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[theme 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 Susan Prince and Anthony Okolie are going to be here and we are going to discuss the big takeaways from this morning's Canadian GDP report and what it means for the Bank of Canada. They have a right decision to deliver next week. Election day just over two months away south of the border.
Trump versus Harris could go down to the wire. TD Epoch's Kevin Hebner has some charts on what the market implications could be.
And in today's WebBroker education segment, if you have an interest in REITs, the web broker platform has lots of information you can use. Hiren Amin is going to be here to tell us all about it.
Before he gets all that, let's get you an update on the markets, last trading day of the weekend of August. It's going to get all serious next week on the other side of Labour Day, that's what we always expect after Labor Day, Syria season.
Right now 43 points in the hole for the TSX Composite Index. Cruz has been bouncing around a lot lately and so have some big oil and gas plays. $24.87 for Cenovus, down about 2.7%. Noticed some rate sensitives including telecoms getting a modest bit today. $21.80 for Telus, it's up a little shy of 1%.
South of the border, we are going to pick it apart more granular lady in the next few moments, PCE coming in, the S&P 500 up a fit of a percent. The tech heavy NASDAQ, how are we fearing against the broader market? A little stronger, up about 1/3 of a percent.
Intel, some unconfirmed reports out there that a lot of advisors whispering in their ears about strategic plans. Tell you more about that later in the show but notice the stock on the move.
That's your market update.
Nothing like fresh economic data in the morning today, it was Canadian GDP. Came in a little stronger than expected for the second quarter but you always have to look under the hood to try to figure out what's going on and maybe that's telling a different story. Moneytalk's Susan Prince and Anthony Okolie join us now for the Friday panel. Great to have you here with us.
Lovely to see your faces. It also means it's Friday.
>> It does mean it's Friday! That's why you're always so happy to see me.
>> Is like a double bonus to have you both sitting here. Let's dig into GDP. Anthony, break down the numbers.
>> Became instructor than expected.
I've got a chart here. Real GDP grew by half a percent in the second quarter, building on the gains that we saw in the first quarter of 0.4% rise and again, you can see that we are seeing some strength even from the fourth quarter of 2023 where growth was pretty much flat.
Can I go to the next chart, this kind of breaks it down by sector. As you mentioned, when we look under the hood, things are not quite as rosy. When you look at where growth is being driven, it's really government spending, higher wages as well as aircraft buys. We did see some strength in business investment as well as consumer spending on services. As you can see on the chart, what's dragging on GDP was exports but again, it was really driven by the government spending as opposed to private investing.
Again, what is worrying about this, the latest numbers, when you look at GDP per capita, it actually fell for the fourth time in the last 5/4 and GDP, this is a measure by taking the country's total GDP and dividing it by the population.
It's how the government understands how economies grow with the population. Well is not always a reliable indicator, generally a lower GDP per capita indicates a lower standard of living for Canadians.
People can't afford better quality food, housing, healthcare, there is less access to education or job opportunities.
I think this is a bit worrying for the government in the Bank of Canada, the fact that it suggests that the country's economic growth might be slowing.
>> It should be worrying for us to because it measures, it is a measure of productivity. When you start doing it on a per capita basis, you can start comparing apples to apples to other parts of the world and we are seeing between that number and the fact that the strength in GDP comes from government spending, let's let that trickled down and that comes from our taxes so is that the most productive use of capital? It means that productivity is coming from the government, not independent businesses. That, I find, it keeps me awake at night.
The other thing that is interesting about all of this is the exports.
You break down the line items.
Where were the exports down? Gold, silver, platinum and cars.
Gold is at record highs. We should be seeing something where we are benefiting from that and we are not seeing those numbers so the government spending and the per capita numbers and the exports being on commodities that are doing well and we are not getting the benefit of those is troubling.
>> This was the last big piece of economic data before we head into a long weekend, we come out the other side, on Wednesday we have a Bank of Canada rate announcement.
James Orlando at TD economics this morning basically said another cut seems like a foregone conclusion, nothing in this report that would knock them off that pace.
>> Exactly. When you look at the government spending, it's unlikely that's going to continue into the third quarter and so looking under the hood, the economy is weaker, much weaker and I think this report kind of cements the fact that we will most likely see a 25 basis point rate cut next week. TD Economics is also calling for successive cuts throughout the year.
>> Bank of Canada is first on deck in the month of September, the Fed will be later in the month, expectations that they are going to cut. In the summer, we got a little excited thereabout with the magnitude for cut might be based on some of the economic data, today we got PCE, the preferred gauge of inflation.
Pretty much just coming in like Goldilocks, not too hot, not too cold, just for everyone wants to see it.
>> It does feel like the Federal Reserve and this in the sweet spot in communicating well.
So what have they communicating? These are the kinds of numbers we need to see to feel confident about making cuts.
Those numbers come in.
Really, to me, it's a measure of good communication.
When we look at the numbers, flat compared to June, so 2.5% PCE growth. This time last year, the PCE was at about 4% so you think, not much movement here. Look at the big picture, look at what the Federal Reserve wants to determine and the numbers, they might be flat month over month, but they are in the right direction relative to where we were a year ago when everyone was quite worried.
>> It seems like the Fed is getting waived in for the cut in the September. What are you thinking about the rest of the year for the Fed?
>> When we spoke with TD Securities, they feel that most likely the Fed is going to cut not just in September as well as in October and December. I think there's a lot of talk about perhaps in September we could see a much larger cut than the 25 basis points and that's because were starting to see some weakness in unemployment numbers. It's up from 3.7% in January snow 4.3% so there is concern there that the labour market is much weaker than expected and it's not a question of when the cuts will come but what's the size of that and I think they are going to be data dependent and it's going to be, there would be looking closely at the job market I think more closely now than inflation which seems to be getting under control.
>> It's interesting. The job market is interesting because you don't want people unemployed, full stop. However, 4% unemployment has typically been a measure of full employment. So when we look at those numbers climbing up a little bit, we are seeing… In the bigger measure of how you look at the economy, that is still full employment so weighing that about what steps you do to make sure that unemployment does not get any higher but at the same time, knowing that in a healthy economy, that's about where it's going to be so these are interesting factors that economists have to figure out, employers have to figure out and so when we take a look, the states relative to Canada our unemployment numbers are worse than that.
We are looking at how was the United States coming to this difficult time and how are we lagging a bit and on productivity, it's lightning and our unemployment numbers are growing at a different rate so interesting to watch others play a.
>> I think you hit on the point that a 4.3%, there still, it's still healthy number.
>> Yeah.
>> Nice forward looking stuff there. I want to end the conversation by looking back. At the beginning of this week, all the clichés were out there, all eyes on Nvidia reporting after the close. Nvidia can make or break this market. Nvidia this, and video that, Nvidia comes out and life goes on.
Probably a little lesson in how you view these big events. I'm not saying it's not important company but in the end, Nvidia had its day, the market reacted as it did to its report, on Nvidia shares and the rest of the market carried on.
>> Yeah.
>> I think what's interesting, we heard for example people through party just to hear the results and some people are questioning whether the Nvidia CEO's comments would be more important for markets then Fed chairs Jackson Hole address so that's just the frenzy that we've seen with the AI but as you said, at the end of the day, the results came out, and we saw some weakness as well.
>> Is it a measure of our short attention span?
>> Or maybe it's just the end of August.
Let's just get excited about Nvidia.
Fascinating stuff. Thank you very much for joining us for the Friday panel. Have a great long weekend when it comes for you and we will do it again sometime.
>> Thank you.
>> MoneyTalk's Anthony Okolie and Susan Prince.
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've got shares of lululemon in the spotlight today, the athletic leisure wear retailer handily been earning expectations for the most recent quarter but missed on sales.
Lulu also credits full-year sales guidance and acknowledging missteps with its Breezethrough leggings, a product which it pulled from the cells after customers complained about an unflattering FIT. It's been a lot for investor to digest. I've been watching the stock bounce around so I didn't know where the stock would be when we got to the segment. Right now, investors have decided to push up modestly by 1.3%.
We also got their shares of Intel on the move today, these reports, the chipmaker is working with advisors including bankers to assess strategic options for the business. These are unconfirmed reports, they come a day after CEO Pat Gelsinger said he understands the investor scepticism on the turnaround brand and they are looking to address that with urgency. A big pop in the name today but the stock has been underperforming the broader chip sector for quite some time.
