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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I will be joined by guests from across TD, many of whom you will only see here. We are going to take you there with moving the markets and answer your questions about investing.
Coming up on today show, we are going to discuss the two big hurdles, tech stocks need to overcome to get back in the market again and Vitali Mossounov joins us for that. In today's WebBroker education segment, killing for me is going to take us through how you can research a specific sector and set up a watchlist for stocks if you want to keep an eye on them.
Here's how you get in touch with us. Email moneytalklive@td.com or you can fill is that your response box under the video player you're on WebBroker.
Before I get to our guest of the day, let's get you an update on the markets.
Americans aren't trading today, it's Martin Luther King Jr. day. We are trading in Toronto, there is a modest gain, 1/4 of a percent. There is no trading happening on Wall Street. But we have some names moving here. We were checking out Crescent Point energy. It's positive but modest, nine bucks and $0.65 per share. It's up not even a full percent. Mullen Group is under pressure today. The stock performed under the back half of last year. It's down about 7% right now. They are warning that the results from last year likely cannot be replicate at this year, they are talking about the rising rate environment, the slowing economy. A bit of pressure on the same. South of the border, they are not trading the let's take a look at the S&P 500. Just get an idea of the performance. Another rally we had on our hands in the last couple weeks of the new year. That the market update.
after a multiyear run of strength, tech stocks have been on the back burner recently. What hurdles would they have to clear if they were to regain some market leadership? Joining us now for more, Vitali Mossounov, global technology analyst at TD Asset Management.
Always great to have you on the show.let's talk about those tech stocks. What do you think the setup is for this year?
>> Tech outperforming the market. You can make that bet, set your watch to it. Make it happen. 21, things started to change. There is a tale of two halves there.
The first half of 21, tech is still a stronger performer. Second half of 22, that's where you're getting inflation talk.
That's where you are getting raises. So 21 the second half was weaker, but 22, the wheels fall off. The wheels fell off tech, as you said, 10 percentage points of underperformance.
so 23 for me is really make it or break it year for this test here in tech.
>> If it is a litmus test year, does that suggest there would be so benchmark you are looking for? If you are applying a test, what are the standards of the test?
> Tests do you have standards and will put a couple of standards on this test. Number one, we are going to be watching of thesebusinesses, especially the big tech names, we will refer to them often we are talking about technology, but can they continue to grow at that GDP plus rate? Can they continue to grow faster than the rest of the companies in the S&P 500?
Something that we have taken for granted year after year after year.
And by the way, that's baked into their valuations.
Even after a bad year, the stock still trade at a 20% premium to the S&P 500.
So they've got to deliver and there is some disbelief right now because remember, was 17, 18, 19, what did these years have in common?
Expansionary years.
How are the stocks going to do in your session?
We are watching the topline and whether it's defensive or not.
>> Topline is number one.
It's just that there is a number two.
I don't want to front run your answer but I think maybe some of these companies have made commitments on number two?
>> Well, they are making comments about it, and they will tell us that they are not commitments but they are comments.
We are going to find it shortly, earning start next week.
We are going to find out if their comments are commitments or something else. The nature of their comments… Number two, of course, is cost discipline.
I'm going to harp on this. In those Goldilocks years when economies were expanding and technology companies were taking market share from the other parts of the economy, costs didn't matter. Everyone was transfixed on growth, and rightly so at that point in time. But when everyone is transfixed on growth, the companies become a little… Let's call them undisciplined.
They take it for granted they can spend that extra million or billion in their case on some fancy project that may not be so necessary.
So investors are trying to send a message right now that show is that cost discipline because it just hasn't existed for the last few quarters for sure.
>> Of course, cost discipline can often lead to layoffs.
We did get some of those announcements from the mega text.
Beyond layoffs, what else can they do to start reading and cost?
>> Layoffs are going to be the primary way that they do it.
Take something like Meta example. That ties back to third-quarter results. They report and announceall sorts of spending, including on the Metaverse, their project that they have staked to the whole company on.they said things are tough out there in the advertising land, but we are going to continue.
