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 Canadian retail sales report and what it might mean for monetary policy in this country. TD Asset Management Scott Colbourne is going to give us his view on whether sticky inflation is changing the rate cut story. And Hussein Allidina will discuss why oil is not getting more of a lift from geopolitical risks. Plus, in today's WebBroker education segment, Hiren Amin is going to shows how you can use moving averages to analyse a stock graph on the platform.
Before he gets all that, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
Not showing us all that much today.
Down 20 points or 1/10 of a percent. The price of crude oil down modestly. The American benchmark is below 74 bucks per barrel, down about half a percent. We have a name making big move to the upside on Bay Street, the most actively traded name at this hour, it's Tricon Residential. It has been acquired by Blackstone in a private deal. That's got the street excited. At 1487, the stock is up almost 28%.
I've been watching some of the uranium plays this week. They had a strong start to the year. We are only a couple of weeks in but there has been some get back from the uranium names in the past couple of days including today. Cameco at 6212, Dan another 3.7%.
Wayfair, a name we don't look at often, it's making some moves today south of the border. Just shy of 57 bucks per share, up 12%.
South of the border, let's check in on the S&P 500, 4804, putting on 24 points or half a percent. The tech heavy NASDAQ, the chipmakers of me getting a bid this week.
Still excitement around AI. Up 70 points on the NASDAQ, about half a percent.
And that's your market update.
>> We had US retail sales earlier this week. We had Canadian November retail sales. Came in at -0.2% month over month.
That's down from October's print where we did see a revised lower print, two percentage points down to half a percent but still much weaker versus November.
When we break it down by sector, sales were down and 4/9 subsectors. Food and beverage retailers as well as general merchandise stores led the declines. The largest increase was led by sales in motor vehicle and parts dealers, they gain for the third consecutive month.
The sector gains were driven by higher sales and new car dealers.
The new vehicle market has remained pretty firm. We are also seeing improved vehicle availability.
That has had an impact on the market.
Not too much to read into this number today.
The negative retail sales print, it comes after solid October reading.
We did get a resilient flash December estimate suggesting a rebound of .8% based on respondents from roughly half of retailers surveyed.
>> A lot of this date is going to feed into with the Bank of Canada is thinking about the path of the economy, where they need to be with interest rates. We have an announcement next week.
The December flash number coming in fast, I wonder if they read through. I spent a lot of money in December. 'tis the season to spend a lot of cash. I'm not spending that much this month.
>> Exactly.
This is something they will certainly take into account. We also had other economic data that they looked at.
We got the Canadian CPI December data. The headline number takes umpires a 3.4% year-over-year. We got also the Bank of Canada's preferred core inflation measure coming up in December as well. We got Canadian home sales and prices surging in December.
So I think the real question is, is this resilience going to last? Are we going to see the strength into 2024? Not according to the Bank of Canada survey of both consumers and businesses. That indicates Canadians and businesses are increasingly feeling the pain from higher interest rates, from higher inflation and that's just the need for the Bank of Canada perhaps you sooner rather than later.
TD expects the first rate cut by the second quarter of 2024.
>> We'll be breaking it down in real time after the decision for our viewers.
>> We will have a portfolio manager for TD Asset Management giving us an analysis after the announcement on Wednesday.
>> MoneyTalk's Anthony Okolie.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Tricon Residential are in the spotlight today. The Toronto-based rental housing companies being acquired by Blackstone Real Estate Partners in a deal valued at $3.5 billion. Once the take private deal is completed, Tricon shares will no longer be listed on the Toronto and New York exchanges. It's up almost 20%. IRobot shares are under significant pressure today, down 29%. It follows an unconfirmed report that Amazon's bid to buy the robot vacuum company could be blocked by European regulators. The European commission has said in the past, I believe it was last November, that the deal raises competition concerns for them.
Ford is reducing its production of its all electric F150 lightning pick up a mid weaker than anticipated demand for electric vehicles.
At the same time, the Detroit automakers boosting production of the Bronco SUV and Ranger Pickup. The EV industry has seen a slowdown in sales amid economic uncertainty and higher borrowing costs.
Quick check in on the markets. We will start on Bay Street. Downward pressure.
Nothing too dramatic on the TSX Composite Index. Bit of a flat data downside for crude.
26 points off the table, a little more than 1/10 of a percent. South of the border, the S&P 500, flirting with all-time highs, it's been a choppy trade this year. 4804 we will call back, rounding up, 23 points to the upside, about half percent.
Markets, of course, respecting interest rate cuts on the table as we entered the year but with inflation continuing to be sticky, does that change the story? Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management joined me earlier to discuss.
>> I think we have seen some pushback on the enthusiasm we saw at the end of 2023.
When we look at the last three prints on inflation in the US and Canada and the UK this morning, it's a little stickier, as you noted.
I think the enthusiasm that we saw at the end of last year when we got the Fed pivot, we have the quarterly refunding the provided a lift as well, all of that gave us the tailwinds that we really had a great finish to 2023.
We are just dialling back that enthusiasm.
I don't think the narrative of rate cuts is going to go away.
It's more the timing.
Inflation a little stickier led by shelter and services.
But on the other side, certain goods deflation and energy deflation giving a balance to inflation. So what we have seen is some of the central bankers out there saying, look, it's not, we are not pushing back on rate cuts yet. In fact, both the Fed and the ECB, using acknowledgements of rate cuts this year, but maybe it's the timing. Maybe we've gone from an 85% chance of a cut in March to maybe now a 50% chance of a cut which, given the probabilities and distributions, it seems reasonable. I don't think they will cut personally and March.
It just dialling back of enthusiasm that we are seeing as you noted over the last few sessions and it's just taking back that enthusiasm. But I do think we are going to have rate cuts this year for sure. Global growth X US is meh at best.
You've got energy prices pretty lacklustre.
If you look at the inflation swaps market, which is something we can actually trade inflation on a month-to-month basis, it says you are going to see core inflation around 2 1/2% by the second half of this year. I think when you think of the Fed and the reaction function, it's not going to wait until August of 2% before it cuts.
>> But we will get there.
>> We are on that path and we are confident and recent data just sort of dials back the recent cuts.
>> The last most recent fresh piece of data landed today, retail sales. I never know how to take the December number. I know that personally I might head into the holiday season saying fiscal discipline but it's the holidays.
You open your wallet and when you take a look at how much you spend, you go, whoa.
Is it surprising that the US consumer in particular has been able to look at higher borrowing costs and keep on spending?