Let's say with AI. Strong demand for AI servers has Dell Technologies raising its full-year sales and profit forecasts.
Dell's enterprise server business is benefiting from a partnership struck earlier this year with a I darling Nvidia.
They are up more than 5%.
A quick check on the markets. We will start here at home with the TSX Composite Index, last trading day of the week and month.
Right now as far as the TSX is concerned, we are down a modest 37 points or a little more than 1/10 of a percent. The S&P 500 with PCE coming in just as expected, the market expecting a Fed rate cut sometime next month and if you earning story thrown into the mix. We are up 11 points were a fit of a percent.
We will go away for the long weekend, come back, we heading into the fall and probably be thinking a little more about the US presidential election that's going to come down our way.
A lot of expectations around it but we are also looking for clarity on policies and priorities. At this point, Kamala Harris and Donald Trump appear to be at a statistical tie. Earlier I spoke with global market strategist Kevin Hebner from TD Epoch about what the polls are telling us.
>> We look at prediction markets a lot and it's an interesting, since July, the production markets have doubled the likelihood of a Democrat candidate winning, so candidate Harris, for around 27% in July to about 54% now. Overall, the production market is saying it's roughly 50-50 between the two candidates, Trump and Harris.
>> Some of the graphs are interesting. The person we are looking at, you have different ones and polling, but this is the average betting site and how those odds have changed only when it's been a very eventful several weeks.
>> I think it's important when we are thinking about so I think we have to tone down the degree of confidence that we are making our proclamations about.
>> Tone down the degree of confidence, that was the betting sites. You want to show a few more to the audience, you have one about the polling's as well and it looks like the betting site to me.
>> Polling has Harris about two percentage points out of Trump and that might sound good but ultimately, the US election is about the electoral cottage, it's not about the popular vote. If you recall in 2016, Hillary Clinton was had by 4 to 6 percentage points and so because you've got great big states like California and New York, they are going to vote for the Democratic candidate by 20 to 30 percentage points, so a lot, so ultimately there's a big gap between the popular vote and what matters for the electoral College so two percentage points, it's nice, it's a lot better than where Democrats were about a month ago but probably is not enough to win in November. As you bring up an important point. We are talking about 50 states but there are only so many that actually matter. You say 44 don't matter and it's up to six swing states.
>> In 2016, there were 11 states that sort of mattered. In 2020, it was maybe eight.
This time, Max it's going to be seven, it might be fewer. Of those seven, three are Great Lakes states, Wisconsin, Michigan, Pennsylvania. Two are from the Southeast, Georgia and North Carolina, and two from the Southwest, Arizona and Nevada.
So ultimately the rest of the country, which is over 80% of the population, over 80% of GDP, in some sense don't matter. In some sense, it's on a national election, it's about a few states. For example if you think about Wisconsin, Trump one Wisconsin in 20 16 x 20,000 votes, Biden won it by 20,000 votes, so it's a really small number of votes when you thinking of an election that has 150 billion people going to the polls.
And this time, it could well be everything comes down to Pennsylvania which I think is a state that Canadians know quite well and has quite a diverse demographic.
>> I think we might have a picture to in terms of some of those swing states and changes we have seen since Pres. Biden said I will not be your candidate and Harris stepped in. What is the telling us?
>> The red bar show how much Trump was ahead in each of the swing states, the southern swing states, in July. So he was ahead in all seven.
That's why in our view at that point there was a 75% chance that Trump would win.
Since that, we have had a new candidate set up, Harris, you can see the green bars, those in the most recent polls, and it says that all seven swing states are now in place that's a really dramatic difference in a couple of weeks.
Again, it comes down to bold predictions.
I'd be careful about, my guess is November 5, we are all watching the TV, watching the electoral College votes come in and it's going to be pretty tight.
>> Back in my days before business journalism, I had season political reporter telling me the only poll that matters is the election day pool.
Sometimes it would play out that way. We have another picture about the states that Biden managed to flip.
>> These are states that Trump one in 2016 and Biden managed to win in 2020 and it's five of the seven swing states so a couple of southern states like Georgia and Arizona and then the three Great Lakes states, Wisconsin, Michigan and Pennsylvania. So these are the states that moved the rest of the states, New York and California, are not going to move and there's at least 10 states in the middle of the country that Trump will win by over 30 percentage points so when the campaigns are trying to decide where to spend their time and money, 95% of it will go in the seven swing states. They will look more California, New York and they will be spending a lot of time here, 95% of the money, 95% of their time will be in a small number of states. And just emphasizing that to some extent, it's very different from a parliamentary system like we have here in Canada. The electoral college system, it's just a small number of states. It might come down to a few counties in some of the states making all the difference.
>> That's incredible landscape and a great breakdown of the backdrop we have right now. Given all of that, we think about the presidential race, fairly tight. You say don't make any bold production. What about Congress? This is important for whoever gets into the White House forgetting an agenda through.
>> We were taking 75% to Trump and out.
Down to about 55 but this is a number that's going to change, in particular this September 10 debate is really important for that.
For the Senate, we had 75% that the GOP takes the Senate and we stick with that 75.
The house continues to look very 50-50 so it's a coin toss. And then what's important overall is does a party get a sweet? Do you have both the White House and Congress because Congress controls the purse strings and Congress also initiates the legislation so that's really important.
We have a 30% probability of a GOP sweep and a very small probability, 10%, of a democratic suite.
Ultimately what the market would like, I think, to see is a divided government because then you don't get measures that need to be ratcheted back later, I think a more determined approach to policy and that seems to us to be 60% likely.
>> When we think about policy going forward because in the end that sort of informs what's going to happen in the markets.
>> A lot of the discussion is on fiscal policy and nobody is talking about fiscal austerity.
Candidate VP Harris, she has talked a lot about child tax credits, income tax credits, the sorts of things paid for by higher taxes on wealthier people, also hire corporate tax rates. The market would be very unhappy about hire corporate tax rates but that would only actually happen if you had a democratic suite which we think is unlikely. Fiscal policy for Trump, he wants to cut taxes on everything. Corporate tax rates, individual tax rates, taxes on tipping and he has been arguing that if you cut taxes, that's when you create so much growth, they will more than pay for itself. I don't think anyone aside from ex-president Trump believes that's true and so it could end up if he actually had a GOP sweep and managed to enact his tax proposals, he could add about $5 trillion to the US deficit.
Or debt, rather. It's a very big number.
In either case, we are going to have deficits continue to be over $1 trillion a year. These are enormous numbers and the economy looks pretty strong.
>> Let's talk about another part of the economy that's catching her attention south of the border. All we talk about in Canada's housing.
It's been that way forever but in the states it's becoming a more potent issue.
>> Yeah, and it's interesting. Since the housing crash in 2007, there's been a lot of discussion about housing but nobody's really done anything. In the past week during the DNC in Chicago, ex-Pres. Obama gave a speech, it was a very good speech, but the first policy measure he mentioned was housing and that took a lot of people by surprise because it's not something the Democrats have really talked about on the national stage. One reason for that, as the chart the you have up shows, affordability. This is affordability for first-time homebuyers and I think this is something which Canadians have a lot of empathy for her, housing is the least affordable it's ever been in the United States. That partly reflects higher mortgage rates, partly reflects higher home prices, but the big driver has been just less supply of housing since 2007.
>> We have that manager here in Canada, build more homes, but then you look at the starts, and one of the starts telling us?
>> This looks at housing starts and I've adjusted this for increases in the population but the rate of housing starts currently is 50% of the pre-2007 level.
So this means the US is probably 2 million to 8 million homes short of what it needs for its population, that is a big deal, and 2 million to 8 million people. I think this is what is driving the affordability issues and the focus groups that both the Democrats and Republicans are having, in all cases, housing is one of the number one issues that people are concerned about.
>> That was Kevin Hebner, global market strategist at TD Epoch.
Now, let's get our educational segment of the day.
Today, we are gonna be looking at how to find information on real estate investment trust, REITs, using the WebBroker platform. Hiren Amin, Senior client education instructor at TD Direct Investing to tell us about that. It was great to see you. Let's talk about investors interested in REITs, perhaps adding some realistic to their portfolios.
