Show Transcript
Print Transcript
[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 take us to the latest inflation data out of the United States and what it could mean for the Fed next week. We have another right decision in the offing and we will have a look to the possible divergence and rate policy between the United States and our country, Canada, with TD Asset Management Michael O'Brien. TD Asset Management's head of asset allocation Michael Craig will give us his thoughts on whether these recent bumpy markets we've seen, if it's a breather in the rally or something bigger.
Plus in today's low broker education segment, Jason Hnatyk is going to show us how to use Advanced Dashboard to research different companies.
Before all that, let's get to the market update. We will start here at home with the TSX Composite Index. See what kind of Friday we have on our hands.
Got 53 points to the upside, about 1/4 of a percent.
Among some of the most actively traded names include minors. Let's check in on Kinross Gold.
Kinross is up to the tune of about half a percent. Active volume but not all that much upside. Capstone seems to be benefiting today. They are up more than 7 1/2%.
We have some possible M&A, going to tell you later the show about a big player making a bid for another big player and the other big player rebuffing. Some excitement in the mining area around copper. South of the border, the S&P 500, what do we have in our hands today? It's been a bit of a bumpy week.
Today we are up about 1% or 53 points, 5101. The NASDAQ, I want to check in on that. We've got a lot of tech earnings.
The handful we got after the close yesterday please the street.
You've got the NASDAQ up a pretty solid 2% up at this hour. Intel is not taking part in that rally, their quarterly laws and disappointing Outlook weighing all the name today, the stock is down 8.5%. And that's your market update.
Inflation, inflation, inflation! A big concern. This morning, we got what one TD Securities report called possibly the most important data print of the year.
That's a big one. MoneyTalk's Anthony Okolie joins us now with more. I think were talking about the Fed's preferred gauge of inflation.
>> That's right, and we don't hear that term immaculate disinflation quite as much as we did last year. We see inflation cooling and a spike in unemployment. We just got the PCE Index and the prices in the US jumped again in March based on the Fed's preferred inflation metric. On a monthly basis, the PCE Index and more closely followed core rate, when you strip out food and energy, Rose .3% and that came in as expected. It is equal to the increase in February.
The yearly rate of inflation climbed 2.8% last month, that's slightly overshooting estimates. Now, while the six month annualized change was at 3%, the big concern is the three month annualized measure would continue to rise. It rose from 3.7% to nearly 4 1/2%, pointing to more stickiness in inflation in the near term. Also core services exclude housing or what we call super core inflation which zooms in on prices of services.
It also suggested that near-term price pressures persist so taken altogether, these developments point to the Fed continuing to exercise patience until they can see inflation moving towards a 2% target.
>> It almost feels like the Fed has been telling us for quite some time now, we need to be patient and see evidence.
Investors at the beginning of the year didn't really believe them.
The expectations for how many rate because the Fed could deliver this year have gone down dramatically. What is the thinking now? We started the year thinking you get a handful of cuts and now we are at April and we have some different thinking.
>> That's a great question.
We have a Fed meeting next week. It is widely expected that the Fed will keep its target rate unchanged between five and 4:45 and 1/2%. We talk about expectation for rate cuts, the Fed appears to have lost confidence in their own trajectory for cuts according to TD Securities. They believe that if they release dot plot projections today, it's going to be 0 to 2 cuts versus the 3 Cuts Expected Back in March. TD Securities expects at least 1 Cut in September because they expect the PC to moderate.
They are penciling a second cut in December. They say there is a risk to that Outlook particularly if inflation continues to be sticky, that could mean certainly different rate cut decisions by the Federal Reserve but again they think that inflation continues to surprise to the upside with no signs of stopping and softening in the labour market continues to wail the Federal Reserve's decision.
>> I feel like we need a visual for this, let's see, is the Fed going to cut in June? No, no. They keep pushing it out of pushing it out. Maybe we will work on that and see what happens.
>> We are going to be covering the right decision next week, we have Scott Colbourne who is going to be giving us direct market reaction to the Federal Reserve's decision.
>> Interesting times indeed. Thanks for breaking it down for us.
>> 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.
We showed you Intel earlier in some of the pressure that stock is under, let's show you one of the tech stocks on a bit of a tear today. Alphabet is up to the tune of more than 10%. What's going on?
This is the parent company of Google. It did beat on earnings expectations, announced its first ever dividend and is planning a $70 billion share buyback.
Both the ad business in the cloud services division showed strength during the quarter. He will it all together and you got Alphabet at 171 bucks and $0.90 per share. AngloAmerican rejecting a $39 billion US takeover bid from rival BHP Group. It's calling the offer opportunistic. In a statement, Anglo said the unsolicited offer fails to value the company's prospect. A deal between these two companies if it did happen would create the world's largest copper binder.
It's gotten a bit of excitement in the world of mining. Let's talk about natural gas prices. They have been depressed.
Natural gas dropping to a four-year low is the headline I looking at now on my web broker feed.
And that is hitting the refining margins at those natural gas plays. ExxonMobil, in its latest quarter, will the energy major beat the streets expectations on revenue, sales were done compared to last year.
Apart from the earnings, Exxon is embroiled in a dispute with Chevron over the company's plan takeover of Hess Corp.
The company is down 3%. Click check all the markets.
Today we are on the green, up 69.0 third of a percent on the TSX Composite Index.
South of the border, bumpy ride for the S&P 500.
They are up about a full percent.
At the beginning of this month, markets were sitting at record highs but we've had a pullback since then. Investors are considering that Outlook for rates. Where could all go from here? Michael O'Brien, managing director and head of the core Canadian equity team at TD Asset Management you and me earlier to discuss.
>> If you go back to when the markets were making highs only a couple of weeks ago, I think what really was driving that was a real sense of confidence among investors that we were going to get that soft landing that we were looking for. The economy south of the border was holding up quite well.
So people were looking for that kind of perfect outcome where growth remains solid but inflation comes down, which leads to a series of interest-rate cuts. And so it wasn't that long ago that markets are pricing in five, six, seven rate cuts out of the Federal Reserve south of the border. I think what is rattled the markets wasn't just today's print, it's a perfect reflection of what we have seen, the last couple of inflation reports out of the states of common a little bit hot.
That has caused investors to question whether it was really going to be as easy as it looked a month or two ago.
Below starting to ponder, what if we don't get rate cuts? What does that mean for valuation?
Today, the headline GDP number printed a bit soft.
I can look past that. I don't think it's concerns about weakness. I think it's more of the inflation side where again you saw the inflation component of that report today was again a little bit hot.
So people are starting to rethink this whole idea of how many rate cuts and what are we going to get them south of the border. I think just before coming into the studio, the leader seems to be that the first rate cut has been moved right back out to December in the US. That's a big change and I think that's what's rattled investors here.
>> Some people may be looking at today's data out of the states, you say you're looking pass out to the inflationary stuff. You put a soft economy together with the sticky inflation, people start mentioning the word stagflation.
>> If your starting point is markets pretty much across the globe were in takes from all-time highs, a month ago that's where we were at not just in the US, a lot of things have to go right. Personally, I think the notion that stagflation is a more likely outcome. I think that's not the case at all.
The balance of evidence that I am seeing still suggests that the economy is in decent shape and inflation in the states has been cooperating not quite like we would hope, but it's certainly not sending out alarm bells that things are re-accelerating to the upside. I think it's just, I would characterize this more as a healthy correction or healthy rethinking of what had kind of gotten to be exuberant expectations a month or two ago. In life, things aren't usually a as exciting as it seems.
I think it's just a reality check. All things equal, I think we are at a pretty decent spot here, certainly relative to where most investors thought we would be six months ago, nine months ago. Growth does look pretty decent in the states.
Inflation has made a lot of progress. It's just we are going to have to be patient and let this process play out anything to their credit that's what the FOMC members have been communicating for quite some time but we didn't want to hear it. Be patient. Things are trending in the right direction but it's not a straight line.