>> It's been a consistent theme through 2023. To the extent that it continues at the margin that the US consumers surprises us, I guess we shouldn't be surprised but broadly speaking, the weight of global growth will weigh on inflation and I think that probably we will see okay US growth and data is consistent with that, perhaps reflecting what was priced into the market and that's why you're getting pushback and yields and maybe we expected a lot softer growth.
There is a pushback against expectations.
>> When it comes to fixed income investing, people have an idea about interest rate cuts on the horizon and when they might, and what it would mean for fixed income portfolios but also the fact that we are seeing these yields at still fairly high levels. He put all this together, what does it actually be for fixed income?
>> Depending on where you are investing in the yield curve or what type of solution you have, for the half to 5 1/2% or 6% all in yields, sometimes you take it with duration and sometimes you take it with her. If you take it with duration, I believe you're going to see may be another 50 basis points rally over the course at some point this year so that gives you another couple percent in terms of a total return. So you could have high single digit returns in fixed income. At worst, you're going to have a coupon type of year-end based on where we were at the lows of the pandemic, income and the 6% ranges good. It still makes sense for portfolios, absolutely.
>> Will that be enough to get investors who have been in cash and a cautious all through 23, we kept hearing that people were in cash or at the short end of fixed income instruments. A little more perhaps courage to step in and a more profound way?
>> I think people will go to other places when they are nudged. They will get nudged when they see central banks making cuts.
We got maybe another third of the year to go through before we get to a significant movement out of cash but for the time being, whether it's cash or short corporate or a long-duration asset, there's opportunities for fixed income investors this year.
>> Taking a look at risk this year, there is that you political risk, maybe political risk in the United States, there's a lot of moving pieces this year.
What do we need to think about from a fixed fixed income perspective?
What could mess us up?
>> I think there's a couple of things I'm looking at.
If we continued to see, despite resilient US growth a weakness in commodities, is it telling us something about demand?
Is it telling us about further weakening in the global economy? I don't know at this time but something I'm keeping an eye on.
The other thing I think from a fixed income point of view and portfolio construction, I look at three things. One, it's liquid.
You can shift from fixed income to cash to alts to equities. That's always there.
We've got income. We just talked about that. But it's the correlation between these things. In a high inflation environment which we have been through, that correlation breaks down and the hedging value breaks down and there is not a natural demand for fixed income as risky assets come down. As we go into a lower inflation environment makes x-rays to go back up. If it doesn't, that's a risk.
Governments like to finance our debt to the bond market.
So that is a risk, that bid for bonds might not be there.
That's a risk beyond the traditional geopolitics.
>> That was Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management.
Now, let's get to our educational segment of the day.
One tool that investors can use to analyse a stock chart on the WebBroker platform are moving averages. Hiren Amin, Senior client education instructor with TD Direct Investing joins us now with more.
>> Great to be back. Let's talk about technical analysis. One of the fundamental tools and technical analysis or the principles of technical analysis is to be able to trade with trends. That's were moving averages can help us. Moving averages really help traders or technicians identify trends and price charts when they are looking at them. It kind of cuts the noise out of all those erratic moves that you might see. Let's go into WebBroker and will demonstrate what that is and how you can apply it. I've got the S&P 500 ETF trust loaded up here.
We will go to the charts tab on here.
Within here, I'm going to set up my chart.
Let's look at a lengthier timeframe. We will see if we can look at a year or five years. Let me just refresh and get back.
There we go.
We got five years, one week chart loaded up. You could use any timeframe you really want over here. What's important is this aggregation. There were looking at overture. You can see one week represents each candle that you see on this chart, it's going to represent one week's worth of data pricing.
We are going to switch this to a daily chart. Each price you see here, let's narrow this down to a three year to have it a bit more open there.
The moving average, to get that added into the chart 1st of all, it's a number indicator.
We are going to click on upper indicator here. You're going to find a few here. We have exponential, simple and weighted moving average.
Let's start with simple, simple moving average.
What you are seeing here is you are seeing a line plotted in which is smoothing out a bit of the price.
We have a little bit of input over here.
Commonly, one of the medium-term moving averages that you use as a 50. Moving average or 50 candle or 50 day in this case and we are going to apply that to the chart.
What this is essentially doing is it's adding up 50 days worth of closing prices and dividing it and getting it's average and then plotting and as a data point on this moving average to help us create this trend and we can see here clearly that there is a bit of a downtrend that's happening with the S&P 500 over a three-year period from where it was.
Now, where traders look at this or would it help them identify as you also generate trading signals for them. Whenever you see the price action cross either above the moving average, it may send a buy signal to them or if it crosses below like over here in the September. Over here, that would signal a sell indicator. It also serves as dynamic support. Support areas are usually seen where we see more selling action happened. Sorry, resistance area, resistance lines are seen where this happens.
Support is usually found in prices bottom out, that's where we tend to see more buying action happened. These kind of act as those dynamic supporters as those prices are moving there. There's one thing I'm going to further add to this. I'm can add one more moving average to our chart.
I'm going to do a 200 day moving average.
This represents one year's worth of trading days price data and we are going to plot them both together. This is where traders also use it. They also look for what we call crossovers. So whenever you see a certain moving average cross below the longer term, so this 50 day which is shorter and the longer term cross below, that seen as a signal.
There is a particular name we give this.
Any chance you come across this word for cross action?
>> If it's negative we probably throw an intense word added. Is it a death cross?
>> Exactly, a death cross is what it is.
When the 50 crosses below the 200.
And then similarly when you have the opposite, when the crossover happens above the 200, we call that a golden cross and it's a buy signal for traders.
>> There can be a lot to learn. Where can a client: what broker to learn more about these technical trading signals?
>> It almost feels like you're drinking from a fire hose sometimes. We've got a turned on the taps of it. To help us with that, we can go into this tab right over here which says technicals. Now this is a fantastic resource, especially for someone who wants to get more familiar with technical analysis.
Now within here, we have a section that kind of does a lot of the analysis for you, but you can also come in here and they have an education section. If I click on this graduation, it opens up a lot of different things. Under indicators and with the crossovers for these various moving averages. We just looked at was something called a double moving average crossover. You can essentially see a description of it and it tells you how you can use it for trading considerations and what the criteria is for the support and resistance rules there as well. Fantastic resource.
The last thing I will also mention here before we go, amazing resource here. We have short videos and webinars with industry professionals. It was going to the video lessons.
These are your shorter soundbites. I am looking for technical analysis videos and I want the short version of it so that's where our video lessons, those usually or 5 to 6 minute ones. Some of the others are longer.