Take us to the platform.
>> Absolutely, Greg. Great to be back. As you mentioned, REITs stands for real estate investment trust and essentially what they are is that they own, operate and finance these income-producing properties. We might traditionally think of real estate and getting that exposure as part of our portfolio and tapping into physical real estate ourselves, may be your homeowner and you rent out a condo or a house, well, a reach allows a professionally managed company to do all of that with what is not just retail properties were talking about, it's more on the commercial side of things, so REITs will give you exposure to things like for example apartment buildings, they would have shopping centre REITs, for example, hotels, but I think more timely now with this whole Nvidia chatter and AI, a lot of AI generation depends on data centres and those data centres have to be physical locations and so you now have a new our advent of REITs which are tapping into these data centres and leasing the spaces out so that's also one thing for our investors to potentially look at.
The way they operate is fairly easy to understand. The business model, they lease the space out, they collect the rent on and then the company generates income from it and then pays it out to its shareholders in the form of dividends.
To that end, for a reach to be considered a reach or qualified as a reach, there are two requirements has to meet. One is that 75% of its total assets need to be invested in real estate. Whatever that they are trying to focus on. And then, 90% of its taxable income has to be distributed to its shareholders there. So really for those investors it's a great way of really looking to enhance also an income as part of your portfolio but also get you that exposure to real estate.
Now one thing I should mention is when it comes to the dividends, they don't get treated like a normal dividends for a corporation, they are treated as normal income when they are set up in a nonregistered account there. I want to hop into a broker for a second and I just want to show us how you can see the full scan of the REITs that we have. So on my broker, we are on the research page and under markets, we are going to head onto the indices section. I've already got that loaded up here so I'm just gonna close this. Under the indices, we are going to scroll her waist down and we are going to go to sector indices to break it down. Now what the shows us is these are indexes that are tracking particular sectors of the market and the one we are interested in in our Canadian market is we have an index that tracks the major REITs on the TSX. If you click on this for example, you are going to get a little menu card on the pricing and then you can go down and hover over the bottom where it says members and now you can see the major REITs that we have in our TSX market over here and then you can obviously do some further research from this point on so that's just a quick synopsis of what REITs are and how you can view them here.
>> Now that we better understand REITs and how to view them on the platform, what if an investor wants to dig in a little deeper and narrow down the search by country or dividend yield. How do you do that?
>> This is where the screeners tool comes in to help us sift through the criteria we want to input when searching for REITs.
We are going to head over to the research tab over here.
Under tools, we are going to go into our screeners page. We are going to set up a custom screen. I'm going to keep it broad-based for our viewers. You can narrow it down.
Let's click on the screening and then all will allow us to bring up the categories.
I'm going to check everything that's in there at the moment and open it up. The main ones you want to include when you are scanning for REITs are going to be under company basics and you want to head over to sector and industry.
Once you sector and industry loaded up, I'm going to clear this and then a head over to real estate.
But I'm going to click on the drop down and just choose the REITs as what I want to look for. Let's go ahead and do that.
Now I'm going to add a couple more. We go back to our criteria over here, since these are income focused investment vehicles, we are going to choose dividend yield and we will just use a, we will just say, what's a good measure? Let's keep a benchmark, a minimum of around 5% yield that we want to look at and then we will add one more criteria because you do get capital appreciation because they are total real assets that will grow. If you want to see EPS growth as well on an historical scale, I will talk that in there and benchmark that at 10% EPS growth there on a five year basis.
Investors want to do their own due diligence and find what's relevant to their specific needs. One other thing, we are looking at both the US and Canada and you can see here based on the criteria here's the results that populate and it ranks them based on the ones that are ranking higher on those two individual categories we have chosen. Great way to get exposure to real estate.
Beats getting a call at midnight and having to fix a leaky faucet or broken toilet so it might be worth looking at for our investors. That great stuff as always.
Thanks for that and enjoy your long weekend when it arrives.
>> Likewise. Great to be back. Cheers.
>> Our thanks to Hiren Amin of TD Direct Investing. For more educational resources, check out the education centre on my broker or use this QR code to navigate to TD Direct Investing's YouTube page for more informative videos.
As we mention a lot on this program, markets anticipating a rate cut from the US Federal Reserve. The economy is showing signs of slowing south of the border, and there are a lot of questions surrounding the health of the US consumer. What does it all mean to the retail sector? Earlier, I spoke with John Kernan, managing director for retail and consumer brands at TD Cowen. It was his first time on our show so I asked him about the markets he covers.
>> I've been here for 14 years, I have covered the consumer and retail space throughout that entire time period.
We live and breathe the consumer trends, the health of the consumer, the big market Companies that cover include Nike, Adidas, lululemon, retailers like TJX, most of the sporting good retail complex and all the brands that sell into those stores, so it's a big coverage list that keeps us busy and keeps our finger on the pulse of the consumer in trends that are resonating with the consumers.
>> So you see in a few cycles. Obviously it's an interesting time as I was saying about the top. Anticipation that the Fed can start delivering rate cuts. We look at all the data points, big one obviously for the US economy is that consumer. What's the general environment right now, how are they feeling to mark >> The consumer stronger then the headlines give the broader consumer credit for. There's been a lot of negativity about the consumer.
There have been some headlines of high-profile consumer companies across a variety of sectors who have wanted to trends into the summer. I think that has a lot to do with competition, inflation that has shifted spending around. But if you look at the broader consumer, the levels of spending that we track, it's still very healthy. We are at a 4% on a claimant rate to the economy is strong, the financial markets are at all-time highs. It's not all doom and gloom. You have to remember that the bulk of consumer spending is done by the high income consumer, they account for a tremendous proportion of overall spending levels and lower income consumers have been stressed because of inflation.
>> Perhaps as you said the consumer is a little stronger than the headlines lead us to believe. As we check in on the financial news from day-to-day. How does that play over the most recent earnings season, what were your big takeaways?
>> There has been some companies that reacted very favourably and showed tremendous strength on a relative basis across consumer. In my coverage list, we just heard from the retail complex TJX last week. Both reported 4% same-store sales growth, tremendous gross margin performance, inventory management. Outside of my sector, Walmart and Costco which my call he covers, those stocks are at all-time highs in terms of valuation metrics, they have been reporting a lot of upsides to consensus expectations so there has been certainly pockets of strength and within that is mixed in pockets of weakness which I think largely or companies catering to lower income and more middle income consumers that are stretched.
>> You said there were pockets of strength, is it that companies cannot use the blank idea that high interest rates, meaning the high cost of borrowing, consumers tap, that's why I didn't do well this quarter? A company really has to show what is going on in the underlying business?
>> Yeah, I think there's certainly competitive dynamics with a lot of these companies and competition across these consumer sectors, particularly mine, have ramped up. Interest rates have come down, there's competition across e-commerce, brick-and-mortar retail.
It's as intense as ever. It's not just, the consumer is not spending, the consumer is weak. It has to do with there's a lot of competition for the dollars being spent, spending has been reallocated among categories, there have been some categories that have seen tremendous levels of inflation and you are seeing pressure in those areas so companies are delivering the best value, best experience and best innovation and consumers are still reporting healthy results.
>> Within your coverage universe, are there areas that are proving their way and maybe even more luring the customers? I'm thinking sports versus discount versus the more affluent buyer.
>> Yes, health and wellness, athletic spending is still very strong. You can see that. Dick's Sporting Goods which has been a good performer since the pandemic, that stock is at all-time highs. They report earnings the week after Labor Day. We expect them to be quite strong versus consensus expectations. You have some upstart peers now in the space like on running and Deckers which owns hookah and good, those companies have been putting tremendous innovation in the market place.
Those markets continue to expand beyond consensus expectations. Sketches is another one that has delivered good value for a long time. That stock is your all-time highs. There has been some really good performance across consumers but it's been very bifurcated and on top of that you had some real weakness in large-cap companies like Nike.
>> Rate cuts.
When it comes to the consumer and retail stocks, what could the effect be if the Fed does start delivering those cuts?
