Show Transcript
Print Transcript
[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss where the Canadian markets are headed after pulling back from record highs earlier this month.
TD Asset Management Michael O'Brien joins us. It MoneyTalk's Anthony Okolie is going to have a look at the latest US GDP report and what it could mean for the Fed. I will give you a hint, the market is not taking it well today. And in today's WebBroker education segment, Hiren Amin is going to show you how to keep up-to-date with corporate earnings season using the platform.
Here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We will start here at home. We are down 71 points for the TSX Composite Index, fairly modest, a pullback of about one third of a percent.
Among some notable names moving today include tech resources, out with their quarterly report. Up about 7%.
There is also excitement today in the mining industry, BHP making a bid for Anglo America. Not directly advocating tech here but sometimes these things get the entire space more excited.
I will tell you more about the BHP bid later in the show. Mullen Group also out with its earnings. A street not reacting well. They are down a little more than 9%.
South of the border, indications that inflation is sticky. The S&P 500 is down more than one full percent. The tech heavy NASDAQ, put that together with the disappointment from Meta in terms of their forecast going forward, getting hit a little bit more tough sleep. They are down 1.6%.
Let's show you how Meta is faring. I will give you more details later in the show but right now, the market is not reacting kindly to some of their spending plans and some of their forecast regarding advertising revenue. The stock is down almost 13% at this hour.
And that's market update.
At the beginning of this month, not that long ago, but markets were sitting at record highs.
We have since had a pullback. Investors are considering the outlook for rates. So where do we go from here? Joining us now to discuss his Michael O'Brien, managing director and head of the core Canadian equity team at TD Asset Management. Great to have you back.
>> Thanks for having me.
>> Markets are reacting to this idea that perhaps the Fed will be stuck to hire for longer. This has been a pretty dramatic reversal of fortunes in the past couple weeks. How do you see it?
>> Yeah, you hit the nail on the head. If you go back, the markets were making highs only a couple of weeks ago.
I think really what was driving that was a real sense of confidence among investors: we are going to get that soft landing that people were looking for.
The economy south of the border was holding up quite well.
So people were looking for that perfect outcome where growth remained solid but inflation comes down, which leads to a series of interest rate cuts and so it wasn't that long ago that markets were pricing and five, six, seven rate cuts out of the Federal Reserve south of the border. I think what has rattled the markets wasn't just today's print, which you mentioned, but it's a perfect illustration of what we have seen which is the last couple of inflation reports out of the states have come in a little bit hot.
That has caused investors to question whether it's going to be really as easy as it looked a month or two ago.
People are starting to ponder, what if we don't get rate cuts, what does that mean for valuations? Today, the headline GDP number printed a bit soft.
I look past that. I don't think it's concerns about weakness in the economy, I think it's more on the inflation side where again you saw the inflation component of that report today once again a little bit hot. So people are starting to rethink this whole idea of how many rate cuts and when we are going to get them south of the border.
Just before coming into the studio, the latest seems to be that the first rate cut has been moved right back out to December in the US, so that's a big change and I think that's what's rattled investors here, I think that's what we've got this pullback.
>> Some people may be looking at today's data out of the states, softer data, soft economy together with sticky inflation, some people start using the word stagflation. Markets don't like that.
As citizens, we should not like that word.
>> If you're starting point is that markets across the globe were with intakes of all-time highs which a month ago that's where we were at not just in the US, a lot of things have to go right.
Personally, I think the notion that stagflation is a more likely outcome, I think that's not the case at all. I still, the balance of evidence that I'm seeing still suggests that the economy is in decent shape and inflation in the states hasn't cooperated quite like we would hope, but it's certainly not sending out alarm bells that things are re-accelerating to the upside would be my take on this.
So I think I would characterize this as a healthy correction or healthy rethinking of what had gone to be exuberant expectations a month or two ago. In life, things usually aren't as easy as it seemed back then.
This is just a bit of a reality check. But all things equal, I think we are at a pretty decent spot here, certainly relative to where investors thought we would be six months ago and nine months ago. Growth looks pretty decent in the states, inflation has made a lot of progress.
It's just we are going to have to be patient and let this process play out. To their credit, that's what the FOMC members have been communicating for quite some time, even if we didn't want to hear it is be patient. Things are trending in the right direction but it's not a straight line.
I think the market is finally kind of taking that to heart, we are not necessarily going to get everything we want right away but it still seems to be the most likely outcome. Just gotta be patient.
>> The petulant child, hearing, I'm not gonna get everything I want right away?
Come on.
>> That is exactly the sentiment.
>> As you say, that's the way life works.
Let's talk about the Canadian situation.
Americans have seem to be exceptional through all this.
Canada has been a bit different.
>> In Canada, it seems to be a bit more of the conventional economics 101 playbook.
The rate hikes that we saw in Canada, they have had that expected or intended impact which is the economy has been slowing a little more notably than south of the border, and the good part of this is that as the economy has slowed here, we are seeing inflation respond the way we would hope, which is in contrast the last few hotter than expected inflation report south of the border, the Canadian CPI data has been quite well behaved.
Tiff Macklem, the Gov. of the Bank of Canada, after the most recent CPI report last week, he made it very clear that the Bank of Canada is happy with what they are saying, good progress is being made so I think whereas south of the border, investors are kind of pricing at that first rate cut until much later this year.
Based on what I'm saying and what I'm hearing out of the bank of Canada, I think whether it's this next meeting in June or the meeting after that in July, I mean, I think we are on the cusp of a rate cutting cycle beginning here in Canada.
>> Talk about divergence. Tiff Macklem was making those comments the day of our last inflation report.
Jerome Powell, head of the Fed, said, we don't go quite as good. That divergence is on the map. If we start cutting then the Fed is not cutting, what point does the Bank of Canada say, we can only cut so far?
>> Your right to hit on that. There are limits. The short answer is I don't think we are close to those limits today.
Typically, the limiting factor here would be if there is too much of a divergence between the Bank of Canada and the US Federal Reserve, where that's going to show up most obviously is in currency, the exchange rate, and that does have implications for inflation.
The Bank of Canada has worked very hard to get inflation to the point where it is today.
They think it's on a good path, but if the dollar, the Canadian dollar were to get unduly weakened, you think about buying all those vegetables from California, fruits and vegetables, that's a way of importing inflation through weaker currency.
The Bank of Canada is going to be careful not to push this too far, but my view is that there's definitely room for at least a few cuts. The Bank of Canada does have some flexibility or autonomy here to go in a slightly different direction than the US if the economic data supports that.
>> What does that mean for investors if they are looking at arguably the world's most powerful central bank, the US Federal Reserve, perhaps on hold for longer but the Bank of Canada is starting to cut, does an investor look at that and see certain opportunities in different asset classes?
>> Obviously there are a number of Canadian companies who generate if not the majority certainly a large percentage of their revenue and their earning south of the border.
Do you think about the Canadian energy producers who pay their workers in Canadian dollars but sell their barrels of oil in US dollars. You think about some of the Canadian banks, for example, which have big franchises south of the border, the Canadian railroads which have big pieces of their business south of the border. They are benefiting from a stronger US dollar when you translate it or take it back into Canadian dollars, so there are definitely winners, relative winners, but at the same time, getting back to your first point, the Canadian dollar, if it's too weak, we risk on doing the good news on the inflation front. At a micro level, there are definitely some companies that are positioned well for this, think of Québec's border, southern Ontario, the oil industry.