And when you do that and hit apply filters, you're going to get brought to a whole host of different resources where you can enhance your learning.
>> Great stuff as always.
Thanks for that.
>> My pleasure.
>> Hiren Amin, Senior client education instructor with TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Let's talk about the commodities market.
Carrying a lot of worries into this year with oil and gas particularly challenge.
But according to Hussein Allidina, Managing Director and had quantities at TD Asset Management, a lot of that pessimism is already priced into the energy trade and that could make the space interesting in the longer term.
He joined me earlier to discuss.
>> 2023, demand growth was a concern through the bulk of the year. Hard landing, soft landing, no landing.
The larger surprise, I think, in 2023 was better-than-expected supply. US production, shale production growth rebounded in the latter half of 23 and uranium production actually increased by five, 600,000 barrels a day, largely because sanctions were not enforced. There might be some politics there with inflation where was. Maybe they let the Iranians export. 2024, demand growth is going to slow. The COVID rebound, which saw demand growth is going to get back to more normal levels. The iA I publish there will market report this morning and they are expecting demand growth could go higher.
This is very important because we have talked before, the price of a commodity is determined by the intersection of supply and demand levels. The demand, the magnitude of demand is growing in 2024 as you mentioned. The uncertainty I think the market is grappling with is what happens to the supply side. The iA is forecasting supply growth of 1.4 million barrels a day so on paper we should see inventories billed by somewhere in the 200 to 300,000 barrel a day range.
I think we are trading at the lower end of the range because a tremendous amount of uncertainty, geopolitics, and the Middle East, top of mind, but even if I build by 200,000 barrels a day over the course of the year, it's from very, very low levels.
Inventories are setting quite tight.
Notwithstanding the fact that crude prices have come under pressure, the shape of the curve is still backward. That tells you that the market is still tight.
>> With what's happening in the Red Sea and the geopolitical concerns in the Middle East, some people might take a look at the price of crude right now just a bit under 74 bucks per barrel for American benchmark crude and think, where is the risk premium? How come this isn't in the price right now?
>> Yeah, so factually, a tremendous amount of potential supply that is at risk, to date, no supply has been disrupted.
If you look at the last five, six, seven different sort of episodes of potential supply disruption, you've never made anything off trading that. I think the most recent thing that comes to mind is when the who thieves attacked the Saudi's facilities in the eastern part of the country. Yet a couple of days of materially higher oil prices. Production was brought back to market relatively quickly.
I think today given that we have three, four, 5 million barrels a day of spare capacity, the market is a little bit sanguine about the potential for a disruption. The peace that concerns me there is if we do see a disruption, the holders of spare capacity are primarily Saudi and the United Arab Emirates. They use the Straits of Hormuz and the Red Sea to a pretty elevated degree to move their crude so I'm not sure it's fair to say that hey, we have a lot of spare capacity.
If there is a disruption, we can meet that.
I think there's probably far less risk priced in then there should be but again, acknowledging the fact that over the course of the last… The last time you got paid to trade potential supply disruptions was the fall of Moammar Gadhafi in Libya, very long time ago.
>> Important to keep an eye on that.
What's been overhanging this for quite some time is central bank policy. We entered this year with expectations at the Fed, at least the market thinking they would deliver a certain amount of cuts.
I feel like in the past couple of days, people have been asking what the Fed are going to do this year. How is that going to overhanging the commodities market?
>> A headwind for the last couple of years has been higher rates and then attempt to slow the economy and by extension a materially firmer dollar.
If we look, for example, at the price of crude trading well off of nominal highs in US dollar terms, in India, as an example, because of the weakness of the Ruby and the strength of the dollar, Indians have been paying higher crude prices for the better part of a year, you're in half. If the dollar weakens because we see easing in monetary conditions that should fundamentally improve demand and economies that are not pegged to the dollar. The macroeconomy I think has been a headwind for commodities over the past couple of years. The micro has been quite supportive. 2024, there is some question marks around the micro because of uncertainty around US production growth, uncertainty around demand. The micro is probably going to be more favourable from a policy point of view as it relates to commodities.
>> We think about market watchers waiting for that first rate cut from the Fed, whether it's going to be March or push database all this, commodity markets watching it just as carefully?
>> I think so. The challenge today is we are talking about cutting rates in an effort to boost the economy because inflation has come off. You mentioned that we got some data out of the US this morning that is showing a firmer economy than we expected and expectations around rate cuts are being reduced. If the economy is running hotter, that prevents the Fed from cutting or central banks from cutting as quickly as the market is discounting. That should mean that the demand for commodities is higher today than the markets expecting. So it's a very sort of trick you think. That we are in.
Ultimately, though, I underscore the fact that inventories across commodity space, with a couple of exceptions, or sitting at multiyear lows. Demand levels continue to increase and the supply side, given the lack of investment over the course of the last 10 to 12 years, has left the supply side challenge. If we get better-than-expected GDP growth, and I mentioned earlier that I feel there's a lot of pessimism priced and, if we were to get slightly better-than-expected demand growth, whether it's for oil, for copper, etc., we don't have the cover to me that demand. I think there's a lot of potential upside. I am and I think the market is concerned, though, that growth may not be as robust as we are hoping.
>> Is that potential upside a longer-term thing? In the here and now we've done a nice rundown of what we are facing the longer term, we talk about underinvestment. You said it was a decade or more of underinvestment.
>> I believe strongly that over time, the global economy is going to grow. We can debate what growth might look like in the first half of 24 or 24 as a whole, but there's a lot of inertia in GDP growth and if the economy grows, that supplies you has not been addressed.
And ultimately demand will grow.
And that will serve to tighten balances.
That's why I am structurally constructive quantities here and anticipating commodity prices will continue to perform over the course of the next 5 to 10 years.
In the very near term, there is uncertainty around what growth will look like. Again, when I look at positioning the market, I think that the market has gotten too pessimistic given fundamentals in the commodity market and given the potential for growth. This time last year, we talk to Chinese demand growth, you talk to folks in quantities, very few of them are talking about or focus on at all what's happening in China. China disappointed relative to expectations this year. I think the possibility of them exceeding very depressed expectations is not being priced in.
>> That was Hussein Allidina, head of commodities at TD Asset Management.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, PlatForm designed for active traders available through TD Direct Investing. Taking a look at the heat map function here, gives you a view of the market movers.
We will start with the TSX 60 and we will screen by Price and volume. You can see some green on the screen in the financials today.