>> Yeah, it certainly looks like we are going to get a cut in September, whether 25 or 50 basis points remains debatable but we can clearly see that the Fed wants to take interest rates significantly lower through 2025 and that's going to be good for the consumer, it's going to be good for animal spirits and confidence which at times drive consumer spending, it's gonna lower borrowing costs, there's been a lot of inflation in borrowing costs the last several years and I think the consumer will respond favourably to this. There will be some uncertainty removed about the election and outcome in November. I think generally consumer will be in good shape as we go into 2025, certainly there will be pockets of strength and weakness but we are certainly in I think more bullish on the consumer camp then maybe many of our peers.
>> We've got some nice positive catalyst there for the retail space. What's the biggest risk when you take a look at your universe, the thing that could go wrong?
>> The most disruptive piece for macro for the US and global consumer, the pandemic came and went, supply chain disruptions came and went, nobody could have ever predicted that. I think with the consumer, it's generally, a lot of it is driven by animal spirits and confidence.
Unemployment is still where it is today and the stock market continues to make new all-time highs and housing prices are supported on top of that, you are getting lower mortgage costs and lower borrowing costs, inflation is coming down. In conjunction with that, I would think it's a pretty good environment for the consumer going into 2025, certainly not the recessionary environment that a lot of folks seem to talk to you.
>> That was John Kiernan, managing director for retail and consumer brands for TD Cowen.
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 is the heat map function, and I see of the market movers. We are starting with the TSX 60, screening by price and volume.
We are seeing some mixed activity in the energy space. You got some of the pipeline plays like Enbridge or trap up modestly, some of the bigger oil and gas names down with the price of crude. It has been a bumpy ride for crude oil prices in recent sessions given concerns about Chinese economic growth and self demand but that also tensions in the Middle East. Today it is a down day. You got some courier, Cenovus, CNQ ultimate outside.
We have wrapped up all of the big banks and turn in terms of bank earnings season in Canada, CWC is still getting a bit, yesterday they got a boost in up one and 1/2% today. Other banks are showing green on the screen as well and they are big contributors to the top line number on the TSX. South of the border, let's check in what's going on there. The PCE, the Fed's preferred gauge of inflation, coming in just as expected. The expectation is the Fed will deliver a rate cut next month.
More plays in terms of what's happening with individual stocks, there are reports out there that Intel is tapping advisors, trying to figure out what to do to kickstart that turnaround plan that they got under Pat Gelsinger and the stock is moving today but it's been under performer while the other chip names are really offending from the AI boom. Today, Intel is up almost 8%.
There is a lot of excitement in the healthcare space around those weight loss drugs but investors may be surprised to learn that the healthcare sector has been liking the broader market. Earlier, I spoke with Julien Nono-Womdim, VP for portfolio research at TD Asset Management, that healthcare and whites in a bit of a laggard.
>> It is surprising. It healthcare has underperformed the broader market, down to 300 points relative to the S&P 500 on a year-to-date basis. If we experience in that timeframe over the last year, the healthcare sector has underperformed by about 10%.
>> What is going on? This is the thing.
We have seen the headlines, the weight loss drugs, stirring so much excitement out there, but healthcare is a pretty big basket. We talked about the underperformance, what are we really talking about?
>> It's important to step back and think about what the market is on the way I like to think about it is the market is like a marathon, except it's an infinite one, and therein, you have companies, industries, sectors that compete for performance.
Right now, the healthcare sector is kind of at a standstill. Last year, earnings were down about 15%. This year, earnings are going to be flat. Not running fast at all.
In comparison, the technology sector and other parts of the market have been growing their earnings quite substantially so on a relative basis, not running as fast as it should and therefore the relative underperformance is a reflection of that.
>> That's carving up the healthcare space into different names, weight loss drugs, Pharma, just one part of the pockets of opportunity out there. Let's start with med tech.
>> You are right. Healthcare is broad.
There different parts of the market. The way I like to think about it is Pharma, Biotech, the companies that make drugs, the med tech companies, those that make medical devices, you have life sciences companies, does that make the equipment for drug manufacturing and of course there are services companies, hospitals, insurers, etc. Within the broader sector, there pockets doing relatively well and it goes back to my analogy about running.
Companies that are able to run faster than the market are being rewarded. Let's take a company like Intuitive Surgical.
They recently launched the fifth generation of their da Vinci robot, the stock is up substantially relative to the market both on a year-to-date basis and one year basis. That's just one example but there are other examples of companies in med tech and other parts where innovation leading to demand, therefore leading to earnings growth is being rewarded.
>> Is med tech one of the spaces where it's a bit of a demographic play? I'm thinking, as I get older, my knees don't feel as good as they used to. Maybe at one point, some robot is going to go to work on me.
>> I think it's not just med tech. It's the broader healthcare ecosystem. I talked about this marathon analogy. Well, over the short term, the market rewards companies that are running the fastest.
Over the long term, the market rewards companies that can run the longest.
And so healthcare has secular tailwinds.
Every day in the United States, 10,000 people turn 65 and you are right, people need hip replacements, they need knee replacements, there's a lot of innovation going into cardiology which is benefiting a company like Boston Scientific.
And so over the long term, healthcare can continue to run and I think that the question that investors need to ask is can the tech sector, the Magnificent Seven, can they run a marathon at a sprinting pace because they've been sprinting over the last 12 months or so.
>> Interesting stuff, med tech, perhaps opportunities there. What about the life sciences space?
>> The life sciences space is quite interesting. It's interesting for two reasons. First, these are the companies that make the equipment used to manufacture drugs, they help with drug discovery, they also make consumables for diagnostics. When you go to a hospital, you need to get tested for something, they provide a lot of those consumables and the industry has gone through some challenges in the last couple of years. Namely, during COVID and subsequently thereafter, there was a lot of inventory stocking of these different consumables, number one.
Number two, back then, the biotech funding environment was so strong that the equipment demand was also strong. Another dynamic was that China, life science equipment demand was also very strong. All those things have receded. We have gone through an inventory destocking. Biotech funding has been soft over the last year or two. It's coming back slowly but surely and China economic growth has been a bit slow so all those headwinds are starting to fade and the industry is starting to show signs of life.
We are seeing with companies like Thermo Fisher and Danna her that their order books are improving, the inventory destocking appears behind them and more importantly, global growth seems to be picking up.
>> Picking up because there has been concern, I think through the whole summer, everyone keep shifting back-and-forth between are we headed for a soft landing, hard landing, is growth slowing or are we holding in city?
Apart from those concerns about the global and domestic economies, is healthcare defensive or other different pockets below the surface?
>> Their different pockets. Broadly speaking, the sector is defensive. It's offensive because irrespective of the economic environment, if you and I get sick, we have to go to the hospital, we need to get tested for various diagnoses, and I think that adds a level of resilience irrespective of the environment. Nonetheless, there can be pockets that are to be more cyclical than the life sciences, a bit more cyclical.
The Pharma is a bit less cyclical.
Overall, the sector is less cyclical than the broader market.
>> Is that the risk there, the cyclical forces at play on some parts of it? If someone is looking at the healthcare space, what did they need to wait out in terms of risk?
>> A couple of things. On the Pharma side, they have to weigh out the loss of exclusively on drugs. That's a big headwind for a lot of Pharma companies. On the med tech side, they need to weigh out effectively competition because the way doctors operate is they always choose, they typically try to choose the best alternative when it comes to a procedure and so if a company makes a heart valve or design the heart valve that is superior to the incumbent, the incumbent loses market share very rapidly and we see that all the time.
On the life-sciences side, part of it has more to do with the economics cyclicality.
If the economy slows down, that part of the healthcare space will be negatively affected.
I would say overall, the industry is more resilient to the economy and to your earlier point, there are secular tailwinds that are driving continued demand for healthcare and so is this an industry that I think can continue running at a sustained case for a very long time? The answer is yes. Will it be ahead of the market on any given year? Evidently not.
>> That was Julien Nono-Womdim, VP for portfolio research at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
we are off on Monday for Labour Day and we will be back on Tuesday. Meagan Henriques, Senior client education instructor with TD Direct Investing will be our guest. She wants to take your questions about how to get more out of the WebBroker platform.
A reminder that you get a head start with those questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have to show today.
Thanks for watching. On behalf of me, Susan, Anthony in front of the camera and everyone behind the scenes he brings you the show every day, thank you for watching and we'll see you next week.