Too much of a good thing can undo some of that positive inflation data.
So we don't want to go too far.
>> Let slip in note one more thing before we end this part of the conversation. We are in early days but we have had some big Canadian companies report so far.
Some of those conditions you were talking about, do you expect those to show up in earnings reports this quarter?
>> To your point, the US is a little bit ahead of Canada in terms of the cadence of earnings releases so we have not seen that big of a piece of the Canadian market report yet but I would say that the reports we have seen so far have been kind of mixed, not great, some hits and misses, some well-received, some not well received.
But that shouldn't really be a big surprise given my comment earlier that I think the Canadian economy is showing some softness here. It is showing the impact of that 500 basis points of interest rate hikes over the last couple of years.
So I wouldn't expect to see really strong results. Looking forward, I do think there is cause for some optimism among that 30% or so of the Canadian market which is your traditional resource-based companies, you are oil producers, your minors, copper, gold.
You look at what commodity prices have done lately, the other side of that coin where inflation came back up, one of the traditional inflation beneficiaries is that commodity complex. If you look at where oil prices are today, where gold prices are today, where copper prices are today, you've got to think the outlook for that 30% of the Canadian market that is exposed to this is pretty rosy. If things stay the way they are today, Q2 and Q3, we see some nice earnings growth in this company's for sure.
>> Great insight, great start to the show.
We are going to get your questions about Canadian stocks for Michael O'Brien in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
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 Meta Platforms most definitely in the spotlight today. Let's take a look.
The parent company of Facebook beat the streets expectations for the most recent quarter, but this is not 1/4 behind them story. With the stock down 12%, what's going on? Investors are focusing on Meda spending plans. The social media giant is pouring tens of billions of dollars into artificial intelligence initiatives while at the same time warning of softer ad revenues.
American Airlines swung into a loss in the first quarter's quality control issues with Boeing aircraft are weighing on the airline industry. The bottom line was also pressured by rising expenses, including salaries.
While the results fell short, American Airlines is forecasting earnings above the streets estimates above the current quarter. I think at the open we had a modest boost higher on American Airlines shares but with the broader market sentiment now, we are down 1.5%.
Mining giant BHP Group making a $39 billion US takeover bid for AngloAmerican.
A successful deal here would create one of the world's largest miners of copper, that's a metal seen as key in the transition to a green economy. BHP right now it $57.47, down about 3%. Quick check in on the market, we will start on Bay Street with the TSX Composite Index.
Nothing too dramatic, 52 points in the whole or about one quarter of a percent.
South of the border, let's check in on the S&P 500, that broader read of the American market. A full percent and then some to the downside, 55 points in the hole.
We are back with Michael O'Brien taking your questions about Canadian stocks.
Let's get to them here. First one. Telecom stocks used to be considered a solid conservative investment. Has that changed?
>> Need telecom stocks, you are right, have traditionally been very safe stocks that investors have focused on for the juicy dividends, the high dividend payout.
Those stocks, along with a lot of the other rate sensitive stocks in the market, your traditional rate sensitive like your utilities, your pipelines, your REITs, they've all been impacted pretty negatively by this higher interest rate environment.
If you get bond yields approaching 5% in the states, the attractiveness of the dividend yields from these traditional plays isn't quite the same.
They have obviously been struggling with that.
The telecom space in particular, there are a few idiosyncratic things going on there which I think are worth talking about.
I think the biggest thing that's concerning investors right now is in the wake of last year's, it felt like it was two or three years ago, but it closed last year, Rogers acquisition of Shaw Communications and then selling off the wireless business to Quebecor, that has created a much more competitive environment, both in wireless and wireline, much more competitive than the incumbents have been used to and investors have been used to. There's a fair bit of investor fear over how long this more competitive environment is going to stay in place before there is some sort of a new equilibrium established where everybody agrees they're all going to make a little bit of money.
The second thing that is overhanging the stocks is as growth slowed over the last couple of years, the companies continued to increase their dividends, to invest, in Rogers case they made some acquisitions.
We are at a point in time where if you look at the sustainability of the dividend growth, the ability to continue growing dividends, when investors have been expecting, or just the strength of the balance sheets, in both cases, the big guys, the incumbents are a little bit more vulnerable than they have been in the past. Dividend payout ratios are quite extended, which suggests that we may be aren't going to get that dividend growth that we are used to and the balance sheets need a little bit of repair.
So I think the big macro overhang is the high interest rate environment but there is also some self-inflicted wounds here as well.
That's kind of what's been dogging the stocks this year.
>> Longer-term, how are these companies position? He said there's a bit of a shakeup, the Rogers steel, more competition, but still a core group of companies in this company providing us with our wireless and wireline services.
>> Traditionally, these companies have recognized that it's better to compete on service as opposed one price and that has traditionally made them pretty shareholder friendly companies. My best guess is that after a period feeling each other out, there is probably going to be a new equilibrium established, in other words, that more oligopolistic industry structure is probably going to prevail.
But the thing that we cannot overlook is that this is a maturing industry. If you think back 10 years ago, when wireless penetration was much lower, not everybody and their children had a cell phone or two, there was a lot more growth coming from that core wireless business. It's a more mature industry state today so I do think we are going to find a new equilibrium but the growth rate going forward isn't going to be maybe what we remember being 10 or 15 years ago.
>> Interesting stuff there on the telecom.
Let's take another question about the energy space. If you want to get your thoughts on CNQ, Canadian Natural Resources.
>> They are one of the leaders of the energy industry in Canada, they would be the largest producer in Canada. Very successful track record, very well run company.
They have a lot of respect in the investment community over the consistency of the management team's decision-making and capital allocation decisions.
The stock has had a really nice move so it's not quite the, quite as inexpensive as it looks a couple of months ago, so keep that in mind.
It has been an extremely well run and positioned company for the future. The real thing to always ask yourself is if you think the oil price stays stable.
>> I think you and I took in a presentation where we talked about the fact that OPEC in the end still has that swing partner power because they have more they could take out of the ground if they wanted to start changing the price. Is that a wildcard?
>> Absolutely.
OPEC always has a huge role to play in this market, policing supply, balancing the market.
Right now, oil prices are in the $85 range, it doesn't necessarily grab the headlines the way that oil prices shooting to 100 day back at the outbreak of the Russia Ukraine more, but this is actually a very healthy price for the Canadian producers.
Oil at an $85 range is very healthy price these companies.
>> Let's get to another audience question, this one about Finning.
>> Finning, they are the exclusive caterpillar dealer for Western Canada.
Interesting times asked a question to because caterpillar just reported earnings this morning and caterpillar's results aren't being really well received, they were down a little bit this morning.
Didn't seem to have the same follow-through with Finning bearing a little better. The trick with Finning or the decision in the investors have to make here is in short, these heavy equipping companies, very cyclical earnings stream.
Very, very cyclical earnings stream.
We are in an extended period, for the last number of years, Finning's earnings have been growing very nicely, the key here is that expectations are around four dollars per share earnings this year which means it's not an expensive stock if you believe that four dollars earnings keeps growing.