I think the market is finally taking that to heart. We are not necessarily going to get everything we want right away, but it still seems to be the most likely outcome.
>> A petulant child hears, I'm not going to get everything I want right away? Come on.
>> Exactly. That's exactly the sentiment.
>> That's the way life works. Let's talk about the Canadian situation. The Americans have seem to be exceptional through all this in Canada, we have a different story.
>> I think in Canada, it seems to be a little more of conventional economics 101 playbook.
The rate hikes that we saw in Canada, they have had that expected or intended impact which is the economy has been slowing a little more notably than south of the border. The good part of this is that as the economy has slowed here, we are seeing inflation respond the way we hope twitches in contrast to the last few hotter than expected inflation report south of the border.
The Canadian CPI data has actually been quite well behaved. Tiff Macklem, the Gov.
of the Bank of Canada, after the most recent CPI report last week, he made it very clear that the Bank of Canada is happy with what they are seeing. Good progress is being made.
I think where is south of the border, investors are pricing out that first rate cut until much later this year. Based on what I'm seeing and what I'm hearing out of the bank of Canada, I think whether it's this next meeting in June or the meeting after that in July, I think we are on the cusp of a rate cutting cycle here in Canada.
>> Talk about divergence. When Tiff Macklem was making those comments the day of our last inflation report, just on the other side of the desk was Jerome Powell, the head of the Fed, and he said the exact same thing.
That divergence.
If we start cutting and the Fed does not start cutting, how far can we go?
>> There are limits but the short answer is I don't think we are close to those limits today.
Typically, the limiting factor here would be if there's too much of a divergence between the Bank of Canada and the US Federal Reserve, where that's going to show up most obviously is in the currency exchange rate and that does have implications for inflation. So the Bank of Canada is working very hard to get inflation to where it is today, they think it's on a good path but if the dollar, the Canadian dollar becomes unduly weak, you think about buying all those vegetables from California, fruits and vegetables, that's a way of importing inflation through weaker currency.
The Bank of Canada is going to be careful not to push this too far, but my view is that there is definitely room for at least a few cuts. The Bank of Canada does have some flexibility autonomy here to go in a slightly different direction than the US.
If the economic data support that.
>> What does that mean for investors?
If the Fed is perhaps on hold for longer but the BOC might be cutting, does an investor look at that and say, there are certain opportunities in different asset classes?
>> I mean just bringing it to the Canadian market, there are a number of Canadian companies who generate if not the majority certainly a large percentage of their revenues and their earnings south of the border.
You think about the Canadian energy producers who pay their workers in Canadian dollars but sell their barrels of oil in US dollars, you think about some of the Canadian banks for example which have big franchises south of the border and big railroads which have big pieces of their business south of the border, they are benefiting from that stronger US dollar when he translated her take it back into Canadian dollars, as there definitely winners, relative winners, but coming back to your first point, if the Canadian dollar is too weak, we risk on doing the good news on the inflation front. At a micro level, there are definitely some companies that are positioned well for this, think of exporters in southern Ontario, but too much of a good thing can undo some of that positive inflation data.
So we don't want to go too far.
>> Let slip and one more thing before we end this part of the conversation. We are in the early days now but we have had some Canadian companies report so far.
Some of those conditions that you mention, do you expect that to show up in earnings?
>> To your point, the US is a little bit ahead of Canada in terms of the cadence of earnings releases so we haven't seen that many, that big a piece of the Canadian earnings reports yet but the reports we've seen so far have been kind of mixed, not great. Some hits, some Mrs., some well-received, some not well received. But that should not be a big surprise given my comment earlier that I think the Canadian economy is showing some softness here. It is showing the impact of that 500 basis points and interest rate hikes over the last couple of years.
So I would not expect to see really strong results.
Looking forward, I think there is cause for some optimism among that 30% or so of the Canadian market which is your traditional resource-based companies, your oil producers, your minors, copper, gold, you look at what commodity prices have done lately, kind of the other side of that coin with inflation heating backup, one of the traditional inflation beneficiaries is that commodity complex.
If you look at where oil prices are today or where gold prices are today, where copper prices are today, you gotta think the outlook for that 30% of the Canadian market that is exposed to this is pretty rosy.
So things stay the way they are today in Q2 and Q3, we will see some nice earnings growth out of those companies for sure.
>> That was Michael O'Brien, managing Dir.
and head of the core Canadian equity team at TD Asset Management.
Now, let's get to today's education segment.
In today's education segment, we are going to take a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
Jason Hnatyk, Senior education instructor at TD Direct Investing is here to tell us more.
>> We have talked a lot about the customization of Advanced Dashboard in the past and maybe even how to make some trades and using technical analysis in the charts but today we are going to look at features that are going to allow us to look under the hood some of those numbers that companies are reporting so let's take a look at what broker, we are going to highlight the analysis tab so we can see what some of these valuable tools are available.
We can see at the top that we are highlighted on the analysis tab. First we are looking at the estimates and ratios tab. This is where we are looking at earnings-per-share, dividend yield.
A lot of those very commonly used ratios.
These are all available for us to compare and contrast over different periods of time. We've got the ability to change the graphs that are at the top of the page.
On the top left-hand corner, I'm looking at earnings-per-share. What's interesting about this is we are conditioned to look for price trends. We want to find out if we are bullish or bearish on the stock.
These trends on these individual ratios and metrics are important for us to see here too, so Advanced Dashboard gives us an opportunity to see a five year timestamp so we can do some nice comparison there as well.
Moving onto the next tab within the analysis area here, here's financial statements.
If we are looking at some of the raw data getting released by different companies, we've got the opportunity to see year-over-year comparisons of some of these very important numbers that make up those ratios. If you've got a high need for information, the financial statements area will be a good landing spot for you there to satisfy that.
Next, after you've done some of your own analysis, maybe you want to see what some industry professionals are looking at.
Let's move forward to the analyst evaluation tab.
Sticking with the theme of the trend, we are getting a month over month, year-over-year opportunities to see how the trends and analyst evaluations are changing but more importantly, at the top of the page, we are getting a consensus of what ratings analysts are giving for a particular stock and we are also getting a consensus target price for what the analysts are projecting for this company and on the right hand side, we get a price which shows us where the current price is in relation to the estimate so maybe if are out there looking for some value, this is an opportunity to really see where some might live. The lesson I will show you on this particular page is the Earnings Analyzer.
All about trends and more information, understanding the relative value of the company, where it's at and where we think it's gonna go, this page does a lot to unpack all of that.
We got a price chart we can compare that to you and look for convergences and divergences with the expectations of the earnings that the company is going to be showing. On the bottom of the page, we get a visual of the earnings-per-share, the projections and how those trends are going, but there's also some great information over here on the right-hand side as well.
We are getting updates on earning states from the company, we are getting those analyst consensus recommendations available here as well and we are getting some volatility information over here which is important to understand.
We got our IP and our standard deviation price projections. It's a nice opportunity for us to see what the math is kind of baking in, an opportunity for the company to get outside of these ranges but now we get to be informed with a little bit of information of probability ranges based on standard deviation right here on the platform.
Lots to unpack in the analysis tool so hopefully we can see some value in coming back here.
>> A lot of valuable tools there. That's one thing I like about Advanced Dashboard, the amount of information. There's a lot to learn about that. Where can we learn more about it?
>> You are right on there.
Just sitting here talking for four minutes, we are not going to begin to scratch the surface. That's why we have a lot of great self-service features available to you on the platform and in what broker to help support you. First of all in the platform, we have the learn tab.
Choose that at the top of the page. You've got a number of preloaded videos that you can watch to bring you up to speed and some key features for the platform but I want to jump into what broker here and on the aptly named to learn tab on the platform, I will take us into the video lessons because there's lots of great information. We've just added some brand-new Advanced Dashboard learning videos that I want to show off to the audience.