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Coming up on today's show, Moneytalk's Susan Prince and Anthony Okolie are going to be here and we are going to discuss the big takeaways from this morning's Canadian GDP report and what it means for the Bank of Canada. They have a right decision to deliver next week. Election day just over two months away south of the border.
Trump versus Harris could go down to the wire. TD Epoch's Kevin Hebner has some charts on what the market implications could be.
And in today's WebBroker education segment, if you have an interest in REITs, the web broker platform has lots of information you can use. Hiren Amin is going to be here to tell us all about it.
Before he gets all that, let's get you an update on the markets, last trading day of the weekend of August. It's going to get all serious next week on the other side of Labour Day, that's what we always expect after Labor Day, Syria season.
Right now 43 points in the hole for the TSX Composite Index. Cruz has been bouncing around a lot lately and so have some big oil and gas plays. $24.87 for Cenovus, down about 2.7%. Noticed some rate sensitives including telecoms getting a modest bit today. $21.80 for Telus, it's up a little shy of 1%.
South of the border, we are going to pick it apart more granular lady in the next few moments, PCE coming in, the S&P 500 up a fit of a percent. The tech heavy NASDAQ, how are we fearing against the broader market? A little stronger, up about 1/3 of a percent.
Intel, some unconfirmed reports out there that a lot of advisors whispering in their ears about strategic plans. Tell you more about that later in the show but notice the stock on the move.
That's your market update.
Nothing like fresh economic data in the morning today, it was Canadian GDP. Came in a little stronger than expected for the second quarter but you always have to look under the hood to try to figure out what's going on and maybe that's telling a different story. Moneytalk's Susan Prince and Anthony Okolie join us now for the Friday panel. Great to have you here with us.
Lovely to see your faces. It also means it's Friday.
>> It does mean it's Friday! That's why you're always so happy to see me.
>> Is like a double bonus to have you both sitting here. Let's dig into GDP. Anthony, break down the numbers.
>> Became instructor than expected.
I've got a chart here. Real GDP grew by half a percent in the second quarter, building on the gains that we saw in the first quarter of 0.4% rise and again, you can see that we are seeing some strength even from the fourth quarter of 2023 where growth was pretty much flat.
Can I go to the next chart, this kind of breaks it down by sector. As you mentioned, when we look under the hood, things are not quite as rosy. When you look at where growth is being driven, it's really government spending, higher wages as well as aircraft buys. We did see some strength in business investment as well as consumer spending on services. As you can see on the chart, what's dragging on GDP was exports but again, it was really driven by the government spending as opposed to private investing.
Again, what is worrying about this, the latest numbers, when you look at GDP per capita, it actually fell for the fourth time in the last 5/4 and GDP, this is a measure by taking the country's total GDP and dividing it by the population.
It's how the government understands how economies grow with the population. Well is not always a reliable indicator, generally a lower GDP per capita indicates a lower standard of living for Canadians.
People can't afford better quality food, housing, healthcare, there is less access to education or job opportunities.
I think this is a bit worrying for the government in the Bank of Canada, the fact that it suggests that the country's economic growth might be slowing.
>> It should be worrying for us to because it measures, it is a measure of productivity. When you start doing it on a per capita basis, you can start comparing apples to apples to other parts of the world and we are seeing between that number and the fact that the strength in GDP comes from government spending, let's let that trickled down and that comes from our taxes so is that the most productive use of capital? It means that productivity is coming from the government, not independent businesses. That, I find, it keeps me awake at night.
The other thing that is interesting about all of this is the exports.
You break down the line items.
Where were the exports down? Gold, silver, platinum and cars.
Gold is at record highs. We should be seeing something where we are benefiting from that and we are not seeing those numbers so the government spending and the per capita numbers and the exports being on commodities that are doing well and we are not getting the benefit of those is troubling.
>> This was the last big piece of economic data before we head into a long weekend, we come out the other side, on Wednesday we have a Bank of Canada rate announcement.
James Orlando at TD economics this morning basically said another cut seems like a foregone conclusion, nothing in this report that would knock them off that pace.
>> Exactly. When you look at the government spending, it's unlikely that's going to continue into the third quarter and so looking under the hood, the economy is weaker, much weaker and I think this report kind of cements the fact that we will most likely see a 25 basis point rate cut next week. TD Economics is also calling for successive cuts throughout the year.
>> Bank of Canada is first on deck in the month of September, the Fed will be later in the month, expectations that they are going to cut. In the summer, we got a little excited thereabout with the magnitude for cut might be based on some of the economic data, today we got PCE, the preferred gauge of inflation.
Pretty much just coming in like Goldilocks, not too hot, not too cold, just for everyone wants to see it.
>> It does feel like the Federal Reserve and this in the sweet spot in communicating well.
So what have they communicating? These are the kinds of numbers we need to see to feel confident about making cuts.
Those numbers come in.
Really, to me, it's a measure of good communication.
When we look at the numbers, flat compared to June, so 2.5% PCE growth. This time last year, the PCE was at about 4% so you think, not much movement here. Look at the big picture, look at what the Federal Reserve wants to determine and the numbers, they might be flat month over month, but they are in the right direction relative to where we were a year ago when everyone was quite worried.
>> It seems like the Fed is getting waived in for the cut in the September. What are you thinking about the rest of the year for the Fed?
>> When we spoke with TD Securities, they feel that most likely the Fed is going to cut not just in September as well as in October and December. I think there's a lot of talk about perhaps in September we could see a much larger cut than the 25 basis points and that's because were starting to see some weakness in unemployment numbers. It's up from 3.7% in January snow 4.3% so there is concern there that the labour market is much weaker than expected and it's not a question of when the cuts will come but what's the size of that and I think they are going to be data dependent and it's going to be, there would be looking closely at the job market I think more closely now than inflation which seems to be getting under control.
>> It's interesting. The job market is interesting because you don't want people unemployed, full stop. However, 4% unemployment has typically been a measure of full employment. So when we look at those numbers climbing up a little bit, we are seeing… In the bigger measure of how you look at the economy, that is still full employment so weighing that about what steps you do to make sure that unemployment does not get any higher but at the same time, knowing that in a healthy economy, that's about where it's going to be so these are interesting factors that economists have to figure out, employers have to figure out and so when we take a look, the states relative to Canada our unemployment numbers are worse than that.
We are looking at how was the United States coming to this difficult time and how are we lagging a bit and on productivity, it's lightning and our unemployment numbers are growing at a different rate so interesting to watch others play a.
>> I think you hit on the point that a 4.3%, there still, it's still healthy number.
>> Yeah.
>> Nice forward looking stuff there. I want to end the conversation by looking back. At the beginning of this week, all the clichés were out there, all eyes on Nvidia reporting after the close. Nvidia can make or break this market. Nvidia this, and video that, Nvidia comes out and life goes on.
Probably a little lesson in how you view these big events. I'm not saying it's not important company but in the end, Nvidia had its day, the market reacted as it did to its report, on Nvidia shares and the rest of the market carried on.
>> Yeah.
>> I think what's interesting, we heard for example people through party just to hear the results and some people are questioning whether the Nvidia CEO's comments would be more important for markets then Fed chairs Jackson Hole address so that's just the frenzy that we've seen with the AI but as you said, at the end of the day, the results came out, and we saw some weakness as well.
>> Is it a measure of our short attention span?
>> Or maybe it's just the end of August.
Let's just get excited about Nvidia.
Fascinating stuff. Thank you very much for joining us for the Friday panel. Have a great long weekend when it comes for you and we will do it again sometime.
>> Thank you.
>> MoneyTalk's Anthony Okolie and Susan Prince.
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've got shares of lululemon in the spotlight today, the athletic leisure wear retailer handily been earning expectations for the most recent quarter but missed on sales.
Lulu also credits full-year sales guidance and acknowledging missteps with its Breezethrough leggings, a product which it pulled from the cells after customers complained about an unflattering FIT. It's been a lot for investor to digest. I've been watching the stock bounce around so I didn't know where the stock would be when we got to the segment. Right now, investors have decided to push up modestly by 1.3%.
We also got their shares of Intel on the move today, these reports, the chipmaker is working with advisors including bankers to assess strategic options for the business. These are unconfirmed reports, they come a day after CEO Pat Gelsinger said he understands the investor scepticism on the turnaround brand and they are looking to address that with urgency. A big pop in the name today but the stock has been underperforming the broader chip sector for quite some time.