The: investor has to make is: is this as good as it gets or are the earnings going to continue?
Judging by the reaction south of the border, some investors at least today are questioning whether caterpillar is at the as good as it gets stage or not.
So that's really the key for Finning going forward. Do you believe that this earnings growth period going to continue into 2025, 2026, or are we close to peak earnings?
>> Important consideration.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Michael O'Brien on Canadian stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
Corporate earnings season is a busy time for the markets. If you want to keep track of the companies reporting, what broker has tools which can help.
Hiren Amin, Senior client education instructor with TD Direct Investing joins us now. Great to see you. Let's talk about keeping track of earnings on my broker.
>> Absolutely, great to be back.
We have spring in season.
We are about to kick into gear here and says of the border. What's on tap? How do we see what's on the roster for earnings?
We are going to go into a broker and see where we can find this information.
We will pull up well broker and go into the research section.
Our first column, headed by markets, second from the bottom, we are going to head over to events.
This is where you will be able to pull the calendar of anything that's coming up the pipes in terms of earnings and you can see over here, we have a number of these different sections we can look at with various events and were going to go to the second one which is earnings announcements.
This is to look at our domestic ones.
Canadian companies, what's coming up today, what's being reported, now if you did want to look stateside to see what's across the border, all you have to do is go over to the top right corner and switch over to the US flag and we will see some of the earnings. Just make sure you head back to the earnings again and we will be able to see what is lined up for today.
Now, from here, what you are going to essentially see is which. You're going to be reporting earnings for an estimate.
That is important because on the street, they get analyst opinions and see where the estimates are going to be and then we see whether the companies are going to produce upbeat or some disappointment.
This is what you are going to look at as investors. We want to see what the estimates are. If you wanted to hone in a little bit more and just keep track of how those numbers are going, I'm just going to pick the first one at the top. It's Microsoft.
We are going to click on that and then go down to the overview section over here.
Once you are in there, there is actually tab for earnings.
We can go into earnings over here and we can have a look to see how those previous CPS numbers have come in and then forward-looking, projected EPS numbers for what the street is estimating them to come to read. This is just one of the ways you can keep track of those earnings and get your hands a little bit deeper into it.
>> All right, so we know what you're looking for, lots of places on my broker to get that information. What if you want to stay ahead? Once the crush begins, the first earnings season I ever experiences the journalist, it was a crush. How do you stay on top of that?
>> It's good to be in the know ahead of time. Most investors have portfolios they want to keep track of. The best way to do it is an alert. We are sticking with Microsoft.
You want to head over to the events tab.
There are a number of different alerts to set up. The one I would usually want to have on is first of all make sure you have the quarterly earnings checked out so this way you get the alert right away when the quarterly earnings are out. But also when the earnings are due to be announced, which is usually a month before they are due to release, you will get a heads up and you can choose how far in advance you want the notification to come through.
This is perhaps one of the best ways to get alluded to that.
>> Great stuff as always. Thanks for that.
>> My pleasure.
>> Hiren Amin, Senior client education sector with TD Direct Investing. For more educational resources, you can check out the learning centre on what broker or use this QR code. Take out your phone and it will navigate you to TD Direct Investing's Instagram page where there are more informative videos. If you don't have your phone handy right now, we are going to show it again at the end of the show. It will return once more.
We are back with Michael O'Brien, taking your questions about Canadian stocks. This one just came in.
Jeff! Jeff, thanks for sending in the questions.
Jeff says, I have a position in Alimentation Couche-Tard. What is your guest think about the transition to EVs in short and long-term?
>> Great question, very topical.
I think the urgency of this question isn't quite what it was maybe two or three years ago when investors were getting some pretty aggressive assumptions about how electric vehicles or EV penetration was going to increase.
That has slowed down a little bit in the last little while. But it is something that's coming and it is something that all these companies are going to have to prepare for. The interesting thing about Couche-Tard is of all the companies out there, I would say they have the most real-world experience and what to expect because a number of years ago, they made an acquisition in Norway so they have a very large network of refuelling stations and convenience stores throughout Norway.
As many of the viewers may know, Norway is right at the top the list of EV adoption.
The government has been promoting electric vehicles for many years with some very generous subsidies.
So if you look at the Norwegian landscape, there are more electric vehicles on the road and there are internal combustion engines.
We are seeing fuel consumption begin to decline in Norway.
So Couche-Tard is right on the front lines of this and they've been able to experiment and to see what works and what didn't. The punchline here is that the business is still performing quite well.
So I think when you think about the short term, electric vehicles, people are beginning to realize this is going to be may be a slower transition that we might've thought a couple of years ago.
Medium to long term, Couche-Tard has this real world of oratory that they have been living and doing business and for the last number of years so if anybody, I think they are best positioned to navigate these changes and figure out how to continue to prosper in a world where you plug in your vehicle as well as fill it up with gas.
>> Interesting one.
Thanks for sending in the question, Jeff.
Another question for you now. Is it better to invest in metals or mining companies themselves?
This is a question that's been popping up.
>> The answer is it depends.
So when you get exposure to the metal, like when you buy the gold ETF, for example, you're going to get exactly what the price of gold bullion does, no more and no less.
If gold tracks higher, you are going to benefit. Gold track slower, you see it go the other way.
Getting into a gold miner as an example, that's a bit of a different proposition.
It has some prose and some cons. What you need to realize when you're buying a gold producer or copper producer, same thing, there is a lot of what is called operational leverage in the business. So your costs do not necessarily rise or fall step for step with the price of the commodity you are selling.
So what that means is that gold prices, there are occasions where gold bullion maybe goes up 10% but the earnings of the gold miners go up 30 or 40 or 50% depending on how much of their costs are fixed.
That's the good worthy advantage to owning a producer as opposed to the commodity is if things are working the way they should, you're going to get more operational leverage to that price movement.
The con or the thing to consider from the other side of this is things don't always go perfectly when you're a mining company.
Lots of things can and do go wrong. To use an extreme example, Canadian miner First Quantum, if you are asking this question, you probably notice that commodity prices were doing very well and copper in particular has really been up on a rope lately. It finally got through four dollars a pound, now it's up of 4 1/2 dollars per pound, is doing very well.
And yet, in First Quantum's case, they haven't really been participating in that because of political risk where their largest mine in Panama was shut down and essentially nationalized by the Panamanian government and so that's the downside to investing in minors as you take on a lot of these other risks, be it on copper or gold or whatever the metal is.
Some other things contribute well. So you just have to be aware of the other risks that you are taking on when you buy the minor as opposed to just the commodity itself.
>> Good breakdown there against the material versus the mine. Another question now about the material space. Can you give me your thoughts on uranium stocks?
>> Uranium has been, well, after a very long period where uranium was out-of-favour, going back to the Fukushima incident in 2011, a long, long time ago, the uranium producers spent a long time in the wilderness. Demand for uranium really fell off a cliff as a lot of these traditional Western countries, Europe and Japan, backed away from nuclear. The last couple of years, uranium has found a second win here as ironically part of the solution for decarbonising the power grid.
We have seen uranium prices strengthen and supply has not kept pace. It has been a bullish backdrop for the uranium complex, if you will, the last couple of years.
The flagship is in the uranium name in the Canadian context is Cameco. They are the most diversified, largest, most liquid.
