Market Insights

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live which is brought to you by TD Direct Investing. Coming up on today show: We'll hear from TD Asset Management's Tarik Aeta on what the healthcare sector may outperform the broader market longer-term. And after a disappointing earnings season for the chipmakers will hear from Julien Nono-Womdim on whether there is better – I had for semiconductor stocks. Plus in today's WebBroker education segment, Bryan Rogers will show us how you can set stock alerts on the platform. But first let's get you updated on the market. After yesterday's selloff which was a little more to the downside on Wall Street and it was on Bay Street, although both finished and the red, we are seeing a pretty indecisive kind of day. We have the TSX pretty much dead flat right now. 3.7 points. We are seeing a rebound in the price of crude. … That's a gain of almost 3 1/2%. That does have money moving in to some of the oil and gas places. Crescent Point Energy at this hour, at 10 bucks and $0.41 a share, up a little more than 5%. Also seeing into the minors, we want to check in on Barrick Gold, one of the big names in the spaces bearing at this hour. Still hanging in there but at 2116 it is of very modest five cents up. South of the border, let's check in the S&P 500, that broader read of the American market. A bit of a push and pull today. We had some modest green of the screen earlier in the session. Now we are modestly in negative territory. 4130, down about 1/5 of a percent. The tech heavy NASDAQ, let's take a look and see what's happening there. Managing to hold still in positive territory. Again modest. Let's check on Exxon as well, the energy names on Wall Street as well as on Bay Street, roughly around 4% to 97 $0.67 a share. And that's your market update. On the back of the Summer rally that we've seen in equities, we have seen some volatility injected into the market in recent days. Of course we have some big events on our radar. Joining us now to sum it all up as Anthony Okolie. Anthony. >> We just got the latest read on manufacturing activities which came in at an 18 month lower. When you dig into some of the details pursing acute weakness in the service sector. Demand is down because high inflation in tighter conditions. You know, we look at the constant surveys in new orders, lowest levels since May 2020. This is not just a number. We are seeing weakness in home sales. US retail sales are flat as well. So I think the market is sort of going through a phase where they seeing this weakness in economic reports. Pointing to a potential slowdown and I think that's has the markets concerned. >> The slowdown, we've been wondering how far the central banks will go. It always goes back to the inflation discussion. We've seen major US retailers saying the same as Canadian retailers. People are changing their spending habits. The more the ghost of food and fuel, the less it will go to discretionary items. Warnings from corporate America on that front. But there's also the sense that when it comes to the central bankers, the problem is inflation. They don't want to trigger a recession but they have to bring it back down to the near Target. Of course later this week is going to be the big event. It was interesting to see that selloff yesterday on all those fears. Forgetting how stern Jerome Powell will be with us when we finally hear from him. >> The question is how aggressive will he be in terms of monetary policy? Are we gonna see the Fed come out and say "look, were gonna go after inflation as aggressively as we can? " I think that's going to certainly drive the interest rates. I think right now it's about 50-50 as to whether or not the Fed will hike interest rates in September. I think this media on Friday it will drive that narrative and markets when they come out with the statements. >> Also what's interesting in this point in time is that we have some really big issues in front of us. Were going to hear from some very important people later in the week including Jerome Powell about what central bank is planning to do. At the same time, we are at the last two weeks of Summer. Will we call Summer before Labor Day weekend. If things get very serious in September. Volumes are pretty thin. We see some outside moves based on the fact that there's not a lot of people trading right now. >> Yes were seeing it in some markets. We are seeing some stocks moving quite a bit both up and down because markets are thin and a lot of traders are on their way out at summertime. We also have some big reports coming out. We still have the US GDP, initial jobs claims… We do have some big prints that could also drive up the market volatility as we head into September. >> A tricky time of year. Thanks Anthony. >> My pleasure. >> Anthony Okolie. Stay tuned and he will join us again later in the show. … Let's get you an update now on the top stories and look at how the markets are trading in business. Brookfield Asset Management is investing up to $15 billion US in a microchip factory in Arizona. It's part of a joint effort with Intel it will give Brookfield a 49% stake in the project. Intel says the investment builds on momentum from the recent passage of the Chips Act in the United States. The Biden ministrations Chips Act includes more than $50 billion in subsidies and for the research of production of semiconductors in the US. Brookfield and Intel earlier this year entered into a deal to finance new manufacturing sites. Shares a videoconferencing company is Zoom are in the spotlight today. That the company cut its sales and profit forecast for the year in the face of slowing demand and increased competition. Zoom