I want to take us over to the filter section and then under the investing accounts and platforms, if we filter by Advanced Dashboard and apply that filter, we've got 18 specific videos here to help you learn and many of you recognize this handsome gentleman, Hiren Amin, regular on this program. He has put out a series on Advanced Dashboard.
There are five great videos there for you to unpack and it's worth your time.
>> I like that line above Hiren's face.
It's like the many moods of Hiren Amin.
>> It's a lot to unpack. He's done a great job of having it up to the camera.
>> Definitely high-quality.
You two. Things that. That's my pleasure.
>> Our thanks to Jason Hnatyk, Senior client education instructor with TD Direct Investing. For more educational resources, you can check out the learn centre on what broker or do this as well. This QR code will help you navigate to TD Direct Investing's Instagram page and once you're there, you're going to find more informational videos. Don't worry if you don't have your phone handy, we will show you this QR code at the end of the program as well.
We will get back to it.
The automotive industry has spent years investing heavily into their electric vehicle offerings but in recent months a shift has been taking place in the industry. David Mau, VP, Dir. and portfolio manager with TD Asset Management join me earlier to discuss.
>> EV sales as a whole are still growing.
We look at numbers in 2023 and I want to say 47%, globally, that's about 18% of all new car sales last year. It's pretty meaningful. But what you're talking about is a slowdown and we are definitely seeing that and for 2024, sales growth is expected to slow down from 47% to the low 30s. We are seeing a pretty meaningful decline in new EV demand. The numbers here in North America, the US and Canada is actually a lot lower than 47%. That's because a lot of the growth and EV sales is actually coming from countries outside North America and places like Europe and China. I think the OEMs are to be facing a bit of a challenge for a couple of years until consumers can get to a place where they can absorb these higher prices because EVs generally cost more. That is a main sticking point and it's one of the reasons that we are seeing the sales decline. The second issue with EV demand is that people are realizing that the charging them for structure there is just not robust enough for them to commit to buying an electric vehicle and having that is their only car.
>> That's interesting, as we see the softness of the EV market, every time I see commentary from the CEOs of Ford or GM or the other big automakers, if they are not completely and EV play like Tesla, they have a mix, they start talking more about that makes, especially hybrids.
>> A lot of attention in the last years have been on electric vehicles but we are definitely seeing a shift and more attention being paid more interest being paid to hybrid vehicles. The reason for that is hybrids actually address two of the main challenges that I just mentioned.
Hybrids are actually cheaper to make, cheaper to sell, so it's cheaper for the consumer to buy and hybrids, as the name implies, has an electric motor and a gas powered engine so there isn't really that same kind of range anxiety for hybrid owners because when the electric motor runs out of charge, the car will keep running on the gas engine alone so I think that addresses two very important points for hybrid buyers, especially on the right front.
If you look at a typical hybrid vehicle like a Honda inside or a Toyota previous, the starting prices for those cars are kind of around 30, US$35,000 starting price, where is most electric vehicles we are talking midrange electric vehicles, they're going have a starting price of something in the low to mid 40s, maybe hi $40,000 US.
So that's actually quite a big difference.
It is a stumbling block for new buyers to come into the market.
>> I understand there's something called the Toyota one 690 rule.
What is this? Walk me through.
>> Yeah, that's very interesting.
The Toyota 1-6-90 rule is actually part of an internal memo that Toyota had circulated to its employees and its dealers.
And, as you can imagine, with any good internal memo, it was leaked immediately to the public.
So what the 1-6-90 rule is is based on Toyota's studies and research, they have come to the conclusion that the amount of raw materials, talking about things like the minerals that go into electric vehicles and things to come out of the earth like cobalt, nickel, lithium, the amount of resources that are needed to build one electric vehicle, select the one, can build six plug-in hybrid vehicles or 90 regular non-plug-in hybrid vehicles.
And they came to the conclusion that when you look at the lifetime carbon reduction of one electric vehicle versus 90 hybrid cars, those 90 hybrid cars actually reduce carbon emissions by 37 times more than one single EV so the whole point of the memo was to inform their dealers and employees that Toyota is going to focus on hybrids as opposed to investing a ton of time and money into electric vehicles because the payoff from hybrids is actually much better both financially and from an environmental point of view than electric vehicles.
>> That sounds like the kind of argument that if he got wider traction could really undermine the central thesis of the electric vehicle.
Could this be a challenging couple of years ahead for EVs?
>> Yes but as we know, there are always improvements going on in the manufacturing of electric vehicles, batteries are getting better all the time, prices are coming down in production is ramping up so at some point we will reach a balance point where hopefully EVs and hybrids are somewhat comparable.
>> Let's talk about some of the challenges that we seen in the EV space. It obviously means that if their softening consumer demand and people are looking at hybrids, the pickup is still a very popular option in North America, the traditional pickup truck with an ice engine.
I want to talk about the delayed EV place.
We are seeing delays and plans pushing out.
>> Yeah, Tesla, like you mentioned, is going to lay off 10% of their global workforce. That's a pretty big number.
Closer to home here in Ontario, Ford, the Oakville board plan was scheduled to start producing electric vehicles in 2025. Ford has announced that there would push that back to 2027 so that's going to be a two-year delay.
The reason that Ford gave is that they want to give the market to develop, they're waiting for demand come back.
Hopefully, in two years time, the technology has improved so they will be able to do things more efficiently.
>> Another issue when it comes EVs, we are heading a lot of roadblocks for them right now, the resale value.
You talk about technology moving on very quickly, what does that mean for someone who buys and EV thinking they can sell it a few years down the road?
>> Yeah, that's an interesting point. I've seen some studies that show resale values across all cars, all types of cars, internal combustion, hybrid, EVs, the typical depreciation rate over a five-year period is about 40%.
That's across all categories of cars.
When you specifically look at electric vehicles, the depreciation rate is actually higher. Is about 50%. So if you bought $100,000 EV, in five years, it's at most going to be worth about $50,000.
There are a couple reasons for that.
One big thing is that as new EV models come out, as manufacturers start pushing out new models, one goal is to lower the price. Tesla started on this a couple times in the last year where they have cut prices.
So if Tesla because the price of their Model Y by $10,000, all of these existing Model Y's out there on the road are also going to be worth less.
That's one big factor, as companies continue to reduce prices.
The other thing is, and we mentioned this already, is technology is improving very, very quickly.
If you look at an electric vehicle from four or five years ago, that battery technology has improved tremendously since then so you EVs today are probably going to have a better range, quicker charging and things like, the onboard technology, so the operating system that runs the car, that runs the driver assistance features, the safety features, even the entertainment features have improved drastically so people are starting to realize that within a couple of years, maybe three or four years, that brand-new EV that you bought a few years ago is starting to become outdated and in some cases it's become obsolete.
I think that's keeping some people on the sidelines.
So not only is the car becoming outdated very quickly, the resale value is also not as good when compared to other types of cars, so that's actually weighing on current demand as well. We spoke earlier about the shift in demand, that's also not helpful for demand today because people are gonna wait, some people who care about resale value were going to say, why don't I wait another year or two years?
>> We put all this together, which investors be mindful of in the space?
>> I think for investors who are looking at OEMs, you got to understand where their competitive position is within the industry.
Are they market leader or are they trying to catch up to the market leader?
Obviously, valuations are important.
Again, Tesla is the only automotive company that has a valuation, Lisa PE valuation at significantly higher than everyone else. Most of the traditional mainstream automakers trade at mid single digits, definitely less than 10. Tesla, I actually don't know after today's move, but there's is in the high 40s or 50s.
That's definitely something to take into account.
>> That was David Mau, VP, Dir. and Portfolio manager with 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.