Most attention gets focused on Cameco.
What I would point out in Cameco's place, and Cameco situation here is the fundamentals are quite positive with uranium prices tracking hire, that certainly flows through to Cameco's benefit.
However, Cameco, traditionally, has a large portion of their annual uranium sales that are contracted at fixed prices or with a range of prices for many years into the future.
What this means is in the very short term, those headline uranium prices, we see a spot uranium transaction at an exciting price… >> That's not what they are selling.
>> That's not what Cameco is selling it for.
If prices stay at that level, that will eventually flow through and it will become a much more noticeable contributor in the out years but if you look for that real big bang for the buck, next quarter's earnings of the quarter after that, you usually have to be a little bit patient.
That something to be aware of.
But the outlook for uranium is quite positive.
>> A good caveat there when you're looking at some of those names. We will get back to your question for Michael O'Brien on Canadian stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
You may be taking all of your screen and looking at the market action particularly on Wall Street and wondering what is vexing investors. GDP today out of the United States came in softer than expected. Anthony Okolie has been digging into the details plus the TD Economics report on what it could mean for interest rate.
>> The US economy got off to a softer start after closing out a remarkably strong 2023. The economy expanded at a modest 1.6% annual pace in the first three months of 2024 versus 2.5% expected by Wall Street.
A modest deceleration versus the last 2:45 .3% gain, that marks the weakest reading in almost 2 years. A bigger tray down on inventory growth put a cap on growth rate in the first quarter. Details of the GDP report indicate that the economy was on solid ground. Consumer spending, for example, the main engine of growth, rose at a healthy 2.5% clip to lead the way.
That's a modest slowdown versus last quarter's 3.3% gain.
American consumers are still spending heavily on healthcare and insurance and other services.
The flipside, the good side, we saw a slowdown in spending on things like cars and gasoline and that led to a flat good spending read. Meanwhile, residential investing, which was up roughly 14%, that rose by the fastest pace in over three years alongside a sharp rebound in new and existing home sales.
Meanwhile, business spending was also stronger-than-expected. As I mentioned earlier, the slowdown in exports and business inventory investments seem to weigh down overall growth and help to mask some of the underlying strength in the US economy.
However, TD Economics says that the consumer resilience is likely to remain a key driver supporting the economy over the near term. Given the latest print, TD Economics says it's likely that the spending momentum has carried over into the second quarter and right now, TD Economics is currently tracking real GDP growth in the US holding steadily in the range of 1.5% to 2% range in the second quarter. Now, reports also suggest that inflation was slightly firmer than expected in March. The core prices for personal consumption a is did rise 3.7% in the first quarter at an annualized rate, that is a sharp jump from the 2% gain seen through the second half of last year. Now, that acceleration follows firmer inflation readings.
The resilient economy in the US raises questions about whether inflation will remain stubbornly sticky and that could prevent the Fed from cutting US interest rates.
>> Let's talk about that. It is TD Economics really changing, when they look at what we got today and what Michael O'Brien and I have been talking about, is it changing their view?
>> TD Economics view has been that the Fed would start dialling back their policy rate as early as July, but with less cooperatives inflation trend and a more resilient economy, TD economics is conviction for a summer cut has started to fade. TD Economics notes in a more recent report that there are no shortages of lingering demand or supply related shocks that could slow the cooling trend in inflation and ultimately pushed back the rate cut all its further out. With a couple more inflation reports before the July announcement, TD Economics says that it will realistically only take one more hot inflation report to all but sealed the fate of a July rate cut.
On Friday, we get the release of spending data which will give us a better idea of monthly spending patterns in the first quarter. We will be watching that closely.
>> Some key stuff there for us to it.
Thanks for breaking it down.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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, we have a nice view of the market movers. This is the TSX 60. What is going on? On a headline basis, we are down about 55 points at this hour. You can see that tech is making sizable gains, up about 7%.
There is activity in the mining sector but it's not lifting that other names. Maybe it's just a text story with the earnings that they handed in seem well received by the street and analysts to follow the company. Across the rest of the complex, there is weakness in financials and technology was Shopify down more than 2%.
South of the border, in reaction to everything Anthony just told us about GDP and consumer price pressures, we are having a down session. Right now, you got the S&P 500 down about 45 points. Digging into the 100, you can see Mehta on the back with earnings, down 12%. Nvidia getting a bit today. A bit of push and pull with the tech stocks.
We are back with Michael O'Brien. We have a question about utilities. Is Emera a buy at the current price? We cannot give buy or sell recommendations on the platform or price targets but we can talk about America's business.
>> Emera, regulated utility, low risk earnings stream.
Going back to our comments about the telecom space, the utilities are another one of the segments in the Canadian market that tend to be very sensitive to interest rates. The fact that interest rates have been rising here has been weighing on all of the stocks. Emera is no exception, particularly with that dividend yield north of 6%.
The single biggest thing impacting Emera and the rest of the regulated utilities these days is that higher interest rate environment.
The company specific thing I would .24 America that has been a very important issue is the credit rating agencies have made no secret that Amir's balance sheet is not quite as resilient as they would like to see it here.
There's a bit of pressure on them to shore up the balance sheet and improve some of the ratios they look at. That will probably be achieved through some asset dispositions, core asset sales and hopefully also some better performance out of the core business.
That's really the thing to key on, our rates going to go higher or lower from here?
The second thing company specific is did they continue to make progress, strengthening the balance sheet?
>> Let's squeeze one more question the end. Have you or wants to get your Outlook for Canadian apartment properties rate.
>> Again, another one of these classic interest rate sectors, the REITs.
Canadian apartment properties rate, that's a mouthful.
Rates are being impacted by the higher rate environment. Within the REIT universe, the apartment REITs or multi-residential REITs of which the CAP REITs is one of the leaders, this is one of the most defensive parts of the market.
They don't have balance sheet issues. Just an issue of the strong rent increases we are reading about in the paper. A number of these companies in CAP REITs will certainly be impacted by this.
It does not always flow through right away due to rent-controlled province like Ontario for example with the headline number grabs your attention but with rent control, the overall impact on their revenues tends to lag. The fundamentals of the business are sound.
We have a somewhat inflationary backdrop for a lot of the maintenance and spending that CAP REITs has to do to keep their apartments up to standard.
Sometimes the margins have been squeezed over the last little while as rent hasn't quite, factoring and again that the rent controls, the revenue line hasn't necessarily kept up with some of the expense growth, that should be easing off here. So I like the outlook for CAP REIT but again, it's kind of a hostage to the interest rate environment. As always a pleasure having you. Always insightful.
Look forward to the next time.
>> Thank you very much.
>> Michael O'Brien, managing Dir. and head of the core Canadian equity team at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
as promised, we won't go away without giving you the QR code again if you are ready for it. This will take you to TD Direct Investing's Instagram page and there you will find more informative features and videos. You want to stay tuned for tomorrow show. We will be back with an update on the markets, US latest inflation data, what it's all going to mean. Then on Monday, ahead of the deadline for filing taxes, and in the months coming up, Nicole Ewing, director of tax and estate planning at TD Wealth will be our Guest taking your questions about tax and estate planning.
When you send in your questions for Nicole, they can be involved, so it doesn't hurt to get them in ahead of time.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today.