Nothing too dramatic to the upside these are heavy weights when it comes to the top line number. So putting some points on table. What is holding us back from a better showing in Toronto's fake mark you can see it's a bit of a mixed picture in the energy space with Cameco standing out.
Obviously, the uranium plays had a very strong start to this year.
God price appreciation for Cameco and Denison. They been giving back in recent days. Cameco down to the tune of about 2.7%. The rest of the board as a bit of a mixed picture. Looking at the material space, Kinross is down just a little bit.
The S&P 100, the chip stocks are up again.
Nvidia off about 3%, AMD up a little shy of 4%.
Some of the other tech names not rallying quite as firmly but still following that updraft.
Tesla earlier this week lowered prices for vehicles in the European market. I did the same in China last year.
Ford today cutting back on its production of the all electric F150. There is been softer demand than the market was expecting for electric vehicles over the past a while.
You've got Tesla down a bit but in the financial market to south of the border, you got some strength on the screen, including a Wells Fargo and J.P. Morgan making some gains.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
There are plenty of questions facing investors this year from whether we get rate cuts from central banks in the chances of a recession. Jing Roy, VP, director and portfolio manager for asset allocation at TD Asset Management joined me earlier to discuss.
>> There is a bit of market debate about our session, how we get there, whether we get there. The consensus is that we are going to have a soft landing and economic growth in both the US and Canada will be about half as fast as we experienced last year.
Given the price we are seeing in consumer credit and the labour market, it's much easier to see a path for slower growth going forward rather than a rapid recovery.
That's especially the case in Canada where we have higher household debt and we are experiencing higher debt servicing costs because of mortgage rollovers. That will put a bigger debt in Canadian households.
>> When we talk about that recession debate, is there still a part of that debate where people are saying we are going to get perhaps a hard landing? The story was about, do we get the soft landing, no landing at all.
The consensus in the market seems to be that things will slow but not precipitously to the point where we'd be in trouble. Our people still throwing around the trouble scenario?
>> Not really.
The consensus really coalesced around the soft landing scenario and what we have seen in past months where the equity and bond markets collectively returned double-digit returns in the last two months just because the consensus expectation shifted to a soft landing scenario and people become more aggressive in terms of rate cut expectations.
As a result of that, he was very conducive for risk appetite.
>> The central banks in this idea that they will be cutting this year. In a soft landing scenario, do the central banks have to be aggressive to the downside or would they simply try to get out of what we believe to be restrictive territory right now.
>> Right now, the market is pricing and about 6 to 7 cuts in the US starting in March. In Canada, it's about 5 Cuts Starting in April. Right now, the modus operandi for the central bank is to cut rates commensurate with the falling inflation.
If there is any sign of we are hitting a recession, I think the central banks would be more aggressive in cutting their rates.
It's counterintuitive. As the pricing in a recession might be quite strong because when central banks cut rates more rapidly, it's conducive for risk appetite and asset prices. What we have is a situation here in asset seconds are off stable cash flows that would benefit in that scenario.
Case in point would be long bonds because they offer a constant coupon. For equities, companies with very stable cash flow and have secular tailwind behind them such as in technology and healthcare sectors, they will benefit as well.
>> So we set the table for a soft landing, for rate cuts from the central banks, hours and from the Fed. Let's talk about the surprises that we might be facing this year. We are only two weeks and, we think it's going to go in this direction. What do we need to be watching?
>> I think it's very important to understand where the inflation is headed and that will become a Northstar for telling, understanding with the central bank policy might pivot towards. As a result of that, you have to position the portfolio with a core view of what could happen. If the consensus estimate of a soft landing and a rate cut expectation come to pass, that I think the return expectation for assets, bonds and equity will be somewhere in single digit territory but we really need a surprise for that to deviate from our base case scenario.
So the biggest surprise I think if we experience growth a tad softer than what the market is expecting, then that would be bullish for markets. In a very strange twist of logic, pre-revenue companies can actually benefit not because they really don't have any revenues to contend with but they are disproportionately be benefiting from more friendly fundraising market which are the result of lower interest rate and more liquidity in the system.
>> One of the stories in the past 12 months that perhaps people had an expected heading into last year was how well the American markets would do, how well the Magnificent Seven did, all the excitement around AI. Is there a chance this year that the US markets will not outperform like they have?
>> That's an interesting question because for investors leading towards a stronger growth scenario, actually, there is a higher probability that a US market will lag behind Canada and Europe. There are a few reasons for that. Number one, if growth in US, inflation in US, surprise on the upside, investors will have to recalibrate their aggressive rate cut expectation as a result of that, financial conditions will tighten.
Because of that then, US long bonds, government bonds, will trail parts of the G6 economies because investors will require higher returns and the price will have to adjust downwards to accommodate that. And also for growth stocks, when growth becomes abundant, there will be a D rating for growth stocks because the premium for growth scarcity will no longer be there. As a result of that, the US market is over indexed towards equities.
There is a very strong likelihood that the US stock market will lead behind Canada and Europe. There is one saving grace, which is the strong dollar because of the hawkish Fed. Of course, we have a couple of wildcards this year. We have a potential policy shift after the US presidential election in November, as well as the ongoing inflation shocks in the Middle East from the widening of the regional conflicts.
>> I feel like some of that uncertainty that's been in the market for a while, that will continue into this year with some of those issues, because a lot of investors, despite the fact that US stocks rallied so strongly last year, to stay in cash.
If we bring it back to asset allocation, we know that was a story, let's talk about diversification this year.
>> Because we don't know what's going to happen to the market, it's nice to know what works in a recession scenario and recovery scenario but even the best of us sometimes succumbed to a lack of imagination, let's put it that way.
So I think it's very helpful to focus on income growth and stability when you try to navigate the uncertainty in the market right now.
So for a portfolio that's well constructed, I would look for the three attributes. First of all, it has to secure a base level of income over the medium term. Secondly, it has to generate capital appreciation from equities or any other assets. Finally, it has to generate source returns from uncorrelated asset classes.
So we have different levers in play when we go through a certain path.
>> That was Jing Roy, VP, director and portfolio manager for asset allocation at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
Stay tuned. We will be back on Monday with Colin Lynch, head of global real estate investments with TD Asset Management. He wants to take your questions about real estate.
You can get a head start on sending those questions in. Just email MoneyTalkLive@TD.com. That's all the time we have for the show today. On behalf of me, Anthony, everyone behind the scenes he brings to the show every day, thanks for watching and you will see you on Monday.