We are into the heat map here, it gives us a view of the market movers. So the TSX 60, by price and by volume.
We are about 80 points to the upside on the TSX Composite Index. Underneath the hood, we got First Quantum, FM, up about 5%. We got excitement when it comes to potential… It's been rebuffed, but BHP approached Anglo with the bid. Anglo said no, we don't like it.
But still, sometimes that stirs excitement in the industry. It would be a massive copper deal. First Quantum is in the copper business, it's about 5%.
Tech showing a little bit of strength as well. Across the rest of the space, it's a bit of a mixed picture across some of the categories. Cenovus up a little bit.
South of the border, it's been a bumpy ride for American stocks. The S&P 100 today, we do have the US markets firmly in positive territory. What is going on?
Google is pretty green there in terms of its upside. Alphabet came out with its latest report. It's having a share buyback.
Intel is down almost 10%.
Markets have been tested recently by pullback and some of the big US tech names. Are there signs of a bigger pullback ahead or is all this just a pause in the rally?
It's been a bumpy week and it's a good question. We put it to Michael Craig, managing Dir. and head of asset allocation at TD Asset Management.
>> Is a bit of exhaustion. It was a pretty aggressive rally to start the year.
I think there are some seasonals at play.
US tax filing is in full swing. Last year was a great year for returns.
People need to sell before April 15 to be able to use that money to pay off their tax bills.
There's a bit of a seasonality effect on top of just some overdone or overstimulation. A little bit of profit-taking, 5% pullback. I don't think there's anything too serious here other than just the market recharging, if you will.
>> One of the narratives heading into the week was after the bouncy week, rough week we had led by the tech stocks at the border that we are going to start getting some tech earnings this week and at some point, we've only had the big banks and a few health insurers south of the border, we are ramping up in Canada, what is your sense of the earnings season right now?
>> Yeah, I think the broadening and the market is a little bit more what we are focusing on so I don't really foresee any big changes. Tesla has had some challenges in terms of the Magnificent Seven. You don't buy tech for quarterly release.
It's a more idiosyncratic growth story if you will. So we have repriced a bit. AI is not going away so there's that. But I think the bigger story for investors is that the rotation of the market is starting to change and you have to look past just technology to see industrials and energy this year which have been great places to work and have done well and you haven't seen the sell off like you've seen in the major tech indices where there is I think a bit of an excessive amount of investor attention.
>> When you say industrials and energy it makes me think cyclical plays that are based on a strong economy. Since of the border, the economy has been doing well.
Is that with this is about now?
>> We are when you keep on trucking for the time being. Manufacturing PMI indices have started to inflect and are now working their way higher so there is definitely a bit of a bid on the manufacturing side globally. Services actually is rolling over so again, very bizarre world post-COVID. A lot of kind industry cycles. Manufacturing has been in the basement for about 12 months now. So I think that's where, what we are interested in in terms of being able to make some money there versus the services side which is had a great run but is starting to soften.
>> On a big macro level, it's the Fed, we had to get to it.
It seems like it's been the story developing in increments.
We entered the year, there's going to be up to six cuts, the Fed said maybe two or three and now may be none.
This is a strangely evolving story. US 10 year bond yields are a 4.6. Where are we sitting in terms of higher for longer?
>> Investor expectations of Fed policy has been incredibly inaccurate really since this hiking cycle started.
I only say that because whatever the narrative is today, it's unlikely that we are really talking about it in a few months time.
It's just we are trying to fit a narrative to the market. Our own view is that this disinflation process continues. It's not a straight line.
Goods inflation has probably bottomed but it's come off a long way. Leading indicators for services continue to indicate that rent is going to come.
There are going to be some sticky spots but wages have soften. Broadly speaking, things are on track.
If we get cuts, non-recessionary cuts, that would be very supportive.
But the thought that we are going to have this re-acceleration with inflation, I'm struggling to take that seriously.
I think people keep trying to fit the narrative, and I think it's important that there is the Fed but there is the Bank of Canada and I think it's pretty likely will see some degree of divergence.
Our country is far more sensitive to interest rates than down south so yes, maybe the federally cuts once this year but I would expect the Bank of Canada to do quite a few more.
>> There was a panel discussion last week, Tiff Macklem and Jerome Powell were on the same panel.
When you talk about divergence, the headlines coming out of it, Powell was saying, we are not seeing the inflation and progress that we hope for. How about you? Macklem said things are looking good in terms of where we are headed.
How much can the Bank of Canada diverge from the Fed?
>> We will follow our own inflation path which has been softer. Employment in Canada has weakened materially and remember we still have massive immigration. When you print zero jobs growth for like six months, 80+ percent of the jobs growth in the government sector, on the back of a million plus people arriving here, that's a pretty dire job market in Canada right now.
I would like to see that look, if the bank cuts and we see the currency really start to weaken, that will be the limiting factor.
But outside of, and I think the BOC will be fine if the currency appreciates, the concern is around depreciation. Rapid depreciation, all bets are off.
But I think outside of that, I think we see a reasonable cutting cycle in Canada in the next 18 months.
>> What about geopolitical risk? This has been in the headlines, just trying to gauge sentiment. The level of tension.
Right now, it seems that tensions are rushing down but it's obviously fluid.
>> That requires a different thought process.
Market participants haven't had to worry for 30+ years, it's been an error of not a lot of conflict.
With the Middle East, I think it's been very much a show of force rather than being were serious so in terms of where we go from here, I would expect to see some cooler heads prevailed but the last five years, 10 years, the direction of travel has been far more severe and we can't rule out conflict emerging between Israel and Iran. No one wants that.
Certainly not the Americans who would be pulled into it.
I think in many ways it's really geopolitical theatre at its best.
On the Ukrainian Russian side, Europe is beginning to rearm. The irony of that conflict is it is pulling the European Union closer now that they have a common enemy.
And the irony is that the kind of drifting of Europe over the years in terms of formulating coherent policy, this is probably going to supercharge that in a positive way. It is unfortunate that we needed a word get people to go that way but I think this is probably long-term supportive for Europe and it will be much more focused on energy and security, industrial policy as well as coordination amongst economies so I think long-term, this is probably the catalyst required for Europe to compete but at a horrible cost.
>> You put that all together and it's a lot, what does it mean for asset allocation?
What should investors be thinking about?
>> Our focus has been on the west plus Japan. We like North America.
We are on the margin less bearish on Europe, it's been underweight for us for a long time and I would say intrigued by was happening in Japan.
Japan is going through those things you see once in a career in an economy. They have emerged from negative interest rates.
They are actually starting to see signs of inflation. Not rampant inflation but inflation which is starting to break that disinflationary, deflationary mindset which is so damaging to capitalist societies.
And you are seeing great improvements in corporate governance and an actual almost collapse of… The percent of the population over 50 is declining because older people are passing which is leading to an interesting demographics, supportive demographics, and they will be facing labour shortages but that's going to increase productivity and investment in the nation so with the American slowly trying to detach from China, Japan is well-positioned to pick up on that.
So increasing our allocations to Japan, place we have not spent a lot of time on it sometime.
>> That was Michael Craig, Managing Director and head of asset allocation at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
and as promised, here is that QR code for TD Direct Investing's Instagram account where you can find more informative features and videos.
Coming up on Monday show, ahead of that tax deadline, April is almost over. Last April is Tuesday, first day of May is Wednesday. You got till the end of the month. Nicole Ewing, Dir. of tax and estate planning is going to be our Guest taking your questions about tax and estate planning.
Some things to think about if by the time get around to Monday you still haven't filed.
A reminder that you get a head start with those questions for Nicole.
Just email MoneyTalkLive@TD.com.
Until the time we have for the show today.
On behalf of me and Anthony in front of the camera and everyone behind the scenes to bring see the show every day, thanks for watching and will see you again after the weekend.