enjoyed a surge in popularity during the pandemic. It was the virtual meeting for many people working from home. With the lifting of pandemic restrictions and people returning to in office work, just one of the challenges facing the company. Rivals Microsoft and Cisco are competing for the same customers with their respective teams and WebEx offerings. Another major US retailer is warning investors it needs to markdown merchandise to clear out its excess inventory. Macy's says consumers are shifting their spending habits in the face of soaring inflation, putting more of their household income towards essentials like groceries while easing up on clothing and other apparel. The retailer is cutting its sales and profit forecast for the year as a result. Last week holes delivered a similar warning about excess inventory and the effects of inflation on the US shopper. A quick check on the market, Bay Street and Wall Street, we have the TSX managing to stay in positive territory but it is a very modest gain. 19,000, 922, some energy names are getting in a bit with the rising price of crude. There are some downward forces. On Wall Street, the S&P 500 falling into negative territory against a choppy trade. … Very modest pullback of just a 10%, less than five points. Computer chip shortages during the pandemic may think that the boom times were here for semiconductor stocks. But in the past few weeks we've heard of several big names in the sector warning of slowing demand and many down with more than 30% this year. Julien Nono-Womdim joined us earlier to discuss if there are better days ahead for the sector. >> You are right. … Leading semiconductors companies, is trailing the S&P 500 companies by about 11%. On the NASDAQ by about 6% on a year-to-date basis. And I've brought some… >> Let's take a look at the graph of semiconductors in terms of, I believe, some of the sales in the space to having a relationship with each other. >> Absolutely, the green line is a year-to-year change. Effectively with the market is telling us and in the grey line, you'll see the year of year change in semiconductor production sales. And what you will observe is at the peaks and dips in the green line, tend to proceed the peaks and dips in the grey line. What I mean by that is the market tends to be forward-looking. And so which brings me to my first point. The underperformance we've seen has been as a result partly of the deteriorating macro economic conditions we've seen. Very high inflation but also slowing economic growth. In semiconductor world, a slow economy never really goes well for semiconductor demand. The second point, which is also very important is that the pandemic was an unusually high time for semiconductor demand. If you think about PC demand. Let's take that market of pre-pandemic, averaging about 270 million units of PCs a year. In 2021, we peaked at 340 million is so a big step in PC demand. Obviously the months and quarters ahead, as we alluded to companies that have suggested there will be a normalization which is obviously natural given the fact that consumers are now shifting consumptions away from goods and back to services and reopening, if you will. And lastly, I'd say part of the underperformance has been driven by the geopolitical environment were currently living in. Geopolitical tensions are rising in the semiconductor industry is quite vulnerable to geopolitical shocks. If you take a company like Nvidia, they don't manufacture any of their chips. They are with third-party partners like TSMC which are predominantly domiciled in Asia. To the extent that we are entering a… World, the equity given to semiconductor companies is likely gone up but I think it's probably gone up meaningfully. >> So it's interesting to see these market dynamics shift. We were told during the pandemic, nobody could get their hands on chips including the automakers. Of course there are political solutions that will come to force in a while. The Biden administration, a little too late on this front or preparing us more for the future demands of chips? >> Chips Act which will be providing about $50 billion in subsidies for US semiconductor production, that represents about 10% of semiconductor sales. So it's not a meaningful amount from the grand scheme of things. But what I think it does is that, over the long term, it will offer added capacity to the industry. It will add resilience to the industry by way of having manufacturing capacity in the US. There are other governments as well that are providing subsidies to the semiconductor industry, notably Europe and Japan. I would say in the short term, however, the addition of capacity in a slowing demand environment poses the risk of oversupply and I think that's what the market is also contending with. >> It's interesting to see, obviously, this was a big discussion during the pandemic about the re-on shoring of certain sectors of production including semis. People started worrying about the global supply chain getting all snarled up. Going forward, is this going to mean a higher price environment? The general consensus is the reason we offer short so much production over several decades overseas. >> It was cheaper. Correct. What I would like to highlight and this was a study of the semiconductor Association has done in association with the number of consultancy companies is that part of the cost differential between manufacturing in Asia and manufacturing in the US or Europe, a good chunk of that is driven by government subsidies. So the fact that receding governments actually step in and provide subsidies for building manufacturing plants, subsidies for the production, all these things actually bode well in