[music]
coming up on today's show, MoneyTalk's Anthony Okolie is going to take us to the latest Canadian retail sales report and what it might mean for monetary policy in this country. TD Asset Management Scott Colbourne is going to give us his view on whether sticky inflation is changing the rate cut story. And Hussein Allidina will discuss why oil is not getting more of a lift from geopolitical risks. Plus, in today's WebBroker education segment, Hiren Amin is going to shows how you can use moving averages to analyse a stock graph on the platform.
Before he gets all that, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
Not showing us all that much today.
Down 20 points or 1/10 of a percent. The price of crude oil down modestly. The American benchmark is below 74 bucks per barrel, down about half a percent. We have a name making big move to the upside on Bay Street, the most actively traded name at this hour, it's Tricon Residential. It has been acquired by Blackstone in a private deal. That's got the street excited. At 1487, the stock is up almost 28%.
I've been watching some of the uranium plays this week. They had a strong start to the year. We are only a couple of weeks in but there has been some get back from the uranium names in the past couple of days including today. Cameco at 6212, Dan another 3.7%.
Wayfair, a name we don't look at often, it's making some moves today south of the border. Just shy of 57 bucks per share, up 12%.
South of the border, let's check in on the S&P 500, 4804, putting on 24 points or half a percent. The tech heavy NASDAQ, the chipmakers of me getting a bid this week.
Still excitement around AI. Up 70 points on the NASDAQ, about half a percent.
And that's your market update.
>> We had US retail sales earlier this week. We had Canadian November retail sales. Came in at -0.2% month over month.
That's down from October's print where we did see a revised lower print, two percentage points down to half a percent but still much weaker versus November.
When we break it down by sector, sales were down and 4/9 subsectors. Food and beverage retailers as well as general merchandise stores led the declines. The largest increase was led by sales in motor vehicle and parts dealers, they gain for the third consecutive month.
The sector gains were driven by higher sales and new car dealers.
The new vehicle market has remained pretty firm. We are also seeing improved vehicle availability.
That has had an impact on the market.
Not too much to read into this number today.
The negative retail sales print, it comes after solid October reading.
We did get a resilient flash December estimate suggesting a rebound of .8% based on respondents from roughly half of retailers surveyed.
>> A lot of this date is going to feed into with the Bank of Canada is thinking about the path of the economy, where they need to be with interest rates. We have an announcement next week.
The December flash number coming in fast, I wonder if they read through. I spent a lot of money in December. 'tis the season to spend a lot of cash. I'm not spending that much this month.
>> Exactly.
This is something they will certainly take into account. We also had other economic data that they looked at.
We got the Canadian CPI December data. The headline number takes umpires a 3.4% year-over-year. We got also the Bank of Canada's preferred core inflation measure coming up in December as well. We got Canadian home sales and prices surging in December.
So I think the real question is, is this resilience going to last? Are we going to see the strength into 2024? Not according to the Bank of Canada survey of both consumers and businesses. That indicates Canadians and businesses are increasingly feeling the pain from higher interest rates, from higher inflation and that's just the need for the Bank of Canada perhaps you sooner rather than later.
TD expects the first rate cut by the second quarter of 2024.
>> We'll be breaking it down in real time after the decision for our viewers.
>> We will have a portfolio manager for TD Asset Management giving us an analysis after the announcement on Wednesday.
>> MoneyTalk's Anthony Okolie.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Tricon Residential are in the spotlight today. The Toronto-based rental housing companies being acquired by Blackstone Real Estate Partners in a deal valued at $3.5 billion. Once the take private deal is completed, Tricon shares will no longer be listed on the Toronto and New York exchanges. It's up almost 20%. IRobot shares are under significant pressure today, down 29%. It follows an unconfirmed report that Amazon's bid to buy the robot vacuum company could be blocked by European regulators. The European commission has said in the past, I believe it was last November, that the deal raises competition concerns for them.
Ford is reducing its production of its all electric F150 lightning pick up a mid weaker than anticipated demand for electric vehicles.
At the same time, the Detroit automakers boosting production of the Bronco SUV and Ranger Pickup. The EV industry has seen a slowdown in sales amid economic uncertainty and higher borrowing costs.
Quick check in on the markets. We will start on Bay Street. Downward pressure.
Nothing too dramatic on the TSX Composite Index. Bit of a flat data downside for crude.
26 points off the table, a little more than 1/10 of a percent. South of the border, the S&P 500, flirting with all-time highs, it's been a choppy trade this year. 4804 we will call back, rounding up, 23 points to the upside, about half percent.
Markets, of course, respecting interest rate cuts on the table as we entered the year but with inflation continuing to be sticky, does that change the story? Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management joined me earlier to discuss.
>> I think we have seen some pushback on the enthusiasm we saw at the end of 2023.
When we look at the last three prints on inflation in the US and Canada and the UK this morning, it's a little stickier, as you noted.
I think the enthusiasm that we saw at the end of last year when we got the Fed pivot, we have the quarterly refunding the provided a lift as well, all of that gave us the tailwinds that we really had a great finish to 2023.
We are just dialling back that enthusiasm.
I don't think the narrative of rate cuts is going to go away.
It's more the timing.
Inflation a little stickier led by shelter and services.
But on the other side, certain goods deflation and energy deflation giving a balance to inflation. So what we have seen is some of the central bankers out there saying, look, it's not, we are not pushing back on rate cuts yet. In fact, both the Fed and the ECB, using acknowledgements of rate cuts this year, but maybe it's the timing. Maybe we've gone from an 85% chance of a cut in March to maybe now a 50% chance of a cut which, given the probabilities and distributions, it seems reasonable. I don't think they will cut personally and March.
It just dialling back of enthusiasm that we are seeing as you noted over the last few sessions and it's just taking back that enthusiasm. But I do think we are going to have rate cuts this year for sure. Global growth X US is meh at best.
You've got energy prices pretty lacklustre.
If you look at the inflation swaps market, which is something we can actually trade inflation on a month-to-month basis, it says you are going to see core inflation around 2 1/2% by the second half of this year. I think when you think of the Fed and the reaction function, it's not going to wait until August of 2% before it cuts.
>> But we will get there.
>> We are on that path and we are confident and recent data just sort of dials back the recent cuts.
>> The last most recent fresh piece of data landed today, retail sales. I never know how to take the December number. I know that personally I might head into the holiday season saying fiscal discipline but it's the holidays.
You open your wallet and when you take a look at how much you spend, you go, whoa.
Is it surprising that the US consumer in particular has been able to look at higher borrowing costs and keep on spending?