[music]
Coming up on today's show, MoneyTalk's Anthony Okolie is going to take us to the latest inflation data out of the United States and what it could mean for the Fed next week. We have another right decision in the offing and we will have a look to the possible divergence and rate policy between the United States and our country, Canada, with TD Asset Management Michael O'Brien. TD Asset Management's head of asset allocation Michael Craig will give us his thoughts on whether these recent bumpy markets we've seen, if it's a breather in the rally or something bigger.
Plus in today's low broker education segment, Jason Hnatyk is going to show us how to use Advanced Dashboard to research different companies.
Before all that, let's get to the market update. We will start here at home with the TSX Composite Index. See what kind of Friday we have on our hands.
Got 53 points to the upside, about 1/4 of a percent.
Among some of the most actively traded names include minors. Let's check in on Kinross Gold.
Kinross is up to the tune of about half a percent. Active volume but not all that much upside. Capstone seems to be benefiting today. They are up more than 7 1/2%.
We have some possible M&A, going to tell you later the show about a big player making a bid for another big player and the other big player rebuffing. Some excitement in the mining area around copper. South of the border, the S&P 500, what do we have in our hands today? It's been a bit of a bumpy week.
Today we are up about 1% or 53 points, 5101. The NASDAQ, I want to check in on that. We've got a lot of tech earnings.
The handful we got after the close yesterday please the street.
You've got the NASDAQ up a pretty solid 2% up at this hour. Intel is not taking part in that rally, their quarterly laws and disappointing Outlook weighing all the name today, the stock is down 8.5%. And that's your market update.
Inflation, inflation, inflation! A big concern. This morning, we got what one TD Securities report called possibly the most important data print of the year.
That's a big one. MoneyTalk's Anthony Okolie joins us now with more. I think were talking about the Fed's preferred gauge of inflation.
>> That's right, and we don't hear that term immaculate disinflation quite as much as we did last year. We see inflation cooling and a spike in unemployment. We just got the PCE Index and the prices in the US jumped again in March based on the Fed's preferred inflation metric. On a monthly basis, the PCE Index and more closely followed core rate, when you strip out food and energy, Rose .3% and that came in as expected. It is equal to the increase in February.
The yearly rate of inflation climbed 2.8% last month, that's slightly overshooting estimates. Now, while the six month annualized change was at 3%, the big concern is the three month annualized measure would continue to rise. It rose from 3.7% to nearly 4 1/2%, pointing to more stickiness in inflation in the near term. Also core services exclude housing or what we call super core inflation which zooms in on prices of services.
It also suggested that near-term price pressures persist so taken altogether, these developments point to the Fed continuing to exercise patience until they can see inflation moving towards a 2% target.
>> It almost feels like the Fed has been telling us for quite some time now, we need to be patient and see evidence.
Investors at the beginning of the year didn't really believe them.
The expectations for how many rate because the Fed could deliver this year have gone down dramatically. What is the thinking now? We started the year thinking you get a handful of cuts and now we are at April and we have some different thinking.
>> That's a great question.
We have a Fed meeting next week. It is widely expected that the Fed will keep its target rate unchanged between five and 4:45 and 1/2%. We talk about expectation for rate cuts, the Fed appears to have lost confidence in their own trajectory for cuts according to TD Securities. They believe that if they release dot plot projections today, it's going to be 0 to 2 cuts versus the 3 Cuts Expected Back in March. TD Securities expects at least 1 Cut in September because they expect the PC to moderate.
They are penciling a second cut in December. They say there is a risk to that Outlook particularly if inflation continues to be sticky, that could mean certainly different rate cut decisions by the Federal Reserve but again they think that inflation continues to surprise to the upside with no signs of stopping and softening in the labour market continues to wail the Federal Reserve's decision.
>> I feel like we need a visual for this, let's see, is the Fed going to cut in June? No, no. They keep pushing it out of pushing it out. Maybe we will work on that and see what happens.
>> We are going to be covering the right decision next week, we have Scott Colbourne who is going to be giving us direct market reaction to the Federal Reserve's decision.
>> Interesting times indeed. Thanks for breaking it down for us.
>> 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.
We showed you Intel earlier in some of the pressure that stock is under, let's show you one of the tech stocks on a bit of a tear today. Alphabet is up to the tune of more than 10%. What's going on?
This is the parent company of Google. It did beat on earnings expectations, announced its first ever dividend and is planning a $70 billion share buyback.
Both the ad business in the cloud services division showed strength during the quarter. He will it all together and you got Alphabet at 171 bucks and $0.90 per share. AngloAmerican rejecting a $39 billion US takeover bid from rival BHP Group. It's calling the offer opportunistic. In a statement, Anglo said the unsolicited offer fails to value the company's prospect. A deal between these two companies if it did happen would create the world's largest copper binder.
It's gotten a bit of excitement in the world of mining. Let's talk about natural gas prices. They have been depressed.
Natural gas dropping to a four-year low is the headline I looking at now on my web broker feed.
And that is hitting the refining margins at those natural gas plays. ExxonMobil, in its latest quarter, will the energy major beat the streets expectations on revenue, sales were done compared to last year.
Apart from the earnings, Exxon is embroiled in a dispute with Chevron over the company's plan takeover of Hess Corp.
The company is down 3%. Click check all the markets.
Today we are on the green, up 69.0 third of a percent on the TSX Composite Index.
South of the border, bumpy ride for the S&P 500.
They are up about a full percent.
At the beginning of this month, markets were sitting at record highs but we've had a pullback since then. Investors are considering that Outlook for rates. Where could all go from here? Michael O'Brien, managing director and head of the core Canadian equity team at TD Asset Management you and me earlier to discuss.
>> If you go back to when the markets were making highs only a couple of weeks ago, I think what really was driving that was a real sense of confidence among investors that we were going to get that soft landing that we were looking for. The economy south of the border was holding up quite well.
So people were looking for that kind of perfect outcome where growth remains solid but inflation comes down, which leads to a series of interest-rate cuts. And so it wasn't that long ago that markets are pricing in five, six, seven rate cuts out of the Federal Reserve south of the border. I think what is rattled the markets wasn't just today's print, it's a perfect reflection of what we have seen, the last couple of inflation reports out of the states of common a little bit hot.
That has caused investors to question whether it was really going to be as easy as it looked a month or two ago.
Below starting to ponder, what if we don't get rate cuts? What does that mean for valuation?
Today, the headline GDP number printed a bit soft.
I can look past that. I don't think it's concerns about weakness. I think it's more of the inflation side where again you saw the inflation component of that report today was again a little bit hot.
So people are starting to rethink this whole idea of how many rate cuts and what are we going to get them south of the border. I think just before coming into the studio, the leader seems to be that the first rate cut has been moved right back out to December in the US. That's a big change and I think that's what's rattled investors here.
>> Some people may be looking at today's data out of the states, you say you're looking pass out to the inflationary stuff. You put a soft economy together with the sticky inflation, people start mentioning the word stagflation.
>> If your starting point is markets pretty much across the globe were in takes from all-time highs, a month ago that's where we were at not just in the US, a lot of things have to go right. Personally, I think the notion that stagflation is a more likely outcome. I think that's not the case at all.
The balance of evidence that I am seeing still suggests that the economy is in decent shape and inflation in the states has been cooperating not quite like we would hope, but it's certainly not sending out alarm bells that things are re-accelerating to the upside. I think it's just, I would characterize this more as a healthy correction or healthy rethinking of what had kind of gotten to be exuberant expectations a month or two ago. In life, things aren't usually a as exciting as it seems.
I think it's just a reality check. All things equal, I think we are at a pretty decent spot here, certainly relative to where most investors thought we would be six months ago, nine months ago. Growth does look pretty decent in the states.