Thanks for watching and we will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss where the Canadian markets are headed after pulling back from record highs earlier this month.
TD Asset Management Michael O'Brien joins us. It MoneyTalk's Anthony Okolie is going to have a look at the latest US GDP report and what it could mean for the Fed. I will give you a hint, the market is not taking it well today. And in today's WebBroker education segment, Hiren Amin is going to show you how to keep up-to-date with corporate earnings season using the platform.
Here's how you get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We will start here at home. We are down 71 points for the TSX Composite Index, fairly modest, a pullback of about one third of a percent.
Among some notable names moving today include tech resources, out with their quarterly report. Up about 7%.
There is also excitement today in the mining industry, BHP making a bid for Anglo America. Not directly advocating tech here but sometimes these things get the entire space more excited.
I will tell you more about the BHP bid later in the show. Mullen Group also out with its earnings. A street not reacting well. They are down a little more than 9%.
South of the border, indications that inflation is sticky. The S&P 500 is down more than one full percent. The tech heavy NASDAQ, put that together with the disappointment from Meta in terms of their forecast going forward, getting hit a little bit more tough sleep. They are down 1.6%.
Let's show you how Meta is faring. I will give you more details later in the show but right now, the market is not reacting kindly to some of their spending plans and some of their forecast regarding advertising revenue. The stock is down almost 13% at this hour.
And that's market update.
At the beginning of this month, not that long ago, but markets were sitting at record highs.
We have since had a pullback. Investors are considering the outlook for rates. So where do we go from here? Joining us now to discuss his Michael O'Brien, managing director and head of the core Canadian equity team at TD Asset Management. Great to have you back.
>> Thanks for having me.
>> Markets are reacting to this idea that perhaps the Fed will be stuck to hire for longer. This has been a pretty dramatic reversal of fortunes in the past couple weeks. How do you see it?
>> Yeah, you hit the nail on the head. If you go back, the markets were making highs only a couple of weeks ago.
I think really what was driving that was a real sense of confidence among investors: we are going to get that soft landing that people were looking for.
The economy south of the border was holding up quite well.
So people were looking for that perfect outcome where growth remained solid but inflation comes down, which leads to a series of interest rate cuts and so it wasn't that long ago that markets were pricing and five, six, seven rate cuts out of the Federal Reserve south of the border. I think what has rattled the markets wasn't just today's print, which you mentioned, but it's a perfect illustration of what we have seen which is the last couple of inflation reports out of the states have come in a little bit hot.
That has caused investors to question whether it's going to be really as easy as it looked a month or two ago.
People are starting to ponder, what if we don't get rate cuts, what does that mean for valuations? Today, the headline GDP number printed a bit soft.
I look past that. I don't think it's concerns about weakness in the economy, I think it's more on the inflation side where again you saw the inflation component of that report today once again a little bit hot. So people are starting to rethink this whole idea of how many rate cuts and when we are going to get them south of the border.
Just before coming into the studio, the latest seems to be that the first rate cut has been moved right back out to December in the US, so that's a big change and I think that's what's rattled investors here, I think that's what we've got this pullback.
>> Some people may be looking at today's data out of the states, softer data, soft economy together with sticky inflation, some people start using the word stagflation. Markets don't like that.
As citizens, we should not like that word.
>> If you're starting point is that markets across the globe were with intakes of all-time highs which a month ago that's where we were at not just in the US, a lot of things have to go right.
Personally, I think the notion that stagflation is a more likely outcome, I think that's not the case at all. I still, the balance of evidence that I'm seeing still suggests that the economy is in decent shape and inflation in the states hasn't cooperated quite like we would hope, but it's certainly not sending out alarm bells that things are re-accelerating to the upside would be my take on this.
So I think I would characterize this as a healthy correction or healthy rethinking of what had gone to be exuberant expectations a month or two ago. In life, things usually aren't as easy as it seemed back then.
This is just a bit of a reality check. But all things equal, I think we are at a pretty decent spot here, certainly relative to where investors thought we would be six months ago and nine months ago. Growth looks pretty decent in the states, inflation has made a lot of progress.
It's just we are going to have to be patient and let this process play out. To their credit, that's what the FOMC members have been communicating for quite some time, even if we didn't want to hear it is be patient. Things are trending in the right direction but it's not a straight line.
I think the market is finally kind of taking that to heart, we are not necessarily going to get everything we want right away but it still seems to be the most likely outcome. Just gotta be patient.
>> The petulant child, hearing, I'm not gonna get everything I want right away?
Come on.
>> That is exactly the sentiment.
>> As you say, that's the way life works.
Let's talk about the Canadian situation.
Americans have seem to be exceptional through all this.
Canada has been a bit different.
>> In Canada, it seems to be a bit more of the conventional economics 101 playbook.
The rate hikes that we saw in Canada, they have had that expected or intended impact which is the economy has been slowing a little more notably than south of the border, and the good part of this is that as the economy has slowed here, we are seeing inflation respond the way we would hope, which is in contrast the last few hotter than expected inflation report south of the border, the Canadian CPI data has been quite well behaved.
Tiff Macklem, the Gov. of the Bank of Canada, after the most recent CPI report last week, he made it very clear that the Bank of Canada is happy with what they are saying, good progress is being made so I think whereas south of the border, investors are kind of pricing at that first rate cut until much later this year.
Based on what I'm saying and what I'm hearing out of the bank of Canada, I think whether it's this next meeting in June or the meeting after that in July, I mean, I think we are on the cusp of a rate cutting cycle beginning here in Canada.
>> Talk about divergence. Tiff Macklem was making those comments the day of our last inflation report.
Jerome Powell, head of the Fed, said, we don't go quite as good. That divergence is on the map. If we start cutting then the Fed is not cutting, what point does the Bank of Canada say, we can only cut so far?
>> Your right to hit on that. There are limits. The short answer is I don't think we are close to those limits today.
Typically, the limiting factor here would be if there is too much of a divergence between the Bank of Canada and the US Federal Reserve, where that's going to show up most obviously is in currency, the exchange rate, and that does have implications for inflation.
The Bank of Canada has worked very hard to get inflation to the point where it is today.
They think it's on a good path, but if the dollar, the Canadian dollar were to get unduly weakened, you think about buying all those vegetables from California, fruits and vegetables, that's a way of importing inflation through weaker currency.
The Bank of Canada is going to be careful not to push this too far, but my view is that there's definitely room for at least a few cuts. The Bank of Canada does have some flexibility or autonomy here to go in a slightly different direction than the US if the economic data supports that.
>> What does that mean for investors if they are looking at arguably the world's most powerful central bank, the US Federal Reserve, perhaps on hold for longer but the Bank of Canada is starting to cut, does an investor look at that and see certain opportunities in different asset classes?
>> Obviously there are a number of Canadian companies who generate if not the majority certainly a large percentage of their revenue and their earning south of the border.
Do you think about the Canadian energy producers who pay their workers in Canadian dollars but sell their barrels of oil in US dollars. You think about some of the Canadian banks, for example, which have big franchises south of the border, the Canadian railroads which have big pieces of their business south of the border. They are benefiting from a stronger US dollar when you translate it or take it back into Canadian dollars, so there are definitely winners, relative winners, but at the same time, getting back to your first point, the Canadian dollar, if it's too weak, we risk on doing the good news on the inflation front. At a micro level, there are definitely some companies that are positioned well for this, think of Québec's border, southern Ontario, the oil industry.