Let's say with AI. Strong demand for AI servers has Dell Technologies raising its full-year sales and profit forecasts.
Dell's enterprise server business is benefiting from a partnership struck earlier this year with a I darling Nvidia.
They are up more than 5%.
A quick check on the markets. We will start here at home with the TSX Composite Index, last trading day of the week and month.
Right now as far as the TSX is concerned, we are down a modest 37 points or a little more than 1/10 of a percent. The S&P 500 with PCE coming in just as expected, the market expecting a Fed rate cut sometime next month and if you earning story thrown into the mix. We are up 11 points were a fit of a percent.
We will go away for the long weekend, come back, we heading into the fall and probably be thinking a little more about the US presidential election that's going to come down our way.
A lot of expectations around it but we are also looking for clarity on policies and priorities. At this point, Kamala Harris and Donald Trump appear to be at a statistical tie. Earlier I spoke with global market strategist Kevin Hebner from TD Epoch about what the polls are telling us.
>> We look at prediction markets a lot and it's an interesting, since July, the production markets have doubled the likelihood of a Democrat candidate winning, so candidate Harris, for around 27% in July to about 54% now. Overall, the production market is saying it's roughly 50-50 between the two candidates, Trump and Harris.
>> Some of the graphs are interesting. The person we are looking at, you have different ones and polling, but this is the average betting site and how those odds have changed only when it's been a very eventful several weeks.
>> I think it's important when we are thinking about so I think we have to tone down the degree of confidence that we are making our proclamations about.
>> Tone down the degree of confidence, that was the betting sites. You want to show a few more to the audience, you have one about the polling's as well and it looks like the betting site to me.
>> Polling has Harris about two percentage points out of Trump and that might sound good but ultimately, the US election is about the electoral cottage, it's not about the popular vote. If you recall in 2016, Hillary Clinton was had by 4 to 6 percentage points and so because you've got great big states like California and New York, they are going to vote for the Democratic candidate by 20 to 30 percentage points, so a lot, so ultimately there's a big gap between the popular vote and what matters for the electoral College so two percentage points, it's nice, it's a lot better than where Democrats were about a month ago but probably is not enough to win in November. As you bring up an important point. We are talking about 50 states but there are only so many that actually matter. You say 44 don't matter and it's up to six swing states.
>> In 2016, there were 11 states that sort of mattered. In 2020, it was maybe eight.
This time, Max it's going to be seven, it might be fewer. Of those seven, three are Great Lakes states, Wisconsin, Michigan, Pennsylvania. Two are from the Southeast, Georgia and North Carolina, and two from the Southwest, Arizona and Nevada.
So ultimately the rest of the country, which is over 80% of the population, over 80% of GDP, in some sense don't matter. In some sense, it's on a national election, it's about a few states. For example if you think about Wisconsin, Trump one Wisconsin in 20 16 x 20,000 votes, Biden won it by 20,000 votes, so it's a really small number of votes when you thinking of an election that has 150 billion people going to the polls.
And this time, it could well be everything comes down to Pennsylvania which I think is a state that Canadians know quite well and has quite a diverse demographic.
>> I think we might have a picture to in terms of some of those swing states and changes we have seen since Pres. Biden said I will not be your candidate and Harris stepped in. What is the telling us?
>> The red bar show how much Trump was ahead in each of the swing states, the southern swing states, in July. So he was ahead in all seven.
That's why in our view at that point there was a 75% chance that Trump would win.
Since that, we have had a new candidate set up, Harris, you can see the green bars, those in the most recent polls, and it says that all seven swing states are now in place that's a really dramatic difference in a couple of weeks.
Again, it comes down to bold predictions.
I'd be careful about, my guess is November 5, we are all watching the TV, watching the electoral College votes come in and it's going to be pretty tight.
>> Back in my days before business journalism, I had season political reporter telling me the only poll that matters is the election day pool.
Sometimes it would play out that way. We have another picture about the states that Biden managed to flip.
>> These are states that Trump one in 2016 and Biden managed to win in 2020 and it's five of the seven swing states so a couple of southern states like Georgia and Arizona and then the three Great Lakes states, Wisconsin, Michigan and Pennsylvania. So these are the states that moved the rest of the states, New York and California, are not going to move and there's at least 10 states in the middle of the country that Trump will win by over 30 percentage points so when the campaigns are trying to decide where to spend their time and money, 95% of it will go in the seven swing states. They will look more California, New York and they will be spending a lot of time here, 95% of the money, 95% of their time will be in a small number of states. And just emphasizing that to some extent, it's very different from a parliamentary system like we have here in Canada. The electoral college system, it's just a small number of states. It might come down to a few counties in some of the states making all the difference.
>> That's incredible landscape and a great breakdown of the backdrop we have right now. Given all of that, we think about the presidential race, fairly tight. You say don't make any bold production. What about Congress? This is important for whoever gets into the White House forgetting an agenda through.
>> We were taking 75% to Trump and out.
Down to about 55 but this is a number that's going to change, in particular this September 10 debate is really important for that.
For the Senate, we had 75% that the GOP takes the Senate and we stick with that 75.
The house continues to look very 50-50 so it's a coin toss. And then what's important overall is does a party get a sweet? Do you have both the White House and Congress because Congress controls the purse strings and Congress also initiates the legislation so that's really important.
We have a 30% probability of a GOP sweep and a very small probability, 10%, of a democratic suite.
Ultimately what the market would like, I think, to see is a divided government because then you don't get measures that need to be ratcheted back later, I think a more determined approach to policy and that seems to us to be 60% likely.
>> When we think about policy going forward because in the end that sort of informs what's going to happen in the markets.
>> A lot of the discussion is on fiscal policy and nobody is talking about fiscal austerity.
Candidate VP Harris, she has talked a lot about child tax credits, income tax credits, the sorts of things paid for by higher taxes on wealthier people, also hire corporate tax rates. The market would be very unhappy about hire corporate tax rates but that would only actually happen if you had a democratic suite which we think is unlikely. Fiscal policy for Trump, he wants to cut taxes on everything. Corporate tax rates, individual tax rates, taxes on tipping and he has been arguing that if you cut taxes, that's when you create so much growth, they will more than pay for itself. I don't think anyone aside from ex-president Trump believes that's true and so it could end up if he actually had a GOP sweep and managed to enact his tax proposals, he could add about $5 trillion to the US deficit.
Or debt, rather. It's a very big number.
In either case, we are going to have deficits continue to be over $1 trillion a year. These are enormous numbers and the economy looks pretty strong.
>> Let's talk about another part of the economy that's catching her attention south of the border. All we talk about in Canada's housing.
It's been that way forever but in the states it's becoming a more potent issue.
>> Yeah, and it's interesting. Since the housing crash in 2007, there's been a lot of discussion about housing but nobody's really done anything. In the past week during the DNC in Chicago, ex-Pres. Obama gave a speech, it was a very good speech, but the first policy measure he mentioned was housing and that took a lot of people by surprise because it's not something the Democrats have really talked about on the national stage. One reason for that, as the chart the you have up shows, affordability. This is affordability for first-time homebuyers and I think this is something which Canadians have a lot of empathy for her, housing is the least affordable it's ever been in the United States. That partly reflects higher mortgage rates, partly reflects higher home prices, but the big driver has been just less supply of housing since 2007.
>> We have that manager here in Canada, build more homes, but then you look at the starts, and one of the starts telling us?
>> This looks at housing starts and I've adjusted this for increases in the population but the rate of housing starts currently is 50% of the pre-2007 level.
So this means the US is probably 2 million to 8 million homes short of what it needs for its population, that is a big deal, and 2 million to 8 million people. I think this is what is driving the affordability issues and the focus groups that both the Democrats and Republicans are having, in all cases, housing is one of the number one issues that people are concerned about.
>> That was Kevin Hebner, global market strategist at TD Epoch.
Now, let's get our educational segment of the day.
Today, we are gonna be looking at how to find information on real estate investment trust, REITs, using the WebBroker platform. Hiren Amin, Senior client education instructor at TD Direct Investing to tell us about that. It was great to see you. Let's talk about investors interested in REITs, perhaps adding some realistic to their portfolios.