Inflation has made a lot of progress. It's just we are going to have to be patient and let this process play out anything to their credit that's what the FOMC members have been communicating for quite some time but we didn't want to hear it. Be patient. Things are trending in the right direction but it's not a straight line.
I think the market is finally taking that to heart. We are not necessarily going to get everything we want right away, but it still seems to be the most likely outcome.
>> A petulant child hears, I'm not going to get everything I want right away? Come on.
>> Exactly. That's exactly the sentiment.
>> That's the way life works. Let's talk about the Canadian situation. The Americans have seem to be exceptional through all this in Canada, we have a different story.
>> I think in Canada, it seems to be a little more of conventional economics 101 playbook.
The rate hikes that we saw in Canada, they have had that expected or intended impact which is the economy has been slowing a little more notably than south of the border. The good part of this is that as the economy has slowed here, we are seeing inflation respond the way we hope twitches in contrast to the last few hotter than expected inflation report south of the border.
The Canadian CPI data has actually been quite well behaved. Tiff Macklem, the Gov.
of the Bank of Canada, after the most recent CPI report last week, he made it very clear that the Bank of Canada is happy with what they are seeing. Good progress is being made.
I think where is south of the border, investors are pricing out that first rate cut until much later this year. Based on what I'm seeing and what I'm hearing out of the bank of Canada, I think whether it's this next meeting in June or the meeting after that in July, I think we are on the cusp of a rate cutting cycle here in Canada.
>> Talk about divergence. When Tiff Macklem was making those comments the day of our last inflation report, just on the other side of the desk was Jerome Powell, the head of the Fed, and he said the exact same thing.
That divergence.
If we start cutting and the Fed does not start cutting, how far can we go?
>> There are limits but the short answer is I don't think we are close to those limits today.
Typically, the limiting factor here would be if there's too much of a divergence between the Bank of Canada and the US Federal Reserve, where that's going to show up most obviously is in the currency exchange rate and that does have implications for inflation. So the Bank of Canada is working very hard to get inflation to where it is today, they think it's on a good path but if the dollar, the Canadian dollar becomes unduly weak, you think about buying all those vegetables from California, fruits and vegetables, that's a way of importing inflation through weaker currency.
The Bank of Canada is going to be careful not to push this too far, but my view is that there is definitely room for at least a few cuts. The Bank of Canada does have some flexibility autonomy here to go in a slightly different direction than the US.
If the economic data support that.
>> What does that mean for investors?
If the Fed is perhaps on hold for longer but the BOC might be cutting, does an investor look at that and say, there are certain opportunities in different asset classes?
>> I mean just bringing it to the Canadian market, there are a number of Canadian companies who generate if not the majority certainly a large percentage of their revenues and their earnings south of the border.
You think about the Canadian energy producers who pay their workers in Canadian dollars but sell their barrels of oil in US dollars, you think about some of the Canadian banks for example which have big franchises south of the border and big railroads which have big pieces of their business south of the border, they are benefiting from that stronger US dollar when he translated her take it back into Canadian dollars, as there definitely winners, relative winners, but coming back to your first point, if the Canadian dollar is too weak, we risk on doing the good news on the inflation front. At a micro level, there are definitely some companies that are positioned well for this, think of exporters in southern Ontario, but too much of a good thing can undo some of that positive inflation data.
So we don't want to go too far.
>> Let slip and one more thing before we end this part of the conversation. We are in the early days now but we have had some Canadian companies report so far.
Some of those conditions that you mention, do you expect that to show up in earnings?
>> To your point, the US is a little bit ahead of Canada in terms of the cadence of earnings releases so we haven't seen that many, that big a piece of the Canadian earnings reports yet but the reports we've seen so far have been kind of mixed, not great. Some hits, some Mrs., some well-received, some not well received. But that should not be a big surprise given my comment earlier that I think the Canadian economy is showing some softness here. It is showing the impact of that 500 basis points and interest rate hikes over the last couple of years.
So I would not expect to see really strong results.
Looking forward, I think there is cause for some optimism among that 30% or so of the Canadian market which is your traditional resource-based companies, your oil producers, your minors, copper, gold, you look at what commodity prices have done lately, kind of the other side of that coin with inflation heating backup, one of the traditional inflation beneficiaries is that commodity complex.
If you look at where oil prices are today or where gold prices are today, where copper prices are today, you gotta think the outlook for that 30% of the Canadian market that is exposed to this is pretty rosy.
So things stay the way they are today in Q2 and Q3, we will see some nice earnings growth out of those companies for sure.
>> That was Michael O'Brien, managing Dir.
and head of the core Canadian equity team at TD Asset Management.
Now, let's get to today's education segment.
In today's education segment, we are going to take a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
Jason Hnatyk, Senior education instructor at TD Direct Investing is here to tell us more.
>> We have talked a lot about the customization of Advanced Dashboard in the past and maybe even how to make some trades and using technical analysis in the charts but today we are going to look at features that are going to allow us to look under the hood some of those numbers that companies are reporting so let's take a look at what broker, we are going to highlight the analysis tab so we can see what some of these valuable tools are available.
We can see at the top that we are highlighted on the analysis tab. First we are looking at the estimates and ratios tab. This is where we are looking at earnings-per-share, dividend yield.
A lot of those very commonly used ratios.
These are all available for us to compare and contrast over different periods of time. We've got the ability to change the graphs that are at the top of the page.
On the top left-hand corner, I'm looking at earnings-per-share. What's interesting about this is we are conditioned to look for price trends. We want to find out if we are bullish or bearish on the stock.
These trends on these individual ratios and metrics are important for us to see here too, so Advanced Dashboard gives us an opportunity to see a five year timestamp so we can do some nice comparison there as well.
Moving onto the next tab within the analysis area here, here's financial statements.
If we are looking at some of the raw data getting released by different companies, we've got the opportunity to see year-over-year comparisons of some of these very important numbers that make up those ratios. If you've got a high need for information, the financial statements area will be a good landing spot for you there to satisfy that.
Next, after you've done some of your own analysis, maybe you want to see what some industry professionals are looking at.
Let's move forward to the analyst evaluation tab.
Sticking with the theme of the trend, we are getting a month over month, year-over-year opportunities to see how the trends and analyst evaluations are changing but more importantly, at the top of the page, we are getting a consensus of what ratings analysts are giving for a particular stock and we are also getting a consensus target price for what the analysts are projecting for this company and on the right hand side, we get a price which shows us where the current price is in relation to the estimate so maybe if are out there looking for some value, this is an opportunity to really see where some might live. The lesson I will show you on this particular page is the Earnings Analyzer.
All about trends and more information, understanding the relative value of the company, where it's at and where we think it's gonna go, this page does a lot to unpack all of that.
We got a price chart we can compare that to you and look for convergences and divergences with the expectations of the earnings that the company is going to be showing. On the bottom of the page, we get a visual of the earnings-per-share, the projections and how those trends are going, but there's also some great information over here on the right-hand side as well.
We are getting updates on earning states from the company, we are getting those analyst consensus recommendations available here as well and we are getting some volatility information over here which is important to understand.
We got our IP and our standard deviation price projections. It's a nice opportunity for us to see what the math is kind of baking in, an opportunity for the company to get outside of these ranges but now we get to be informed with a little bit of information of probability ranges based on standard deviation right here on the platform.
Lots to unpack in the analysis tool so hopefully we can see some value in coming back here.
>> A lot of valuable tools there. That's one thing I like about Advanced Dashboard, the amount of information. There's a lot to learn about that. Where can we learn more about it?
>> You are right on there.
Just sitting here talking for four minutes, we are not going to begin to scratch the surface. That's why we have a lot of great self-service features available to you on the platform and in what broker to help support you. First of all in the platform, we have the learn tab.
Choose that at the top of the page. You've got a number of preloaded videos that you can watch to bring you up to speed and some key features for the platform but I want to jump into what broker here and on the aptly named to learn tab on the platform, I will take us into the video lessons because there's lots of great information. We've just added some brand-new Advanced Dashboard learning videos that I want to show off to the audience.