>> It's been a consistent theme through 2023. To the extent that it continues at the margin that the US consumers surprises us, I guess we shouldn't be surprised but broadly speaking, the weight of global growth will weigh on inflation and I think that probably we will see okay US growth and data is consistent with that, perhaps reflecting what was priced into the market and that's why you're getting pushback and yields and maybe we expected a lot softer growth.
There is a pushback against expectations.
>> When it comes to fixed income investing, people have an idea about interest rate cuts on the horizon and when they might, and what it would mean for fixed income portfolios but also the fact that we are seeing these yields at still fairly high levels. He put all this together, what does it actually be for fixed income?
>> Depending on where you are investing in the yield curve or what type of solution you have, for the half to 5 1/2% or 6% all in yields, sometimes you take it with duration and sometimes you take it with her. If you take it with duration, I believe you're going to see may be another 50 basis points rally over the course at some point this year so that gives you another couple percent in terms of a total return. So you could have high single digit returns in fixed income. At worst, you're going to have a coupon type of year-end based on where we were at the lows of the pandemic, income and the 6% ranges good. It still makes sense for portfolios, absolutely.
>> Will that be enough to get investors who have been in cash and a cautious all through 23, we kept hearing that people were in cash or at the short end of fixed income instruments. A little more perhaps courage to step in and a more profound way?
>> I think people will go to other places when they are nudged. They will get nudged when they see central banks making cuts.
We got maybe another third of the year to go through before we get to a significant movement out of cash but for the time being, whether it's cash or short corporate or a long-duration asset, there's opportunities for fixed income investors this year.
>> Taking a look at risk this year, there is that you political risk, maybe political risk in the United States, there's a lot of moving pieces this year.
What do we need to think about from a fixed fixed income perspective?
What could mess us up?
>> I think there's a couple of things I'm looking at.
If we continued to see, despite resilient US growth a weakness in commodities, is it telling us something about demand?
Is it telling us about further weakening in the global economy? I don't know at this time but something I'm keeping an eye on.
The other thing I think from a fixed income point of view and portfolio construction, I look at three things. One, it's liquid.
You can shift from fixed income to cash to alts to equities. That's always there.
We've got income. We just talked about that. But it's the correlation between these things. In a high inflation environment which we have been through, that correlation breaks down and the hedging value breaks down and there is not a natural demand for fixed income as risky assets come down. As we go into a lower inflation environment makes x-rays to go back up. If it doesn't, that's a risk.
Governments like to finance our debt to the bond market.
So that is a risk, that bid for bonds might not be there.
That's a risk beyond the traditional geopolitics.
>> That was Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management.
Now, let's get to our educational segment of the day.
One tool that investors can use to analyse a stock chart on the WebBroker platform are moving averages. Hiren Amin, Senior client education instructor with TD Direct Investing joins us now with more.
>> Great to be back. Let's talk about technical analysis. One of the fundamental tools and technical analysis or the principles of technical analysis is to be able to trade with trends. That's were moving averages can help us. Moving averages really help traders or technicians identify trends and price charts when they are looking at them. It kind of cuts the noise out of all those erratic moves that you might see. Let's go into WebBroker and will demonstrate what that is and how you can apply it. I've got the S&P 500 ETF trust loaded up here.
We will go to the charts tab on here.
Within here, I'm going to set up my chart.
Let's look at a lengthier timeframe. We will see if we can look at a year or five years. Let me just refresh and get back.
There we go.
We got five years, one week chart loaded up. You could use any timeframe you really want over here. What's important is this aggregation. There were looking at overture. You can see one week represents each candle that you see on this chart, it's going to represent one week's worth of data pricing.
We are going to switch this to a daily chart. Each price you see here, let's narrow this down to a three year to have it a bit more open there.
The moving average, to get that added into the chart 1st of all, it's a number indicator.
We are going to click on upper indicator here. You're going to find a few here. We have exponential, simple and weighted moving average.
Let's start with simple, simple moving average.
What you are seeing here is you are seeing a line plotted in which is smoothing out a bit of the price.
We have a little bit of input over here.
Commonly, one of the medium-term moving averages that you use as a 50. Moving average or 50 candle or 50 day in this case and we are going to apply that to the chart.
What this is essentially doing is it's adding up 50 days worth of closing prices and dividing it and getting it's average and then plotting and as a data point on this moving average to help us create this trend and we can see here clearly that there is a bit of a downtrend that's happening with the S&P 500 over a three-year period from where it was.
Now, where traders look at this or would it help them identify as you also generate trading signals for them. Whenever you see the price action cross either above the moving average, it may send a buy signal to them or if it crosses below like over here in the September. Over here, that would signal a sell indicator. It also serves as dynamic support. Support areas are usually seen where we see more selling action happened. Sorry, resistance area, resistance lines are seen where this happens.
Support is usually found in prices bottom out, that's where we tend to see more buying action happened. These kind of act as those dynamic supporters as those prices are moving there. There's one thing I'm going to further add to this. I'm can add one more moving average to our chart.
I'm going to do a 200 day moving average.
This represents one year's worth of trading days price data and we are going to plot them both together. This is where traders also use it. They also look for what we call crossovers. So whenever you see a certain moving average cross below the longer term, so this 50 day which is shorter and the longer term cross below, that seen as a signal.
There is a particular name we give this.
Any chance you come across this word for cross action?
>> If it's negative we probably throw an intense word added. Is it a death cross?
>> Exactly, a death cross is what it is.
When the 50 crosses below the 200.
And then similarly when you have the opposite, when the crossover happens above the 200, we call that a golden cross and it's a buy signal for traders.
>> There can be a lot to learn. Where can a client: what broker to learn more about these technical trading signals?
>> It almost feels like you're drinking from a fire hose sometimes. We've got a turned on the taps of it. To help us with that, we can go into this tab right over here which says technicals. Now this is a fantastic resource, especially for someone who wants to get more familiar with technical analysis.
Now within here, we have a section that kind of does a lot of the analysis for you, but you can also come in here and they have an education section. If I click on this graduation, it opens up a lot of different things. Under indicators and with the crossovers for these various moving averages. We just looked at was something called a double moving average crossover. You can essentially see a description of it and it tells you how you can use it for trading considerations and what the criteria is for the support and resistance rules there as well. Fantastic resource.
The last thing I will also mention here before we go, amazing resource here. We have short videos and webinars with industry professionals. It was going to the video lessons.
These are your shorter soundbites. I am looking for technical analysis videos and I want the short version of it so that's where our video lessons, those usually or 5 to 6 minute ones. Some of the others are longer.