structurally. We may not see the price inflation the people or suggesting. >> Of phrase we have heard as the "Internet of things. Everything will need chips" does that thesis still hold? What is the overall picture for chips of five, 10, 20 years from now. >> Let's take a step back. If we think about the last 20 or 30 years in semiconductor production, and I brought a chart to illustrate that, we've had a steady growth which is about 1 1/2 to 2 times the rate of global GDP. Today we have a $500 billion annual production market. What's driving that? I would say smart phones, PCs… Literally everything we consume on a day-to-day basis has some kind of semiconductor component to it. On a go forward basis, I think that that trend is mostly unchanged. In a continue. Going back to your comment on autos, and electric vehicles, an electric vehicle has about two or three times the semiconductor content of an equivalent internal combustion engine vehicle. And so that's a driver for the future. Another area of growth is computing. We are seeing the adoption of artificial intelligence, machine learning and all these different technologies. They are going to bode well for structural semiconductor command. Addressing climate change, that's a driver of semiconductor demand. Solar panels and whatnot. But obviously, I think that the biggest change pre-pandemic verses now has to do with the geopolitical landscape. Obviously the semiconductor industry is very geographically decentralized. I gave the example earlier of Nvidia. You also have companies with suppliers globally. When you have global web companies that operate in unison, any disintegration of this global unity poses a structural threat. >> Very fascinating. The technological leaps and bounds that it makes over the years very fascinating. I know apples and oranges did, traditional crops do different kinds of cross-pollination. But in Apple and Apple and an orange in an orange over time. As semiconductor, what is the growth been like in sort of unlocking the potential of what they can do in the future as well? A chip, I assume, five years from now is a lot more powerful than a chip Reading this machinery right now. > That's partly true. I would say we've certainly seen that historically. Actually, innovation in the industry has been guided by an axiom known as "Moores Law" which effectively states that the numbers of transistors which of these little switches which are invisible to the naked eye, I enabled the flow of electrical current to and from devices. That's doubled every two years or so. So every two years the number of transistors has doubled every two years for 50 years. That's a very transformant of change. Today we are reaching a technological inflection point. At the retail scale we are approaching physical limits. Now we are hearing about chips heading towards 3 nm, 2 nm etc. The pace of innovation will slow but there is certainly continued innovation ahead of us for sure. >> That was Julien Nono-Womdim, Semiconductor Analyst with TD Asset Management. Now let's get to our educational segment. During times of heightened volatility, it can be hard to stay on top of all the moves happening in the markets. WebBroker has a web system which can get you some heads up when something important is happening right now. Joining us now with the details as Bryan Rogers, Client Education Instructor at TD Direct Investing. Bryan, let's jump in, how can I set up these client automated updates? >> Greg, we both know, we've seen it before, something extremely important to investors especially in a volatile market, we are all super busy. We have all kinds of things going on in our life. We can watch WebBroker all day long. But you can have WebBroker on autopilot, as I like to say, to watch for you. So if we take a look into WebBroker, I'm sharing my screen right now… If you go into "research", you are on the alerts tab, it's amazing what's in there. I know I actually started with this, I thought of stocks when they change price or something like that. But there is so much more in here as well. You can actually, all show that in a second. You can see a number here of what's available. But when you click on the "set news and research" bar, the overall market… We talked about inflation, you might want to know some of the banks that are coming up, when you click this link here you can actually go to the market analysis tab where will show you gainers and losers which is something to look at in terms of overall market. Losers in the NASDAQ and the S&P and so on. But then you go to this next link here, you can go into news and research. You can click on "add in a keyword" research. You can look at equity markets… One of my favourites to, there are tons of reports there. You can actually have this sent to you as a specific report. Either an increase reporter at TDS I action note. That can be emailed right to you. The way I think of it, Greg, is in effect it's kinda like being President of the United States or Prime Minister of Canada. You get this package, your daily briefing. You can set that up yourself or you have your daily briefings in your email box. >> That's a good way to think about it. If the technicals of a stock are part of somebody's discipline, what can WebBroker do for us in term of alerts question mark >> That's an excellent question as well. With technical analysis, if you're not familiar with it yet, it's a good learning tool as well. So we jump into WebBroker again, something you may notice, there is a "technical alerts" tab as well. As well as the stock. You can go and add things themselves. There is a number of options in terms of the range of price and the amount of price moving in terms