I want to take us over to the filter section and then under the investing accounts and platforms, if we filter by Advanced Dashboard and apply that filter, we've got 18 specific videos here to help you learn and many of you recognize this handsome gentleman, Hiren Amin, regular on this program. He has put out a series on Advanced Dashboard.
There are five great videos there for you to unpack and it's worth your time.
>> I like that line above Hiren's face.
It's like the many moods of Hiren Amin.
>> It's a lot to unpack. He's done a great job of having it up to the camera.
>> Definitely high-quality.
You two. Things that. That's my pleasure.
>> Our thanks to Jason Hnatyk, Senior client education instructor with TD Direct Investing. For more educational resources, you can check out the learn centre on what broker or do this as well. This QR code will help you navigate to TD Direct Investing's Instagram page and once you're there, you're going to find more informational videos. Don't worry if you don't have your phone handy, we will show you this QR code at the end of the program as well.
We will get back to it.
The automotive industry has spent years investing heavily into their electric vehicle offerings but in recent months a shift has been taking place in the industry. David Mau, VP, Dir. and portfolio manager with TD Asset Management join me earlier to discuss.
>> EV sales as a whole are still growing.
We look at numbers in 2023 and I want to say 47%, globally, that's about 18% of all new car sales last year. It's pretty meaningful. But what you're talking about is a slowdown and we are definitely seeing that and for 2024, sales growth is expected to slow down from 47% to the low 30s. We are seeing a pretty meaningful decline in new EV demand. The numbers here in North America, the US and Canada is actually a lot lower than 47%. That's because a lot of the growth and EV sales is actually coming from countries outside North America and places like Europe and China. I think the OEMs are to be facing a bit of a challenge for a couple of years until consumers can get to a place where they can absorb these higher prices because EVs generally cost more. That is a main sticking point and it's one of the reasons that we are seeing the sales decline. The second issue with EV demand is that people are realizing that the charging them for structure there is just not robust enough for them to commit to buying an electric vehicle and having that is their only car.
>> That's interesting, as we see the softness of the EV market, every time I see commentary from the CEOs of Ford or GM or the other big automakers, if they are not completely and EV play like Tesla, they have a mix, they start talking more about that makes, especially hybrids.
>> A lot of attention in the last years have been on electric vehicles but we are definitely seeing a shift and more attention being paid more interest being paid to hybrid vehicles. The reason for that is hybrids actually address two of the main challenges that I just mentioned.
Hybrids are actually cheaper to make, cheaper to sell, so it's cheaper for the consumer to buy and hybrids, as the name implies, has an electric motor and a gas powered engine so there isn't really that same kind of range anxiety for hybrid owners because when the electric motor runs out of charge, the car will keep running on the gas engine alone so I think that addresses two very important points for hybrid buyers, especially on the right front.
If you look at a typical hybrid vehicle like a Honda inside or a Toyota previous, the starting prices for those cars are kind of around 30, US$35,000 starting price, where is most electric vehicles we are talking midrange electric vehicles, they're going have a starting price of something in the low to mid 40s, maybe hi $40,000 US.
So that's actually quite a big difference.
It is a stumbling block for new buyers to come into the market.
>> I understand there's something called the Toyota one 690 rule.
What is this? Walk me through.
>> Yeah, that's very interesting.
The Toyota 1-6-90 rule is actually part of an internal memo that Toyota had circulated to its employees and its dealers.
And, as you can imagine, with any good internal memo, it was leaked immediately to the public.
So what the 1-6-90 rule is is based on Toyota's studies and research, they have come to the conclusion that the amount of raw materials, talking about things like the minerals that go into electric vehicles and things to come out of the earth like cobalt, nickel, lithium, the amount of resources that are needed to build one electric vehicle, select the one, can build six plug-in hybrid vehicles or 90 regular non-plug-in hybrid vehicles.
And they came to the conclusion that when you look at the lifetime carbon reduction of one electric vehicle versus 90 hybrid cars, those 90 hybrid cars actually reduce carbon emissions by 37 times more than one single EV so the whole point of the memo was to inform their dealers and employees that Toyota is going to focus on hybrids as opposed to investing a ton of time and money into electric vehicles because the payoff from hybrids is actually much better both financially and from an environmental point of view than electric vehicles.
>> That sounds like the kind of argument that if he got wider traction could really undermine the central thesis of the electric vehicle.
Could this be a challenging couple of years ahead for EVs?
>> Yes but as we know, there are always improvements going on in the manufacturing of electric vehicles, batteries are getting better all the time, prices are coming down in production is ramping up so at some point we will reach a balance point where hopefully EVs and hybrids are somewhat comparable.
>> Let's talk about some of the challenges that we seen in the EV space. It obviously means that if their softening consumer demand and people are looking at hybrids, the pickup is still a very popular option in North America, the traditional pickup truck with an ice engine.
I want to talk about the delayed EV place.
We are seeing delays and plans pushing out.
>> Yeah, Tesla, like you mentioned, is going to lay off 10% of their global workforce. That's a pretty big number.
Closer to home here in Ontario, Ford, the Oakville board plan was scheduled to start producing electric vehicles in 2025. Ford has announced that there would push that back to 2027 so that's going to be a two-year delay.
The reason that Ford gave is that they want to give the market to develop, they're waiting for demand come back.
Hopefully, in two years time, the technology has improved so they will be able to do things more efficiently.
>> Another issue when it comes EVs, we are heading a lot of roadblocks for them right now, the resale value.
You talk about technology moving on very quickly, what does that mean for someone who buys and EV thinking they can sell it a few years down the road?
>> Yeah, that's an interesting point. I've seen some studies that show resale values across all cars, all types of cars, internal combustion, hybrid, EVs, the typical depreciation rate over a five-year period is about 40%.
That's across all categories of cars.
When you specifically look at electric vehicles, the depreciation rate is actually higher. Is about 50%. So if you bought $100,000 EV, in five years, it's at most going to be worth about $50,000.
There are a couple reasons for that.
One big thing is that as new EV models come out, as manufacturers start pushing out new models, one goal is to lower the price. Tesla started on this a couple times in the last year where they have cut prices.
So if Tesla because the price of their Model Y by $10,000, all of these existing Model Y's out there on the road are also going to be worth less.
That's one big factor, as companies continue to reduce prices.
The other thing is, and we mentioned this already, is technology is improving very, very quickly.
If you look at an electric vehicle from four or five years ago, that battery technology has improved tremendously since then so you EVs today are probably going to have a better range, quicker charging and things like, the onboard technology, so the operating system that runs the car, that runs the driver assistance features, the safety features, even the entertainment features have improved drastically so people are starting to realize that within a couple of years, maybe three or four years, that brand-new EV that you bought a few years ago is starting to become outdated and in some cases it's become obsolete.
I think that's keeping some people on the sidelines.
So not only is the car becoming outdated very quickly, the resale value is also not as good when compared to other types of cars, so that's actually weighing on current demand as well. We spoke earlier about the shift in demand, that's also not helpful for demand today because people are gonna wait, some people who care about resale value were going to say, why don't I wait another year or two years?
>> We put all this together, which investors be mindful of in the space?
>> I think for investors who are looking at OEMs, you got to understand where their competitive position is within the industry.
Are they market leader or are they trying to catch up to the market leader?
Obviously, valuations are important.
Again, Tesla is the only automotive company that has a valuation, Lisa PE valuation at significantly higher than everyone else. Most of the traditional mainstream automakers trade at mid single digits, definitely less than 10. Tesla, I actually don't know after today's move, but there's is in the high 40s or 50s.
That's definitely something to take into account.
>> That was David Mau, VP, Dir. and Portfolio manager with 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.