Take us to the platform.
>> Absolutely, Greg. Great to be back. As you mentioned, REITs stands for real estate investment trust and essentially what they are is that they own, operate and finance these income-producing properties. We might traditionally think of real estate and getting that exposure as part of our portfolio and tapping into physical real estate ourselves, may be your homeowner and you rent out a condo or a house, well, a reach allows a professionally managed company to do all of that with what is not just retail properties were talking about, it's more on the commercial side of things, so REITs will give you exposure to things like for example apartment buildings, they would have shopping centre REITs, for example, hotels, but I think more timely now with this whole Nvidia chatter and AI, a lot of AI generation depends on data centres and those data centres have to be physical locations and so you now have a new our advent of REITs which are tapping into these data centres and leasing the spaces out so that's also one thing for our investors to potentially look at.
The way they operate is fairly easy to understand. The business model, they lease the space out, they collect the rent on and then the company generates income from it and then pays it out to its shareholders in the form of dividends.
To that end, for a reach to be considered a reach or qualified as a reach, there are two requirements has to meet. One is that 75% of its total assets need to be invested in real estate. Whatever that they are trying to focus on. And then, 90% of its taxable income has to be distributed to its shareholders there. So really for those investors it's a great way of really looking to enhance also an income as part of your portfolio but also get you that exposure to real estate.
Now one thing I should mention is when it comes to the dividends, they don't get treated like a normal dividends for a corporation, they are treated as normal income when they are set up in a nonregistered account there. I want to hop into a broker for a second and I just want to show us how you can see the full scan of the REITs that we have. So on my broker, we are on the research page and under markets, we are going to head onto the indices section. I've already got that loaded up here so I'm just gonna close this. Under the indices, we are going to scroll her waist down and we are going to go to sector indices to break it down. Now what the shows us is these are indexes that are tracking particular sectors of the market and the one we are interested in in our Canadian market is we have an index that tracks the major REITs on the TSX. If you click on this for example, you are going to get a little menu card on the pricing and then you can go down and hover over the bottom where it says members and now you can see the major REITs that we have in our TSX market over here and then you can obviously do some further research from this point on so that's just a quick synopsis of what REITs are and how you can view them here.
>> Now that we better understand REITs and how to view them on the platform, what if an investor wants to dig in a little deeper and narrow down the search by country or dividend yield. How do you do that?
>> This is where the screeners tool comes in to help us sift through the criteria we want to input when searching for REITs.
We are going to head over to the research tab over here.
Under tools, we are going to go into our screeners page. We are going to set up a custom screen. I'm going to keep it broad-based for our viewers. You can narrow it down.
Let's click on the screening and then all will allow us to bring up the categories.
I'm going to check everything that's in there at the moment and open it up. The main ones you want to include when you are scanning for REITs are going to be under company basics and you want to head over to sector and industry.
Once you sector and industry loaded up, I'm going to clear this and then a head over to real estate.
But I'm going to click on the drop down and just choose the REITs as what I want to look for. Let's go ahead and do that.
Now I'm going to add a couple more. We go back to our criteria over here, since these are income focused investment vehicles, we are going to choose dividend yield and we will just use a, we will just say, what's a good measure? Let's keep a benchmark, a minimum of around 5% yield that we want to look at and then we will add one more criteria because you do get capital appreciation because they are total real assets that will grow. If you want to see EPS growth as well on an historical scale, I will talk that in there and benchmark that at 10% EPS growth there on a five year basis.
Investors want to do their own due diligence and find what's relevant to their specific needs. One other thing, we are looking at both the US and Canada and you can see here based on the criteria here's the results that populate and it ranks them based on the ones that are ranking higher on those two individual categories we have chosen. Great way to get exposure to real estate.
Beats getting a call at midnight and having to fix a leaky faucet or broken toilet so it might be worth looking at for our investors. That great stuff as always.
Thanks for that and enjoy your long weekend when it arrives.
>> Likewise. Great to be back. Cheers.
>> Our thanks to Hiren Amin of TD Direct Investing. For more educational resources, check out the education centre on my broker or use this QR code to navigate to TD Direct Investing's YouTube page for more informative videos.
As we mention a lot on this program, markets anticipating a rate cut from the US Federal Reserve. The economy is showing signs of slowing south of the border, and there are a lot of questions surrounding the health of the US consumer. What does it all mean to the retail sector? Earlier, I spoke with John Kernan, managing director for retail and consumer brands at TD Cowen. It was his first time on our show so I asked him about the markets he covers.
>> I've been here for 14 years, I have covered the consumer and retail space throughout that entire time period.
We live and breathe the consumer trends, the health of the consumer, the big market Companies that cover include Nike, Adidas, lululemon, retailers like TJX, most of the sporting good retail complex and all the brands that sell into those stores, so it's a big coverage list that keeps us busy and keeps our finger on the pulse of the consumer in trends that are resonating with the consumers.
>> So you see in a few cycles. Obviously it's an interesting time as I was saying about the top. Anticipation that the Fed can start delivering rate cuts. We look at all the data points, big one obviously for the US economy is that consumer. What's the general environment right now, how are they feeling to mark >> The consumer stronger then the headlines give the broader consumer credit for. There's been a lot of negativity about the consumer.
There have been some headlines of high-profile consumer companies across a variety of sectors who have wanted to trends into the summer. I think that has a lot to do with competition, inflation that has shifted spending around. But if you look at the broader consumer, the levels of spending that we track, it's still very healthy. We are at a 4% on a claimant rate to the economy is strong, the financial markets are at all-time highs. It's not all doom and gloom. You have to remember that the bulk of consumer spending is done by the high income consumer, they account for a tremendous proportion of overall spending levels and lower income consumers have been stressed because of inflation.
>> Perhaps as you said the consumer is a little stronger than the headlines lead us to believe. As we check in on the financial news from day-to-day. How does that play over the most recent earnings season, what were your big takeaways?
>> There has been some companies that reacted very favourably and showed tremendous strength on a relative basis across consumer. In my coverage list, we just heard from the retail complex TJX last week. Both reported 4% same-store sales growth, tremendous gross margin performance, inventory management. Outside of my sector, Walmart and Costco which my call he covers, those stocks are at all-time highs in terms of valuation metrics, they have been reporting a lot of upsides to consensus expectations so there has been certainly pockets of strength and within that is mixed in pockets of weakness which I think largely or companies catering to lower income and more middle income consumers that are stretched.
>> You said there were pockets of strength, is it that companies cannot use the blank idea that high interest rates, meaning the high cost of borrowing, consumers tap, that's why I didn't do well this quarter? A company really has to show what is going on in the underlying business?
>> Yeah, I think there's certainly competitive dynamics with a lot of these companies and competition across these consumer sectors, particularly mine, have ramped up. Interest rates have come down, there's competition across e-commerce, brick-and-mortar retail.
It's as intense as ever. It's not just, the consumer is not spending, the consumer is weak. It has to do with there's a lot of competition for the dollars being spent, spending has been reallocated among categories, there have been some categories that have seen tremendous levels of inflation and you are seeing pressure in those areas so companies are delivering the best value, best experience and best innovation and consumers are still reporting healthy results.
>> Within your coverage universe, are there areas that are proving their way and maybe even more luring the customers? I'm thinking sports versus discount versus the more affluent buyer.
>> Yes, health and wellness, athletic spending is still very strong. You can see that. Dick's Sporting Goods which has been a good performer since the pandemic, that stock is at all-time highs. They report earnings the week after Labor Day. We expect them to be quite strong versus consensus expectations. You have some upstart peers now in the space like on running and Deckers which owns hookah and good, those companies have been putting tremendous innovation in the market place.
Those markets continue to expand beyond consensus expectations. Sketches is another one that has delivered good value for a long time. That stock is your all-time highs. There has been some really good performance across consumers but it's been very bifurcated and on top of that you had some real weakness in large-cap companies like Nike.
>> Rate cuts.
When it comes to the consumer and retail stocks, what could the effect be if the Fed does start delivering those cuts?