The market, you might recall, punish them severely. The stock was down 20% the day after earnings.
shortly thereafter, that investor pressurizing because perhaps a change in sentiment all the way at the founder level because in November, Mark Zuckerberg goes out there saying, we will get costs under control and, sadly, but this is how the business model works, they will be laying off 11,000 staff. For company of 87,000, that's a big number.
So staff is the number. It's a labour business.
>> It seems that Facebook and that example was getting a message from the market.
Or any other tech names getting a message from the market?
>>we will see.
There are no hard commitments yet. There are comments because they were punished so severely after third-quarter results.
But I would say that on balance, every single one of the big tech businesses has made encouraging statements that they are coming around to the side of the shareholder. Amazon is a good example. They have also been out there talking about discipline and the ability to rein in costs.
Before it was always at the retail level but now there are signals even at the corporate level and they will be open to reducing their headcount. Microsoft certainly me arguably it be making the strongest statements. Microsoft out there saying that they will be able to keep the headcount roughly flat the entire year, after your 20% growth after fiscal 2022.
And last but not least, apple, this one is a bit of an outstanding question for me. Apple has been most resilient on the top line throughout last year and so I find that the folks and their cost to investors is not as severe as it is in other businesses.
But even Apple has made encouraging comments. Of course we saw Tim Cook take a pretty large pay cut, down to $49 million for the coming year.
>> Hard to get by on 49 million. But I'm willing to give it a try.
>> It's a simple chart but it tells the entire story.
The line know that you are seeing on top is the revenue growth line for the last few quarters.
we see the impact from the softening of the economy and then the pull forward in some cases. Revenue growth is slowing and it's normalizing here in the five, six, 7% range.
As I said, that GDP plus level.
That's fine. We'll take 7% in this environment.
The problem has been that you're getting 7% revenue growth, the company saying, well, what I'm not going to give you is 7% earnings growth.
I'm going to give you, at the bottom line, 20% earnings declines. So you feel robbed as a shareholder because you see all of this money going into servers or people.
That's what needs to change, that cost line and that margin line, that really needs to go up because it's unacceptable to investors that spending levels are so low profit if you will.
>> Fascinating stuff and a great start to show. We are going to get your questions about technology stocks for Vitali Mossounov in just a moment's time.
A reminder that you get in touch with us at any time.
Email moneytalklive@td.com were below the viewer response box under the video player on WebBroker.
Now look at you updated on the top stories in the world of business and take a look at how the markets are trading.
TD Economics is the most recent home sales suggest the bottom may be forming for the housing market.
Home sales increased 1.3% month over month in December, although the levels are still at nearly 20 year lows.
TD Economics also noted that new listings fell significantly, suggesting there are no signs of forced selling at the moment.
Canadian business leaders are feeling less optimistic in the face of higher borrowing costs.
Bank of Canada's Business Outlook Survey find those businesses are expecting a recession in the next 12 months but they do expect it to be a mild contraction.
This survey is a key piece of information for the Bank of Canada as it heads into next week's interest rate decision and also gives new inflation numbers this week. It is shaping up to be another big week south of the border. US markets are closed today for the Martin Luther King Jr.
holiday but several big names are due to report this week, including Goldman Sachs and Netflix. Investors are watching closely for any commentary on the state of the economy was going to mean for corporate earnings.
We will check on the main benchmark index, the TSX Composite Index.
The Americans are not Trading. We have modest gains.
volumes are low relatives to normal, we are up 54 points or about 1/4 of a percent in Toronto.
We are back now with Vitali Mossounov, take your questions about technology stocks.
Let's get to them.
Viewers want to know, what is your outlook for IT spending this year?
>> IT spending, surprise surprise, is a controversial topic heading into 2023.
The pandemic early on in 2020 really put the brakes on IT spending.
But that was only a couple of months.
Then, a lot of companies and even consumers realize that you need to invest in digital tools and content in order to reach our customers.
So 21 and 22 that were very strong IT spending years.
There are some, such as a large IT consulting firm called Gardner, they are out on record saying IT spending growth will accelerate in 2023, and that IT budgets, at least for enterprises, were recession proof.
I was a very strong statement. I'm not sure I agree.