of their certain day versus the market. Security alert section… It'll open up a number of different criteria. But if you go right directly into "technical alerts", you can actually look for overall markets on certain technical aspects. So if you're not really familiar with this yet, you can do some learning in there as well and I'll show you were to find that in the second. For example, a technical indicator that you can set up here and have it search and scour the entire market. A technician would actually be doing that manually and you can have it done automatically. You can subscribe to that and send the email saying "here's some stock indicating opportunity or pullback based on certain technical analysis". This is brought to us by a third-party company called trading central. It's available to everybody in WebBroker and you can set that up under the "alerts" section. Going to technicals and just click on "subscribe" as soon as you set up any screens or criteria that you're looking for. >> Interesting stuff as always, Bryan thank you for joining us today. >> My pleasure Greg. >> Bryan Rogers client in structured TD Direct Investing. There even more educational videos and live interaction master classes on WebBroker including upcoming webinars in technical analysis. Options and mistakes to avoid, mutual funds and ETF's. Be sure to stay tuned to us of course. MoneyTalk Live this Wednesday, tomorrow were doing a special edition of the show with Nugwa Haruna, Senior Client Education Instructor at TD Direct Investing. So take your questions about the platform and how to use it. Use it to your advantage so make sure you get these questions and to us. You can email us your questions any time by emailing us@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 your guests can give us the answer right here at MoneyTalk Live. Many healthcare stocks are down from what they were earlier this year, according to Tarik Aeta, this may be different. He joined me later to discuss. >> Email beyond the investment implications, our personal health is our greatest asset. It allows us to live life to the fullest and pursue our goals. Investing in healthcare as a result benefits from several attractive qualities. Including strong growth. What drives strong growth in healthcare is really to very, very subtle things. First, a growing and aging global population. Here in Canada, for instance, global population growth is roughly 1% per year. For adults over 65, they grow three times as fast and as we all age, we all need more healthcare services and the second driver of healthcare growth is innovation. Just like the technology sector, innovation opens up green space potential for these companies to continue to sell more products over time. Whether were looking at the heart valves, catheters, genomics, communal oncology drugs and many of these products didn't exist 20 years ago and have since become large revenue generators. So as the centre continues to invest and we have research and development, it will remain robust for many years to come. >> Two key drivers there. We know the boomers have had at every stage of their lives and now firmly in their golden years : what about recent earnings season that we saw? What is the snapshot look like for the past three months? >> Overall earnings were solid for the healthcare sector. Revenues were 10% year-over-year. Earnings were up 9% as well. With 84% of companies meeting estimates, when you look under the hold, the top sector saw industry in the quarter. Pharma sales grew 15% year-over-year. Pfizer led 80% of that growth takes their covert antiviral. In second place for the health insurers in the US. They moved 14% driven by strong demand for Medicare advantage, which is health insurance for seniors over 65. In third-place were the tools company. They are benefiting from continued strong demand for the tools and services required to discover and manufacture drugs. The one area that did struggle, you know, was the medical device companies. Sales were only up 4% and that was during hospital staff shortages that held back elective surgeries. >> By breaking all that down the way you did gives us some insight. People say "investing in the healthcare sector " when you start breaking it down you realize there are different kinds of companies operating in this space. How do you approach that is an investor? >> As an investor, you just have to look at the fundamentals for each of the different silos. So for instance, when I look at the sector, there are three big buckets. There are companies discovering drugs, companies developing widgets and companies delivering services to what I call the three D's of healthcare. . These are your biotech companies… A lot of stability, they provide higher and above average dividends. Over the long time they've had a whole hard time outperforming due to the fact that there are constantly running on this treadmill of drug and patents. The second big bucket in the sector are the companies developing widgets. This includes the medical device companies, life science tool companies. They benefit from the same sectors of their demographics and innovations that we talked about. But unlike the Pharma companies, you don't take a patent expiry and high risk of R and D. So you find some higher quality companies there. And last but not least, the companies delivering services includes you know, the big health insurers in the US. The telemedicine companies. The hospitals, the dialysis clinic… It's sort of a mixed bag over here. But the nice thing about these sectors, there is some insurance companies and benefit from these secular demographic tailwinds. Like an aging population which is something that