And when you do that and hit apply filters, you're going to get brought to a whole host of different resources where you can enhance your learning.
>> Great stuff as always.
Thanks for that.
>> My pleasure.
>> Hiren Amin, Senior client education instructor with TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Let's talk about the commodities market.
Carrying a lot of worries into this year with oil and gas particularly challenge.
But according to Hussein Allidina, Managing Director and had quantities at TD Asset Management, a lot of that pessimism is already priced into the energy trade and that could make the space interesting in the longer term.
He joined me earlier to discuss.
>> 2023, demand growth was a concern through the bulk of the year. Hard landing, soft landing, no landing.
The larger surprise, I think, in 2023 was better-than-expected supply. US production, shale production growth rebounded in the latter half of 23 and uranium production actually increased by five, 600,000 barrels a day, largely because sanctions were not enforced. There might be some politics there with inflation where was. Maybe they let the Iranians export. 2024, demand growth is going to slow. The COVID rebound, which saw demand growth is going to get back to more normal levels. The iA I publish there will market report this morning and they are expecting demand growth could go higher.
This is very important because we have talked before, the price of a commodity is determined by the intersection of supply and demand levels. The demand, the magnitude of demand is growing in 2024 as you mentioned. The uncertainty I think the market is grappling with is what happens to the supply side. The iA is forecasting supply growth of 1.4 million barrels a day so on paper we should see inventories billed by somewhere in the 200 to 300,000 barrel a day range.
I think we are trading at the lower end of the range because a tremendous amount of uncertainty, geopolitics, and the Middle East, top of mind, but even if I build by 200,000 barrels a day over the course of the year, it's from very, very low levels.
Inventories are setting quite tight.
Notwithstanding the fact that crude prices have come under pressure, the shape of the curve is still backward. That tells you that the market is still tight.
>> With what's happening in the Red Sea and the geopolitical concerns in the Middle East, some people might take a look at the price of crude right now just a bit under 74 bucks per barrel for American benchmark crude and think, where is the risk premium? How come this isn't in the price right now?
>> Yeah, so factually, a tremendous amount of potential supply that is at risk, to date, no supply has been disrupted.
If you look at the last five, six, seven different sort of episodes of potential supply disruption, you've never made anything off trading that. I think the most recent thing that comes to mind is when the who thieves attacked the Saudi's facilities in the eastern part of the country. Yet a couple of days of materially higher oil prices. Production was brought back to market relatively quickly.
I think today given that we have three, four, 5 million barrels a day of spare capacity, the market is a little bit sanguine about the potential for a disruption. The peace that concerns me there is if we do see a disruption, the holders of spare capacity are primarily Saudi and the United Arab Emirates. They use the Straits of Hormuz and the Red Sea to a pretty elevated degree to move their crude so I'm not sure it's fair to say that hey, we have a lot of spare capacity.
If there is a disruption, we can meet that.
I think there's probably far less risk priced in then there should be but again, acknowledging the fact that over the course of the last… The last time you got paid to trade potential supply disruptions was the fall of Moammar Gadhafi in Libya, very long time ago.
>> Important to keep an eye on that.
What's been overhanging this for quite some time is central bank policy. We entered this year with expectations at the Fed, at least the market thinking they would deliver a certain amount of cuts.
I feel like in the past couple of days, people have been asking what the Fed are going to do this year. How is that going to overhanging the commodities market?
>> A headwind for the last couple of years has been higher rates and then attempt to slow the economy and by extension a materially firmer dollar.
If we look, for example, at the price of crude trading well off of nominal highs in US dollar terms, in India, as an example, because of the weakness of the Ruby and the strength of the dollar, Indians have been paying higher crude prices for the better part of a year, you're in half. If the dollar weakens because we see easing in monetary conditions that should fundamentally improve demand and economies that are not pegged to the dollar. The macroeconomy I think has been a headwind for commodities over the past couple of years. The micro has been quite supportive. 2024, there is some question marks around the micro because of uncertainty around US production growth, uncertainty around demand. The micro is probably going to be more favourable from a policy point of view as it relates to commodities.
>> We think about market watchers waiting for that first rate cut from the Fed, whether it's going to be March or push database all this, commodity markets watching it just as carefully?
>> I think so. The challenge today is we are talking about cutting rates in an effort to boost the economy because inflation has come off. You mentioned that we got some data out of the US this morning that is showing a firmer economy than we expected and expectations around rate cuts are being reduced. If the economy is running hotter, that prevents the Fed from cutting or central banks from cutting as quickly as the market is discounting. That should mean that the demand for commodities is higher today than the markets expecting. So it's a very sort of trick you think. That we are in.
Ultimately, though, I underscore the fact that inventories across commodity space, with a couple of exceptions, or sitting at multiyear lows. Demand levels continue to increase and the supply side, given the lack of investment over the course of the last 10 to 12 years, has left the supply side challenge. If we get better-than-expected GDP growth, and I mentioned earlier that I feel there's a lot of pessimism priced and, if we were to get slightly better-than-expected demand growth, whether it's for oil, for copper, etc., we don't have the cover to me that demand. I think there's a lot of potential upside. I am and I think the market is concerned, though, that growth may not be as robust as we are hoping.
>> Is that potential upside a longer-term thing? In the here and now we've done a nice rundown of what we are facing the longer term, we talk about underinvestment. You said it was a decade or more of underinvestment.
>> I believe strongly that over time, the global economy is going to grow. We can debate what growth might look like in the first half of 24 or 24 as a whole, but there's a lot of inertia in GDP growth and if the economy grows, that supplies you has not been addressed.
And ultimately demand will grow.
And that will serve to tighten balances.
That's why I am structurally constructive quantities here and anticipating commodity prices will continue to perform over the course of the next 5 to 10 years.
In the very near term, there is uncertainty around what growth will look like. Again, when I look at positioning the market, I think that the market has gotten too pessimistic given fundamentals in the commodity market and given the potential for growth. This time last year, we talk to Chinese demand growth, you talk to folks in quantities, very few of them are talking about or focus on at all what's happening in China. China disappointed relative to expectations this year. I think the possibility of them exceeding very depressed expectations is not being priced in.
>> That was Hussein Allidina, head of commodities at TD Asset Management.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, PlatForm designed for active traders available through TD Direct Investing. Taking a look at the heat map function here, gives you a view of the market movers.
We will start with the TSX 60 and we will screen by Price and volume. You can see some green on the screen in the financials today.