Too much of a good thing can undo some of that positive inflation data.
So we don't want to go too far.
>> Let slip in note one more thing before we end this part of the conversation. We are in early days but we have had some big Canadian companies report so far.
Some of those conditions you were talking about, do you expect those to show up in earnings reports this quarter?
>> To your point, the US is a little bit ahead of Canada in terms of the cadence of earnings releases so we have not seen that big of a piece of the Canadian market report yet but I would say that the reports we have seen so far have been kind of mixed, not great, some hits and misses, some well-received, some not well received.
But that shouldn't really be a big surprise given my comment earlier that I think the Canadian economy is showing some softness here. It is showing the impact of that 500 basis points of interest rate hikes over the last couple of years.
So I wouldn't expect to see really strong results. Looking forward, I do think there is cause for some optimism among that 30% or so of the Canadian market which is your traditional resource-based companies, you are oil producers, your minors, copper, gold.
You look at what commodity prices have done lately, the other side of that coin where inflation came back up, one of the traditional inflation beneficiaries is that commodity complex. If you look at where oil prices are today, where gold prices are today, where copper prices are today, you've got to think the outlook for that 30% of the Canadian market that is exposed to this is pretty rosy. If things stay the way they are today, Q2 and Q3, we see some nice earnings growth in this company's for sure.
>> Great insight, great start to the show.
We are going to get your questions about Canadian stocks for Michael O'Brien in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
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 Meta Platforms most definitely in the spotlight today. Let's take a look.
The parent company of Facebook beat the streets expectations for the most recent quarter, but this is not 1/4 behind them story. With the stock down 12%, what's going on? Investors are focusing on Meda spending plans. The social media giant is pouring tens of billions of dollars into artificial intelligence initiatives while at the same time warning of softer ad revenues.
American Airlines swung into a loss in the first quarter's quality control issues with Boeing aircraft are weighing on the airline industry. The bottom line was also pressured by rising expenses, including salaries.
While the results fell short, American Airlines is forecasting earnings above the streets estimates above the current quarter. I think at the open we had a modest boost higher on American Airlines shares but with the broader market sentiment now, we are down 1.5%.
Mining giant BHP Group making a $39 billion US takeover bid for AngloAmerican.
A successful deal here would create one of the world's largest miners of copper, that's a metal seen as key in the transition to a green economy. BHP right now it $57.47, down about 3%. Quick check in on the market, we will start on Bay Street with the TSX Composite Index.
Nothing too dramatic, 52 points in the whole or about one quarter of a percent.
South of the border, let's check in on the S&P 500, that broader read of the American market. A full percent and then some to the downside, 55 points in the hole.
We are back with Michael O'Brien taking your questions about Canadian stocks.
Let's get to them here. First one. Telecom stocks used to be considered a solid conservative investment. Has that changed?
>> Need telecom stocks, you are right, have traditionally been very safe stocks that investors have focused on for the juicy dividends, the high dividend payout.
Those stocks, along with a lot of the other rate sensitive stocks in the market, your traditional rate sensitive like your utilities, your pipelines, your REITs, they've all been impacted pretty negatively by this higher interest rate environment.
If you get bond yields approaching 5% in the states, the attractiveness of the dividend yields from these traditional plays isn't quite the same.
They have obviously been struggling with that.
The telecom space in particular, there are a few idiosyncratic things going on there which I think are worth talking about.
I think the biggest thing that's concerning investors right now is in the wake of last year's, it felt like it was two or three years ago, but it closed last year, Rogers acquisition of Shaw Communications and then selling off the wireless business to Quebecor, that has created a much more competitive environment, both in wireless and wireline, much more competitive than the incumbents have been used to and investors have been used to. There's a fair bit of investor fear over how long this more competitive environment is going to stay in place before there is some sort of a new equilibrium established where everybody agrees they're all going to make a little bit of money.
The second thing that is overhanging the stocks is as growth slowed over the last couple of years, the companies continued to increase their dividends, to invest, in Rogers case they made some acquisitions.
We are at a point in time where if you look at the sustainability of the dividend growth, the ability to continue growing dividends, when investors have been expecting, or just the strength of the balance sheets, in both cases, the big guys, the incumbents are a little bit more vulnerable than they have been in the past. Dividend payout ratios are quite extended, which suggests that we may be aren't going to get that dividend growth that we are used to and the balance sheets need a little bit of repair.
So I think the big macro overhang is the high interest rate environment but there is also some self-inflicted wounds here as well.
That's kind of what's been dogging the stocks this year.
>> Longer-term, how are these companies position? He said there's a bit of a shakeup, the Rogers steel, more competition, but still a core group of companies in this company providing us with our wireless and wireline services.
>> Traditionally, these companies have recognized that it's better to compete on service as opposed one price and that has traditionally made them pretty shareholder friendly companies. My best guess is that after a period feeling each other out, there is probably going to be a new equilibrium established, in other words, that more oligopolistic industry structure is probably going to prevail.
But the thing that we cannot overlook is that this is a maturing industry. If you think back 10 years ago, when wireless penetration was much lower, not everybody and their children had a cell phone or two, there was a lot more growth coming from that core wireless business. It's a more mature industry state today so I do think we are going to find a new equilibrium but the growth rate going forward isn't going to be maybe what we remember being 10 or 15 years ago.
>> Interesting stuff there on the telecom.
Let's take another question about the energy space. If you want to get your thoughts on CNQ, Canadian Natural Resources.
>> They are one of the leaders of the energy industry in Canada, they would be the largest producer in Canada. Very successful track record, very well run company.
They have a lot of respect in the investment community over the consistency of the management team's decision-making and capital allocation decisions.
The stock has had a really nice move so it's not quite the, quite as inexpensive as it looks a couple of months ago, so keep that in mind.
It has been an extremely well run and positioned company for the future. The real thing to always ask yourself is if you think the oil price stays stable.
>> I think you and I took in a presentation where we talked about the fact that OPEC in the end still has that swing partner power because they have more they could take out of the ground if they wanted to start changing the price. Is that a wildcard?
>> Absolutely.
OPEC always has a huge role to play in this market, policing supply, balancing the market.
Right now, oil prices are in the $85 range, it doesn't necessarily grab the headlines the way that oil prices shooting to 100 day back at the outbreak of the Russia Ukraine more, but this is actually a very healthy price for the Canadian producers.
Oil at an $85 range is very healthy price these companies.
>> Let's get to another audience question, this one about Finning.
>> Finning, they are the exclusive caterpillar dealer for Western Canada.
Interesting times asked a question to because caterpillar just reported earnings this morning and caterpillar's results aren't being really well received, they were down a little bit this morning.
Didn't seem to have the same follow-through with Finning bearing a little better. The trick with Finning or the decision in the investors have to make here is in short, these heavy equipping companies, very cyclical earnings stream.
Very, very cyclical earnings stream.
We are in an extended period, for the last number of years, Finning's earnings have been growing very nicely, the key here is that expectations are around four dollars per share earnings this year which means it's not an expensive stock if you believe that four dollars earnings keeps growing.
The: investor has to make is: is this as good as it gets or are the earnings going to continue?
