one. It is true.
Stocks do well, but they need to have a good story to do well. You cannot just have a bad story and do well.
And heading into '23, there was no story.
It was really early for AI. Some had begun to talk about it. But it was mostly bad, bad, bad.
Heading into '24, AI is becoming real, you could say. Product launches are coming.
It's not just talk. Alphabet, Google last night with its Gemini. We can talk about that in a bit. But there's a really good AI story heading into 2024. So when I compare the quality of the narratives and what can support sentiment in stock prices, I think 2024 wins on that one again.
>> That was Vitali Mossounov, VP, Dir. and coleader fundamental equity research at TD Asset Management.
He wants to stay tuned. We'll be back on Monday with Daniel Ghali, VP commodity strategy at TD Securities to talk about the outlook for commodities. A reminder, of course, you can get a head start. Just email moneytalklive@td.com.
That's all the time we have for the show today. On behalf of me here in front of the camera and everyone behind the camera who brings you the show every day, thanks for watching.
We will see you after the weekend.
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