does help them over the long run. >> Going forward, to be of much in terms of guidance from some of these different companies in terms of how the second half of this year my look? >> Looking to the full year of 2022, guidance, we saw a revenue guidance up a touch over the last quarter. When you look at EPS guidance, those numbers came down to touch. Driven by margin pressures. So yeah, if companies like the medical device companies with their sales growing, at the same time their costs went up including higher wages, higher commodity costs and shipping costs. Also they sell to hospitals on these 1 to 3 year contracts. So they struggle a bit. But if you look at other company's like life science tool companies, they benefited because not only were still strong that they were able to pass those inflationary pressures forward to their customers. Thanks to the business model where there are not these long-term contracts to pass along those higher up prices. >> I want to think of some of the criteria laid out. The space renovation, obviously, there's a great deal of money put in. Obviously the demographics changing with the boomers. … Were talking about long focus investing. Like you're in this for the long haul if you believe in this thesis. >> Yeah. In healthcare, you have to invest for the long term given a lot of the cycles do take a lot of time. When drugs are discovered and brought to market, with covert vaccines it happen really quickly, I know. But generally these are long cycles that take many years to play out. The same thing, when you have new innovations and you're trying to get adoption amongst healthcare practitioners, it doesn't happen overnight. Usually it's a couple of years in process. As an investor in the healthcare sector you need to be long-term focused and that allows you to really capture those benefits over the long run. >> Thou as Tarik Aeta, Global Health Care Analyst at TD Asset Management. Let's check in on the markets now. We are halfway through the lunchtime trading session. Bay and Wall Street, you can see the TSX right now. Basically flat down to the tune of four points. Still strength in the mining stocks on Bay Street and the energy stocks that were starting to feel some significant downward pressure from tech industrials and financials holding us back for a better showing in Toronto. Athabasca oil up about 5.6%. Benchmark crude bouncing back and that's a pretty volatile trade. Today it's a little more than 3%. Let's check in on tech resources and materials in mining space. It's up for 1/2%. These are some of the winners right now, clearly there's a push and pull in the market today. South of the border, let's check in the S&P 500. That brought a read of the American market. Same kind of dynamic. You still of money moving into the energy names in the mining names on Wall Street. We'll take a look at the sectors that are weighing on the trade. In this healthcare. We have healthcare utilities and telecom stocks in United States holding the market back. Right now the S&P 500 down 1/4%. Let's check the tech heavy NASDAQ and see how it's very right now: it had been managing more modestly in positive territory at the start of a program. Right now it's sort of sliding with the broader market. Down a little more than 1/10 of a percent. Let's check in on Macy's. At the top of the show. A warning about marking down merchandise. Obviously we heard this from some of their competitors during running season. Stock actually moving a little higher on the news today. $19.58. Stocks up a little more than 5%. >> TD Securities has some new research out on real estate investment trust. Anthony Okolie has been going through it for us and joins us with the details. Anthony. >>TD Securities says that their overall second-quarter… Previously TD Securities did upgrade the Canadian sector to overrate, since the upgrade, the sector is up around 7%. Now, despite the broader macro uncertainty, real estate generally reiterated the favourable near-term outlooks for fundamentals which have been strong. Many management teams acknowledge the potential for higher Rate. That's the amount that, you know, the markets pay for real estate as transaction activity picks up. Now despite the overall real estate sectors favourable outlooks, TD Securities has incorporated an economic slowdown into their forecast. That's resulted in a 2.8% average negative revision to 2023. Adjusted funds from operations per unit estimates. Now TD Securities also reduce the average property portfolio evaluation by nearly 4% since the first quarter of this year. Overall, however, TD Securities continues to see good value and see an upside to their estimates, should a meaningful economic slowdown and not return. Greg question mark >> What's so interesting about reinvesting is obviously which you dive into this space, are you talking on shopping malls? Are you talking about offices? but industrial? Does TD Securities have a pecking order of what faires better going forward? >> Residential rental market, retail, industrial's, I think, for an office retail sector,COVID-19 waves have impacted margin so certainly they continued to the residential and retail property sectors. >> Interesting stuff Anthony. >> My pleasure. >> Money talks Anthony Okolie. Tomorrow, Wednesday show, doing a special edition of MoneyTalk Live. Will take your questions of the platform itself. Tomorrow we dedicate the whole show to it. Nugwa Haruna will be with us, Senior Client Education Instructor at TD Direct Investing. We know you have questions for her. On how to use the platform to your advantage. You can email us anytime moneytalklive@td.com. Thanks for your questions. We'll see you tomorrow. [music]