Judging by the reaction south of the border, some investors at least today are questioning whether caterpillar is at the as good as it gets stage or not.
So that's really the key for Finning going forward. Do you believe that this earnings growth period going to continue into 2025, 2026, or are we close to peak earnings?
>> Important consideration.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Michael O'Brien on Canadian stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
Corporate earnings season is a busy time for the markets. If you want to keep track of the companies reporting, what broker has tools which can help.
Hiren Amin, Senior client education instructor with TD Direct Investing joins us now. Great to see you. Let's talk about keeping track of earnings on my broker.
>> Absolutely, great to be back.
We have spring in season.
We are about to kick into gear here and says of the border. What's on tap? How do we see what's on the roster for earnings?
We are going to go into a broker and see where we can find this information.
We will pull up well broker and go into the research section.
Our first column, headed by markets, second from the bottom, we are going to head over to events.
This is where you will be able to pull the calendar of anything that's coming up the pipes in terms of earnings and you can see over here, we have a number of these different sections we can look at with various events and were going to go to the second one which is earnings announcements.
This is to look at our domestic ones.
Canadian companies, what's coming up today, what's being reported, now if you did want to look stateside to see what's across the border, all you have to do is go over to the top right corner and switch over to the US flag and we will see some of the earnings. Just make sure you head back to the earnings again and we will be able to see what is lined up for today.
Now, from here, what you are going to essentially see is which. You're going to be reporting earnings for an estimate.
That is important because on the street, they get analyst opinions and see where the estimates are going to be and then we see whether the companies are going to produce upbeat or some disappointment.
This is what you are going to look at as investors. We want to see what the estimates are. If you wanted to hone in a little bit more and just keep track of how those numbers are going, I'm just going to pick the first one at the top. It's Microsoft.
We are going to click on that and then go down to the overview section over here.
Once you are in there, there is actually tab for earnings.
We can go into earnings over here and we can have a look to see how those previous CPS numbers have come in and then forward-looking, projected EPS numbers for what the street is estimating them to come to read. This is just one of the ways you can keep track of those earnings and get your hands a little bit deeper into it.
>> All right, so we know what you're looking for, lots of places on my broker to get that information. What if you want to stay ahead? Once the crush begins, the first earnings season I ever experiences the journalist, it was a crush. How do you stay on top of that?
>> It's good to be in the know ahead of time. Most investors have portfolios they want to keep track of. The best way to do it is an alert. We are sticking with Microsoft.
You want to head over to the events tab.
There are a number of different alerts to set up. The one I would usually want to have on is first of all make sure you have the quarterly earnings checked out so this way you get the alert right away when the quarterly earnings are out. But also when the earnings are due to be announced, which is usually a month before they are due to release, you will get a heads up and you can choose how far in advance you want the notification to come through.
This is perhaps one of the best ways to get alluded to that.
>> Great stuff as always. Thanks for that.
>> My pleasure.
>> Hiren Amin, Senior client education sector with TD Direct Investing. For more educational resources, you can check out the learning centre on what broker or use this QR code. Take out your phone and it will navigate you to TD Direct Investing's Instagram page where there are more informative videos. If you don't have your phone handy right now, we are going to show it again at the end of the show. It will return once more.
We are back with Michael O'Brien, taking your questions about Canadian stocks. This one just came in.
Jeff! Jeff, thanks for sending in the questions.
Jeff says, I have a position in Alimentation Couche-Tard. What is your guest think about the transition to EVs in short and long-term?
>> Great question, very topical.
I think the urgency of this question isn't quite what it was maybe two or three years ago when investors were getting some pretty aggressive assumptions about how electric vehicles or EV penetration was going to increase.
That has slowed down a little bit in the last little while. But it is something that's coming and it is something that all these companies are going to have to prepare for. The interesting thing about Couche-Tard is of all the companies out there, I would say they have the most real-world experience and what to expect because a number of years ago, they made an acquisition in Norway so they have a very large network of refuelling stations and convenience stores throughout Norway.
As many of the viewers may know, Norway is right at the top the list of EV adoption.
The government has been promoting electric vehicles for many years with some very generous subsidies.
So if you look at the Norwegian landscape, there are more electric vehicles on the road and there are internal combustion engines.
We are seeing fuel consumption begin to decline in Norway.
So Couche-Tard is right on the front lines of this and they've been able to experiment and to see what works and what didn't. The punchline here is that the business is still performing quite well.
So I think when you think about the short term, electric vehicles, people are beginning to realize this is going to be may be a slower transition that we might've thought a couple of years ago.
Medium to long term, Couche-Tard has this real world of oratory that they have been living and doing business and for the last number of years so if anybody, I think they are best positioned to navigate these changes and figure out how to continue to prosper in a world where you plug in your vehicle as well as fill it up with gas.
>> Interesting one.
Thanks for sending in the question, Jeff.
Another question for you now. Is it better to invest in metals or mining companies themselves?
This is a question that's been popping up.
>> The answer is it depends.
So when you get exposure to the metal, like when you buy the gold ETF, for example, you're going to get exactly what the price of gold bullion does, no more and no less.
If gold tracks higher, you are going to benefit. Gold track slower, you see it go the other way.
Getting into a gold miner as an example, that's a bit of a different proposition.
It has some prose and some cons. What you need to realize when you're buying a gold producer or copper producer, same thing, there is a lot of what is called operational leverage in the business. So your costs do not necessarily rise or fall step for step with the price of the commodity you are selling.
So what that means is that gold prices, there are occasions where gold bullion maybe goes up 10% but the earnings of the gold miners go up 30 or 40 or 50% depending on how much of their costs are fixed.
That's the good worthy advantage to owning a producer as opposed to the commodity is if things are working the way they should, you're going to get more operational leverage to that price movement.
The con or the thing to consider from the other side of this is things don't always go perfectly when you're a mining company.
Lots of things can and do go wrong. To use an extreme example, Canadian miner First Quantum, if you are asking this question, you probably notice that commodity prices were doing very well and copper in particular has really been up on a rope lately. It finally got through four dollars a pound, now it's up of 4 1/2 dollars per pound, is doing very well.
And yet, in First Quantum's case, they haven't really been participating in that because of political risk where their largest mine in Panama was shut down and essentially nationalized by the Panamanian government and so that's the downside to investing in minors as you take on a lot of these other risks, be it on copper or gold or whatever the metal is.
Some other things contribute well. So you just have to be aware of the other risks that you are taking on when you buy the minor as opposed to just the commodity itself.
>> Good breakdown there against the material versus the mine. Another question now about the material space. Can you give me your thoughts on uranium stocks?
>> Uranium has been, well, after a very long period where uranium was out-of-favour, going back to the Fukushima incident in 2011, a long, long time ago, the uranium producers spent a long time in the wilderness. Demand for uranium really fell off a cliff as a lot of these traditional Western countries, Europe and Japan, backed away from nuclear. The last couple of years, uranium has found a second win here as ironically part of the solution for decarbonising the power grid.
We have seen uranium prices strengthen and supply has not kept pace. It has been a bullish backdrop for the uranium complex, if you will, the last couple of years.
The flagship is in the uranium name in the Canadian context is Cameco. They are the most diversified, largest, most liquid.
Most attention gets focused on Cameco.