We are into the heat map here, it gives us a view of the market movers. So the TSX 60, by price and by volume.
We are about 80 points to the upside on the TSX Composite Index. Underneath the hood, we got First Quantum, FM, up about 5%. We got excitement when it comes to potential… It's been rebuffed, but BHP approached Anglo with the bid. Anglo said no, we don't like it.
But still, sometimes that stirs excitement in the industry. It would be a massive copper deal. First Quantum is in the copper business, it's about 5%.
Tech showing a little bit of strength as well. Across the rest of the space, it's a bit of a mixed picture across some of the categories. Cenovus up a little bit.
South of the border, it's been a bumpy ride for American stocks. The S&P 100 today, we do have the US markets firmly in positive territory. What is going on?
Google is pretty green there in terms of its upside. Alphabet came out with its latest report. It's having a share buyback.
Intel is down almost 10%.
Markets have been tested recently by pullback and some of the big US tech names. Are there signs of a bigger pullback ahead or is all this just a pause in the rally?
It's been a bumpy week and it's a good question. We put it to Michael Craig, managing Dir. and head of asset allocation at TD Asset Management.
>> Is a bit of exhaustion. It was a pretty aggressive rally to start the year.
I think there are some seasonals at play.
US tax filing is in full swing. Last year was a great year for returns.
People need to sell before April 15 to be able to use that money to pay off their tax bills.
There's a bit of a seasonality effect on top of just some overdone or overstimulation. A little bit of profit-taking, 5% pullback. I don't think there's anything too serious here other than just the market recharging, if you will.
>> One of the narratives heading into the week was after the bouncy week, rough week we had led by the tech stocks at the border that we are going to start getting some tech earnings this week and at some point, we've only had the big banks and a few health insurers south of the border, we are ramping up in Canada, what is your sense of the earnings season right now?
>> Yeah, I think the broadening and the market is a little bit more what we are focusing on so I don't really foresee any big changes. Tesla has had some challenges in terms of the Magnificent Seven. You don't buy tech for quarterly release.
It's a more idiosyncratic growth story if you will. So we have repriced a bit. AI is not going away so there's that. But I think the bigger story for investors is that the rotation of the market is starting to change and you have to look past just technology to see industrials and energy this year which have been great places to work and have done well and you haven't seen the sell off like you've seen in the major tech indices where there is I think a bit of an excessive amount of investor attention.
>> When you say industrials and energy it makes me think cyclical plays that are based on a strong economy. Since of the border, the economy has been doing well.
Is that with this is about now?
>> We are when you keep on trucking for the time being. Manufacturing PMI indices have started to inflect and are now working their way higher so there is definitely a bit of a bid on the manufacturing side globally. Services actually is rolling over so again, very bizarre world post-COVID. A lot of kind industry cycles. Manufacturing has been in the basement for about 12 months now. So I think that's where, what we are interested in in terms of being able to make some money there versus the services side which is had a great run but is starting to soften.
>> On a big macro level, it's the Fed, we had to get to it.
It seems like it's been the story developing in increments.
We entered the year, there's going to be up to six cuts, the Fed said maybe two or three and now may be none.
This is a strangely evolving story. US 10 year bond yields are a 4.6. Where are we sitting in terms of higher for longer?
>> Investor expectations of Fed policy has been incredibly inaccurate really since this hiking cycle started.
I only say that because whatever the narrative is today, it's unlikely that we are really talking about it in a few months time.
It's just we are trying to fit a narrative to the market. Our own view is that this disinflation process continues. It's not a straight line.
Goods inflation has probably bottomed but it's come off a long way. Leading indicators for services continue to indicate that rent is going to come.
There are going to be some sticky spots but wages have soften. Broadly speaking, things are on track.
If we get cuts, non-recessionary cuts, that would be very supportive.
But the thought that we are going to have this re-acceleration with inflation, I'm struggling to take that seriously.
I think people keep trying to fit the narrative, and I think it's important that there is the Fed but there is the Bank of Canada and I think it's pretty likely will see some degree of divergence.
Our country is far more sensitive to interest rates than down south so yes, maybe the federally cuts once this year but I would expect the Bank of Canada to do quite a few more.
>> There was a panel discussion last week, Tiff Macklem and Jerome Powell were on the same panel.
When you talk about divergence, the headlines coming out of it, Powell was saying, we are not seeing the inflation and progress that we hope for. How about you? Macklem said things are looking good in terms of where we are headed.
How much can the Bank of Canada diverge from the Fed?
>> We will follow our own inflation path which has been softer. Employment in Canada has weakened materially and remember we still have massive immigration. When you print zero jobs growth for like six months, 80+ percent of the jobs growth in the government sector, on the back of a million plus people arriving here, that's a pretty dire job market in Canada right now.
I would like to see that look, if the bank cuts and we see the currency really start to weaken, that will be the limiting factor.
But outside of, and I think the BOC will be fine if the currency appreciates, the concern is around depreciation. Rapid depreciation, all bets are off.
But I think outside of that, I think we see a reasonable cutting cycle in Canada in the next 18 months.
>> What about geopolitical risk? This has been in the headlines, just trying to gauge sentiment. The level of tension.
Right now, it seems that tensions are rushing down but it's obviously fluid.
>> That requires a different thought process.
Market participants haven't had to worry for 30+ years, it's been an error of not a lot of conflict.
With the Middle East, I think it's been very much a show of force rather than being were serious so in terms of where we go from here, I would expect to see some cooler heads prevailed but the last five years, 10 years, the direction of travel has been far more severe and we can't rule out conflict emerging between Israel and Iran. No one wants that.
Certainly not the Americans who would be pulled into it.
I think in many ways it's really geopolitical theatre at its best.
On the Ukrainian Russian side, Europe is beginning to rearm. The irony of that conflict is it is pulling the European Union closer now that they have a common enemy.
And the irony is that the kind of drifting of Europe over the years in terms of formulating coherent policy, this is probably going to supercharge that in a positive way. It is unfortunate that we needed a word get people to go that way but I think this is probably long-term supportive for Europe and it will be much more focused on energy and security, industrial policy as well as coordination amongst economies so I think long-term, this is probably the catalyst required for Europe to compete but at a horrible cost.
>> You put that all together and it's a lot, what does it mean for asset allocation?
What should investors be thinking about?
>> Our focus has been on the west plus Japan. We like North America.
We are on the margin less bearish on Europe, it's been underweight for us for a long time and I would say intrigued by was happening in Japan.
Japan is going through those things you see once in a career in an economy. They have emerged from negative interest rates.
They are actually starting to see signs of inflation. Not rampant inflation but inflation which is starting to break that disinflationary, deflationary mindset which is so damaging to capitalist societies.
And you are seeing great improvements in corporate governance and an actual almost collapse of… The percent of the population over 50 is declining because older people are passing which is leading to an interesting demographics, supportive demographics, and they will be facing labour shortages but that's going to increase productivity and investment in the nation so with the American slowly trying to detach from China, Japan is well-positioned to pick up on that.
So increasing our allocations to Japan, place we have not spent a lot of time on it sometime.
>> That was Michael Craig, Managing Director and head of asset allocation at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
and as promised, here is that QR code for TD Direct Investing's Instagram account where you can find more informative features and videos.
Coming up on Monday show, ahead of that tax deadline, April is almost over. Last April is Tuesday, first day of May is Wednesday. You got till the end of the month. Nicole Ewing, Dir. of tax and estate planning is going to be our Guest taking your questions about tax and estate planning.
Some things to think about if by the time get around to Monday you still haven't filed.
A reminder that you get a head start with those questions for Nicole.
Just email MoneyTalkLive@TD.com.
Until the time we have for the show today.
On behalf of me and Anthony in front of the camera and everyone behind the scenes to bring see the show every day, thanks for watching and will see you again after the weekend.
[music]