I do think there is a slowing coming in IT spending. I think it's already here and will continue into 2023.
Really it's going to be a refocusing of spend.
When the good times are here, companies were quite Pro, as we as consumers were, to spend that extra dollar on something that you may not need.
But the money as they are and what you going to do, put it into a savings account? It was 0% back then.
So let initiatives, marketing technology, all of these things could see headwinds.
Still grow multiple GDP, there is still sector growth in that area.
But it is going to be slower and they're going to be other areas of tech, PCs is a good example, that could continue to have difficult years.
That official number is out, PC is now 60% year-over-year 2022, a good example of pull forward there.
Down as much is 25 to 30% in Q4.
We will see in moderation spending and it will be very different depending on the pockets of spending were referring to.
>> Can we throw cybersecurity into the bucket of IT spending? It seems there are no shortage of headlines recently, of breaches.
If there is a thesis out there, you say you don't fully buy it, that IT spending is recession proof, do we still need to worry about the cyber criminals?
>> We do and just about everyone is worried about them.
That has been in as cleaning fear from the early days of the pandemic.
So companies have been able to make those investments already.
Of course, they never really stopped entirely but the bulk of cybersecurity investments by major companies were done in 2021 and 2022.
Lately, there has been evidence that even cyber spending within companies is slowing down.
It appears that nothing is immune.
>> Is that the cycle that will bring the IT spending back if we do hit a mild recession, which more and more camp seemed to think were going to hit, once we come out the other side, is that where you would see a potential ramp-up?
>> I would certainly be very logical.
The response of the cyclical parts of IT to the slowing is a logical response now and conversely, if things begin to get better, then yes, those budgets will open up for more IT.
That is exactly how such a sector would work.
>> Let's take another question now. Can Vitali give us his thoughts on the popular new chat GPT app? For those not familiar, I've taken a look at it a couple of times and decided to come back later.
I do understand its artificial intelligence and people getting excited. What's going on?
>> We have been talking about AI for a few years now.
People look around and say, what's a killer app? The thing about chat GPT and open a eyes that we might finally have a killer app where you can use AI. So taking a step back, there's a lot of worldwide initiatives surrounding machine learning and AI, but 2015, and not-for-profit organization was started, one of the founders was Elon Musk, and the goal is really to do robust leading but responsible AI research.
We are getting into a very sensitive topic as these capabilities grow.
So of the many things that open AI has produced, November 30, I believe it was released, was this language model, chat GPT, really for the purposes of us as users, it means we can logon to their website and begin to interact in natural language, such as we are using today, and have a conversation with a computer.
Why it has taken off at least in these initial stages is the responses they are getting her often eloquent, thoughtful and correct. It says something about the state of AI and the novelty of this act when university students are able to use it to have it right exams.
> I was going to ask you about that part because it's one thing to have a scintillating conversation with an AI program and say wow, it can actually answer me and make me feel like maybe I am talking to an intelligence, but people seem to be looking at it and saying, it has education and workforce applications.
Is it that advanced?
>> I haven't applied it in my work yet.
but I certainly think that is the reason for this being a killer app. I've played around with some of these use cases to see, nothing is perfect at this stage but given how early we are in this technology, this is a big breakthrough that we should be paying attention to.
Finally, we begin to CAI with commercial use cases being necessary for anemerging technology. Their use cases now. They could be as basic as writing resumes orlet's call it assisting with essays or even trip planning. But this just the beginning and I think we can expect models like this and competitors will have similar offerings.
Certainly within customer service, chatbots have become quite popular but are still operated by human beings.
But say 90% of touch points of a large organization with his customers via the chat box are questions that are rather persistent, repetitive and this technology would be a perfect commercial application for a period >> You talked about competitors in this space and everyone trying to have their own product. What does this mean for stocks going forward?
>> It's tricky and it's actually very telling. Being used to buying stocks and big tech companies, Alphabet's and Microsoft, believing they are immune to destruction. We are finally getting to a stage where these businesses themselves are perhaps susceptible to their own kind of destruction.
Why I say this is a perfect illustration, Google, of course, is the sole source of truth for today. If you need to know something, you Google it.