What I would point out in Cameco's place, and Cameco situation here is the fundamentals are quite positive with uranium prices tracking hire, that certainly flows through to Cameco's benefit.
However, Cameco, traditionally, has a large portion of their annual uranium sales that are contracted at fixed prices or with a range of prices for many years into the future.
What this means is in the very short term, those headline uranium prices, we see a spot uranium transaction at an exciting price… >> That's not what they are selling.
>> That's not what Cameco is selling it for.
If prices stay at that level, that will eventually flow through and it will become a much more noticeable contributor in the out years but if you look for that real big bang for the buck, next quarter's earnings of the quarter after that, you usually have to be a little bit patient.
That something to be aware of.
But the outlook for uranium is quite positive.
>> A good caveat there when you're looking at some of those names. We will get back to your question for Michael O'Brien on Canadian stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
You may be taking all of your screen and looking at the market action particularly on Wall Street and wondering what is vexing investors. GDP today out of the United States came in softer than expected. Anthony Okolie has been digging into the details plus the TD Economics report on what it could mean for interest rate.
>> The US economy got off to a softer start after closing out a remarkably strong 2023. The economy expanded at a modest 1.6% annual pace in the first three months of 2024 versus 2.5% expected by Wall Street.
A modest deceleration versus the last 2:45 .3% gain, that marks the weakest reading in almost 2 years. A bigger tray down on inventory growth put a cap on growth rate in the first quarter. Details of the GDP report indicate that the economy was on solid ground. Consumer spending, for example, the main engine of growth, rose at a healthy 2.5% clip to lead the way.
That's a modest slowdown versus last quarter's 3.3% gain.
American consumers are still spending heavily on healthcare and insurance and other services.
The flipside, the good side, we saw a slowdown in spending on things like cars and gasoline and that led to a flat good spending read. Meanwhile, residential investing, which was up roughly 14%, that rose by the fastest pace in over three years alongside a sharp rebound in new and existing home sales.
Meanwhile, business spending was also stronger-than-expected. As I mentioned earlier, the slowdown in exports and business inventory investments seem to weigh down overall growth and help to mask some of the underlying strength in the US economy.
However, TD Economics says that the consumer resilience is likely to remain a key driver supporting the economy over the near term. Given the latest print, TD Economics says it's likely that the spending momentum has carried over into the second quarter and right now, TD Economics is currently tracking real GDP growth in the US holding steadily in the range of 1.5% to 2% range in the second quarter. Now, reports also suggest that inflation was slightly firmer than expected in March. The core prices for personal consumption a is did rise 3.7% in the first quarter at an annualized rate, that is a sharp jump from the 2% gain seen through the second half of last year. Now, that acceleration follows firmer inflation readings.
The resilient economy in the US raises questions about whether inflation will remain stubbornly sticky and that could prevent the Fed from cutting US interest rates.
>> Let's talk about that. It is TD Economics really changing, when they look at what we got today and what Michael O'Brien and I have been talking about, is it changing their view?
>> TD Economics view has been that the Fed would start dialling back their policy rate as early as July, but with less cooperatives inflation trend and a more resilient economy, TD economics is conviction for a summer cut has started to fade. TD Economics notes in a more recent report that there are no shortages of lingering demand or supply related shocks that could slow the cooling trend in inflation and ultimately pushed back the rate cut all its further out. With a couple more inflation reports before the July announcement, TD Economics says that it will realistically only take one more hot inflation report to all but sealed the fate of a July rate cut.
On Friday, we get the release of spending data which will give us a better idea of monthly spending patterns in the first quarter. We will be watching that closely.
>> Some key stuff there for us to it.
Thanks for breaking it down.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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, we have a nice view of the market movers. This is the TSX 60. What is going on? On a headline basis, we are down about 55 points at this hour. You can see that tech is making sizable gains, up about 7%.
There is activity in the mining sector but it's not lifting that other names. Maybe it's just a text story with the earnings that they handed in seem well received by the street and analysts to follow the company. Across the rest of the complex, there is weakness in financials and technology was Shopify down more than 2%.
South of the border, in reaction to everything Anthony just told us about GDP and consumer price pressures, we are having a down session. Right now, you got the S&P 500 down about 45 points. Digging into the 100, you can see Mehta on the back with earnings, down 12%. Nvidia getting a bit today. A bit of push and pull with the tech stocks.
We are back with Michael O'Brien. We have a question about utilities. Is Emera a buy at the current price? We cannot give buy or sell recommendations on the platform or price targets but we can talk about America's business.
>> Emera, regulated utility, low risk earnings stream.
Going back to our comments about the telecom space, the utilities are another one of the segments in the Canadian market that tend to be very sensitive to interest rates. The fact that interest rates have been rising here has been weighing on all of the stocks. Emera is no exception, particularly with that dividend yield north of 6%.
The single biggest thing impacting Emera and the rest of the regulated utilities these days is that higher interest rate environment.
The company specific thing I would .24 America that has been a very important issue is the credit rating agencies have made no secret that Amir's balance sheet is not quite as resilient as they would like to see it here.
There's a bit of pressure on them to shore up the balance sheet and improve some of the ratios they look at. That will probably be achieved through some asset dispositions, core asset sales and hopefully also some better performance out of the core business.
That's really the thing to key on, our rates going to go higher or lower from here?
The second thing company specific is did they continue to make progress, strengthening the balance sheet?
>> Let's squeeze one more question the end. Have you or wants to get your Outlook for Canadian apartment properties rate.
>> Again, another one of these classic interest rate sectors, the REITs.
Canadian apartment properties rate, that's a mouthful.
Rates are being impacted by the higher rate environment. Within the REIT universe, the apartment REITs or multi-residential REITs of which the CAP REITs is one of the leaders, this is one of the most defensive parts of the market.
They don't have balance sheet issues. Just an issue of the strong rent increases we are reading about in the paper. A number of these companies in CAP REITs will certainly be impacted by this.
It does not always flow through right away due to rent-controlled province like Ontario for example with the headline number grabs your attention but with rent control, the overall impact on their revenues tends to lag. The fundamentals of the business are sound.
We have a somewhat inflationary backdrop for a lot of the maintenance and spending that CAP REITs has to do to keep their apartments up to standard.
Sometimes the margins have been squeezed over the last little while as rent hasn't quite, factoring and again that the rent controls, the revenue line hasn't necessarily kept up with some of the expense growth, that should be easing off here. So I like the outlook for CAP REIT but again, it's kind of a hostage to the interest rate environment. As always a pleasure having you. Always insightful.
Look forward to the next time.
>> Thank you very much.
>> Michael O'Brien, managing Dir. and head of the core Canadian equity team at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
as promised, we won't go away without giving you the QR code again if you are ready for it. This will take you to TD Direct Investing's Instagram page and there you will find more informative features and videos. You want to stay tuned for tomorrow show. We will be back with an update on the markets, US latest inflation data, what it's all going to mean. Then on Monday, ahead of the deadline for filing taxes, and in the months coming up, Nicole Ewing, director of tax and estate planning at TD Wealth will be our Guest taking your questions about tax and estate planning.
When you send in your questions for Nicole, they can be involved, so it doesn't hurt to get them in ahead of time.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today.
Thanks for watching and we will see you tomorrow.
[music]