>> Yeah, it certainly looks like we are going to get a cut in September, whether 25 or 50 basis points remains debatable but we can clearly see that the Fed wants to take interest rates significantly lower through 2025 and that's going to be good for the consumer, it's going to be good for animal spirits and confidence which at times drive consumer spending, it's gonna lower borrowing costs, there's been a lot of inflation in borrowing costs the last several years and I think the consumer will respond favourably to this. There will be some uncertainty removed about the election and outcome in November. I think generally consumer will be in good shape as we go into 2025, certainly there will be pockets of strength and weakness but we are certainly in I think more bullish on the consumer camp then maybe many of our peers.
>> We've got some nice positive catalyst there for the retail space. What's the biggest risk when you take a look at your universe, the thing that could go wrong?
>> The most disruptive piece for macro for the US and global consumer, the pandemic came and went, supply chain disruptions came and went, nobody could have ever predicted that. I think with the consumer, it's generally, a lot of it is driven by animal spirits and confidence.
Unemployment is still where it is today and the stock market continues to make new all-time highs and housing prices are supported on top of that, you are getting lower mortgage costs and lower borrowing costs, inflation is coming down. In conjunction with that, I would think it's a pretty good environment for the consumer going into 2025, certainly not the recessionary environment that a lot of folks seem to talk to you.
>> That was John Kiernan, managing director for retail and consumer brands for TD Cowen.
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 is the heat map function, and I see of the market movers. We are starting with the TSX 60, screening by price and volume.
We are seeing some mixed activity in the energy space. You got some of the pipeline plays like Enbridge or trap up modestly, some of the bigger oil and gas names down with the price of crude. It has been a bumpy ride for crude oil prices in recent sessions given concerns about Chinese economic growth and self demand but that also tensions in the Middle East. Today it is a down day. You got some courier, Cenovus, CNQ ultimate outside.
We have wrapped up all of the big banks and turn in terms of bank earnings season in Canada, CWC is still getting a bit, yesterday they got a boost in up one and 1/2% today. Other banks are showing green on the screen as well and they are big contributors to the top line number on the TSX. South of the border, let's check in what's going on there. The PCE, the Fed's preferred gauge of inflation, coming in just as expected. The expectation is the Fed will deliver a rate cut next month.
More plays in terms of what's happening with individual stocks, there are reports out there that Intel is tapping advisors, trying to figure out what to do to kickstart that turnaround plan that they got under Pat Gelsinger and the stock is moving today but it's been under performer while the other chip names are really offending from the AI boom. Today, Intel is up almost 8%.
There is a lot of excitement in the healthcare space around those weight loss drugs but investors may be surprised to learn that the healthcare sector has been liking the broader market. Earlier, I spoke with Julien Nono-Womdim, VP for portfolio research at TD Asset Management, that healthcare and whites in a bit of a laggard.
>> It is surprising. It healthcare has underperformed the broader market, down to 300 points relative to the S&P 500 on a year-to-date basis. If we experience in that timeframe over the last year, the healthcare sector has underperformed by about 10%.
>> What is going on? This is the thing.
We have seen the headlines, the weight loss drugs, stirring so much excitement out there, but healthcare is a pretty big basket. We talked about the underperformance, what are we really talking about?
>> It's important to step back and think about what the market is on the way I like to think about it is the market is like a marathon, except it's an infinite one, and therein, you have companies, industries, sectors that compete for performance.
Right now, the healthcare sector is kind of at a standstill. Last year, earnings were down about 15%. This year, earnings are going to be flat. Not running fast at all.
In comparison, the technology sector and other parts of the market have been growing their earnings quite substantially so on a relative basis, not running as fast as it should and therefore the relative underperformance is a reflection of that.
>> That's carving up the healthcare space into different names, weight loss drugs, Pharma, just one part of the pockets of opportunity out there. Let's start with med tech.
>> You are right. Healthcare is broad.
There different parts of the market. The way I like to think about it is Pharma, Biotech, the companies that make drugs, the med tech companies, those that make medical devices, you have life sciences companies, does that make the equipment for drug manufacturing and of course there are services companies, hospitals, insurers, etc. Within the broader sector, there pockets doing relatively well and it goes back to my analogy about running.
Companies that are able to run faster than the market are being rewarded. Let's take a company like Intuitive Surgical.
They recently launched the fifth generation of their da Vinci robot, the stock is up substantially relative to the market both on a year-to-date basis and one year basis. That's just one example but there are other examples of companies in med tech and other parts where innovation leading to demand, therefore leading to earnings growth is being rewarded.
>> Is med tech one of the spaces where it's a bit of a demographic play? I'm thinking, as I get older, my knees don't feel as good as they used to. Maybe at one point, some robot is going to go to work on me.
>> I think it's not just med tech. It's the broader healthcare ecosystem. I talked about this marathon analogy. Well, over the short term, the market rewards companies that are running the fastest.
Over the long term, the market rewards companies that can run the longest.
And so healthcare has secular tailwinds.
Every day in the United States, 10,000 people turn 65 and you are right, people need hip replacements, they need knee replacements, there's a lot of innovation going into cardiology which is benefiting a company like Boston Scientific.
And so over the long term, healthcare can continue to run and I think that the question that investors need to ask is can the tech sector, the Magnificent Seven, can they run a marathon at a sprinting pace because they've been sprinting over the last 12 months or so.
>> Interesting stuff, med tech, perhaps opportunities there. What about the life sciences space?
>> The life sciences space is quite interesting. It's interesting for two reasons. First, these are the companies that make the equipment used to manufacture drugs, they help with drug discovery, they also make consumables for diagnostics. When you go to a hospital, you need to get tested for something, they provide a lot of those consumables and the industry has gone through some challenges in the last couple of years. Namely, during COVID and subsequently thereafter, there was a lot of inventory stocking of these different consumables, number one.
Number two, back then, the biotech funding environment was so strong that the equipment demand was also strong. Another dynamic was that China, life science equipment demand was also very strong. All those things have receded. We have gone through an inventory destocking. Biotech funding has been soft over the last year or two. It's coming back slowly but surely and China economic growth has been a bit slow so all those headwinds are starting to fade and the industry is starting to show signs of life.
We are seeing with companies like Thermo Fisher and Danna her that their order books are improving, the inventory destocking appears behind them and more importantly, global growth seems to be picking up.
>> Picking up because there has been concern, I think through the whole summer, everyone keep shifting back-and-forth between are we headed for a soft landing, hard landing, is growth slowing or are we holding in city?
Apart from those concerns about the global and domestic economies, is healthcare defensive or other different pockets below the surface?
>> Their different pockets. Broadly speaking, the sector is defensive. It's offensive because irrespective of the economic environment, if you and I get sick, we have to go to the hospital, we need to get tested for various diagnoses, and I think that adds a level of resilience irrespective of the environment. Nonetheless, there can be pockets that are to be more cyclical than the life sciences, a bit more cyclical.
The Pharma is a bit less cyclical.
Overall, the sector is less cyclical than the broader market.
>> Is that the risk there, the cyclical forces at play on some parts of it? If someone is looking at the healthcare space, what did they need to wait out in terms of risk?
>> A couple of things. On the Pharma side, they have to weigh out the loss of exclusively on drugs. That's a big headwind for a lot of Pharma companies. On the med tech side, they need to weigh out effectively competition because the way doctors operate is they always choose, they typically try to choose the best alternative when it comes to a procedure and so if a company makes a heart valve or design the heart valve that is superior to the incumbent, the incumbent loses market share very rapidly and we see that all the time.
On the life-sciences side, part of it has more to do with the economics cyclicality.
If the economy slows down, that part of the healthcare space will be negatively affected.
I would say overall, the industry is more resilient to the economy and to your earlier point, there are secular tailwinds that are driving continued demand for healthcare and so is this an industry that I think can continue running at a sustained case for a very long time? The answer is yes. Will it be ahead of the market on any given year? Evidently not.
>> That was Julien Nono-Womdim, VP for portfolio research at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
we are off on Monday for Labour Day and we will be back on Tuesday. Meagan Henriques, Senior client education instructor with TD Direct Investing will be our guest. She wants to take your questions about how to get more out of the WebBroker platform.
A reminder that you get a head start with those questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have to show today.
Thanks for watching. On behalf of me, Susan, Anthony in front of the camera and everyone behind the scenes he brings you the show every day, thank you for watching and we'll see you next week.
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