Guess what? This chat GPT model appears to be a natural competitor to it because why don't I just query something like this that may even give you a more robust, a more natural and more involved answer?
So this is being seen as a bit of a crisis for Alphabet.
How will they deal with it?
What is their ability to come back and fight off this threat?
It's very nascent but it's got people's attention.
Microsoft is repression and made a large purchase of this organization a few years ago.
Now there talks of injecting an additional $10 million.
So Microsoft with its Bing search engine which worldwide has a 3% market share and in the US 7% may have an opening here.
My personal opinion is that these are still very tough businesses to disrupt for a variety of reasons.
I think it's a stretch, this being the killer app, Microsoft overtakes Google and search. Everything is possible but I would put that off to the side.
And even more exciting use case is what Microsoft can do it it's commercial and enterprise technologies to be able to design, and we talked about customer service bod, if you will, and inject this technology to it. The value they can deliver to the enterprise the money they can get for it. And conversely, I would wager that companies like Alphabet with their own our NDA I chops are not too far behind PD solutions.
The question is, are we at the dawn of our technology can begin to serve bigger role for its customers and therefore unlock more markets?
That would be a bold case on technology for sure, to be determined.
>> Is a fascinating topic. It's really new stuff.
The audience is quite fascinated by it to you.
We just got a question saying, you are not using it in your work, but could this kind of AI technology find its way into the investment industry?
>> It could.
I think I could find itself into any knowledge industry as you approach ever advancing levels and eventually, these general levels of completed autonomy and understanding.
So I think at first, as with anything, you maybe get spooked as an investment professional.
>> It's all going to start hosting shows, is it?
Help me out here, Vitali.
>> To be determined.
There's always a big fear when there's going to be some killer app that comes out, and I pick stocks, but the reality is that they then fade away.
And in any other industry, help a financial advisor more accurately predict and understand the financial picture of their clients.
That is going to be the real value add from the bottom up. Microsoft is doing something very similar with their recent acquisition called Nuance where they are able to use AI there to transcribe conversations that a patient may be having with a doctor, that saves a lot of bureaucracy, but analyse at an understand.
Is there anything missed?
Is the patient trying to get something?
Are there concerns the doctor may not be addressing?
There are all sorts of behavioural issues around it.
So with investments, absolutely, but we have to be careful not to exaggerate with this will be.
There will be good practical applications and that is exciting.
>> Fascinating stuff.
As always at home, do your own research before making any investment decisions.
Dr. questions for Vitali Mossounov on technology stocks in just a moment.
You can get in touch with us anytime, just email moneytalklive@td.com.
Now let's get our educational segment.
We are of course talking about technology stocks on the program today.
If you'd like to research the space, WebBroker has tools which can help. Caitlin Cormier, client education instructor TD Direct Investing joins us now for more.
Great to see you. Let's talk about WebBroker and how we get deeper into tech stocks on the platform.
>> Absolutely. We may as well stay with the theme of the day.
investors may be looking to do more research on the areas of the market, narrow down on the specific space.
we can definitely do that within WebBroker. So we are going to hop in and we're going to go under the research tab here and I'm going to start by clicking on the market overview.
So as we get to this page, we're just going to scroll down a little bit on the left-hand side.
We are going to see a sector here, sector and industry here. It's going to list all of these different sectors that are available.
We can switch between the Canadian sectors or the US.
As you said, US markets being closed might be less relevant today.
For today, we will go into the Canadian side of things.
And then we can choose a specific sector that we would like to narrow in on. Let's go ahead and choose technology today.
When we get to this page, there's quite a bit of information available.
We can see the other sectors, of course. We have a Sector Insider Report that is available on technology.
We can see here are some kind of price-to-earnings price-to-book, kind of a visual graph here as we scroll down, we can see the specific industries within technology.
So again, we can deep dive to a specific part of technology or, on the right-hand side, we have some company movers as well as differentiating between high dividend, earnings for growth and price discount over book value available.
So lots of area to find some different technology names, do a little bit more research specifically within that area of the market and in this case, specifically technology.