Nothing too dramatic to the upside these are heavy weights when it comes to the top line number. So putting some points on table. What is holding us back from a better showing in Toronto's fake mark you can see it's a bit of a mixed picture in the energy space with Cameco standing out.
Obviously, the uranium plays had a very strong start to this year.
God price appreciation for Cameco and Denison. They been giving back in recent days. Cameco down to the tune of about 2.7%. The rest of the board as a bit of a mixed picture. Looking at the material space, Kinross is down just a little bit.
The S&P 100, the chip stocks are up again.
Nvidia off about 3%, AMD up a little shy of 4%.
Some of the other tech names not rallying quite as firmly but still following that updraft.
Tesla earlier this week lowered prices for vehicles in the European market. I did the same in China last year.
Ford today cutting back on its production of the all electric F150. There is been softer demand than the market was expecting for electric vehicles over the past a while.
You've got Tesla down a bit but in the financial market to south of the border, you got some strength on the screen, including a Wells Fargo and J.P. Morgan making some gains.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
There are plenty of questions facing investors this year from whether we get rate cuts from central banks in the chances of a recession. Jing Roy, VP, director and portfolio manager for asset allocation at TD Asset Management joined me earlier to discuss.
>> There is a bit of market debate about our session, how we get there, whether we get there. The consensus is that we are going to have a soft landing and economic growth in both the US and Canada will be about half as fast as we experienced last year.
Given the price we are seeing in consumer credit and the labour market, it's much easier to see a path for slower growth going forward rather than a rapid recovery.
That's especially the case in Canada where we have higher household debt and we are experiencing higher debt servicing costs because of mortgage rollovers. That will put a bigger debt in Canadian households.
>> When we talk about that recession debate, is there still a part of that debate where people are saying we are going to get perhaps a hard landing? The story was about, do we get the soft landing, no landing at all.
The consensus in the market seems to be that things will slow but not precipitously to the point where we'd be in trouble. Our people still throwing around the trouble scenario?
>> Not really.
The consensus really coalesced around the soft landing scenario and what we have seen in past months where the equity and bond markets collectively returned double-digit returns in the last two months just because the consensus expectation shifted to a soft landing scenario and people become more aggressive in terms of rate cut expectations.
As a result of that, he was very conducive for risk appetite.
>> The central banks in this idea that they will be cutting this year. In a soft landing scenario, do the central banks have to be aggressive to the downside or would they simply try to get out of what we believe to be restrictive territory right now.
>> Right now, the market is pricing and about 6 to 7 cuts in the US starting in March. In Canada, it's about 5 Cuts Starting in April. Right now, the modus operandi for the central bank is to cut rates commensurate with the falling inflation.
If there is any sign of we are hitting a recession, I think the central banks would be more aggressive in cutting their rates.
It's counterintuitive. As the pricing in a recession might be quite strong because when central banks cut rates more rapidly, it's conducive for risk appetite and asset prices. What we have is a situation here in asset seconds are off stable cash flows that would benefit in that scenario.
Case in point would be long bonds because they offer a constant coupon. For equities, companies with very stable cash flow and have secular tailwind behind them such as in technology and healthcare sectors, they will benefit as well.
>> So we set the table for a soft landing, for rate cuts from the central banks, hours and from the Fed. Let's talk about the surprises that we might be facing this year. We are only two weeks and, we think it's going to go in this direction. What do we need to be watching?
>> I think it's very important to understand where the inflation is headed and that will become a Northstar for telling, understanding with the central bank policy might pivot towards. As a result of that, you have to position the portfolio with a core view of what could happen. If the consensus estimate of a soft landing and a rate cut expectation come to pass, that I think the return expectation for assets, bonds and equity will be somewhere in single digit territory but we really need a surprise for that to deviate from our base case scenario.
So the biggest surprise I think if we experience growth a tad softer than what the market is expecting, then that would be bullish for markets. In a very strange twist of logic, pre-revenue companies can actually benefit not because they really don't have any revenues to contend with but they are disproportionately be benefiting from more friendly fundraising market which are the result of lower interest rate and more liquidity in the system.
>> One of the stories in the past 12 months that perhaps people had an expected heading into last year was how well the American markets would do, how well the Magnificent Seven did, all the excitement around AI. Is there a chance this year that the US markets will not outperform like they have?
>> That's an interesting question because for investors leading towards a stronger growth scenario, actually, there is a higher probability that a US market will lag behind Canada and Europe. There are a few reasons for that. Number one, if growth in US, inflation in US, surprise on the upside, investors will have to recalibrate their aggressive rate cut expectation as a result of that, financial conditions will tighten.
Because of that then, US long bonds, government bonds, will trail parts of the G6 economies because investors will require higher returns and the price will have to adjust downwards to accommodate that. And also for growth stocks, when growth becomes abundant, there will be a D rating for growth stocks because the premium for growth scarcity will no longer be there. As a result of that, the US market is over indexed towards equities.
There is a very strong likelihood that the US stock market will lead behind Canada and Europe. There is one saving grace, which is the strong dollar because of the hawkish Fed. Of course, we have a couple of wildcards this year. We have a potential policy shift after the US presidential election in November, as well as the ongoing inflation shocks in the Middle East from the widening of the regional conflicts.
>> I feel like some of that uncertainty that's been in the market for a while, that will continue into this year with some of those issues, because a lot of investors, despite the fact that US stocks rallied so strongly last year, to stay in cash.
If we bring it back to asset allocation, we know that was a story, let's talk about diversification this year.
>> Because we don't know what's going to happen to the market, it's nice to know what works in a recession scenario and recovery scenario but even the best of us sometimes succumbed to a lack of imagination, let's put it that way.
So I think it's very helpful to focus on income growth and stability when you try to navigate the uncertainty in the market right now.
So for a portfolio that's well constructed, I would look for the three attributes. First of all, it has to secure a base level of income over the medium term. Secondly, it has to generate capital appreciation from equities or any other assets. Finally, it has to generate source returns from uncorrelated asset classes.
So we have different levers in play when we go through a certain path.
>> That was Jing Roy, VP, director and portfolio manager for asset allocation at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
Stay tuned. We will be back on Monday with Colin Lynch, head of global real estate investments with TD Asset Management. He wants to take your questions about real estate.
You can get a head start on sending those questions in. Just email MoneyTalkLive@TD.com. That's all the time we have for the show today. On behalf of me, Anthony, everyone behind the scenes he brings to the show every day, thanks for watching and you will see you on Monday.
[music]