>> With some of the information had a broker, there is some information and talked he might want to keep an eye on. I have found in recent years the utility of lists.
I used to think I could keep everything up here and it turns out that's not the truth. So how do you put lists together on WebBroker?
>> Right. You do all the legwork, you got all the different stocks, so how do you actually keep track of them and make sure that when you come back, you can remember which ones you were looking at?
Make use of that research.
So a great tool that we have is our watchlist tool. The watchlist tool allows you to combine a bunch of different security is together on a list and you will be able to rootrevisit that list and did additional research and have it all in one spot even before you have purchase the securities. So maybe will for your making decisions you are doing some research.
So let's hop back into that sector and industry page.
We will jump off where we started. So in here, we can scroll down and I can choose anywhere to choose different securities but today I'm just going to go under and choose these ones in the top company.
I'm going to click on the actual security ticker symbol right here. And it's going to pop up this little box and you will see it says, add to watchlist. This is a tool we will use to do some tracking so I will click add to watchlist. In this case, I'm going to go ahead and choose list to you and it's added.
I'm going to exit out of there and choose the next security. I'm going to add a couple here so we have some to look at.
Again, that's two, X out, and you will at this third one here, add to watchlist.
And again, listen to.
Make sure that it gets added there. Okay, perfect.
Once we have all the securities added or have added some and want to take a peek, we go up on the screen and click the little star and come upon watchlist. A minute click on list to which is the one I just created. This is showing me the securities that I added to the watchlist.
It's giving me some information about quotes.
It's got the bid and ask and volume for the day.
If I click this little arrow, is going to actually show me a bit of price chart. This is showing me a one year price chart this particular security.
We've got the volume list at the bottom as well. On the right-hand side, you can see if it pays a dividend and what the dividend date is.
That sort of information as well as the analyst rating information is available as well.
So the about this is it's a way to keep all of those securities in one list, keep them altogether and you can kind of jump off and do additional research on those securities pretty quickly just by jumping in and clicking here, seeing a bit of information that comes up or also at the bottom, you can click on overview to go to that additional information about the stock.
Just to take that research that you will be doing, take the information you are looking for and put it together in one stock and keep in mind with the stocks you were researching were.
>> Great stuff as always. Thanks for that.
> Thank you.
>> Our thanks to Caitlin Cormier, client education instructor TD Direct Investing.
Check out the learning section in WebBroker for more information.
Before you back to your questions on technology for Vitali Mossounov, a reminder of how you get in touch with us.
Send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime@moneytalklive@td.com.
Or you can use the question box right below the screen here in WebBroker.
Just right in your question and hit send. We will see if one of our guests can get you the answer right here at MoneyTalk Live.
> We are back now with Vitali Mossounov, taking your questions about technology stocks. Lots coming in, let's get to them.
The viewer wants to know, if the technology sector remains flat, what areas might do well in technology?
>> This will be a very interesting year because if the technology sector remains flat, one thing that, there is never a promise, but one thing I'm quite sure of is there is going to be a lot of variability in the distribution of stock performance.
That's not always the case but in a year like this with so many pockets of debate, it's going to be a rich year for stockpicking specifically. So if you are looking for sectors that will outperform, I think one way to look at this is to say,where is there the most negativity and, conversely, the highest expectations for socks?
If you go into a year saying, the stocks are going up, everybody feels great about it, right?
That may work but it could be a very dangerous proposition because the problem is the market has already priced it in. So you can say things are going to go and a bunch of different directions next year, some stocks up and others down, so you have to go through an exercise in selecting stocks that may outperform but remember, the expectations are already very high for those stocks outperform and what kind of business are they in ultimately?
What kind of business are they in it relative to the economic worldview that you yourself as an investor are forecasting the your head? Because if you are forecasting a recession and you're picking a company that is very vulnerable to a recession, the rest of the markets as the price as of today, he believes is going to be recession proof? That won't be a good recipe.
Those are some things to keep in mind.
> Also, in the boom times of tech, sometimes you'll be surprised that a stock does well.
It wasn't a problem in the past.
In a recession, it is unprofitable tech deserve caution?
>> More than a little caution.
There are two prominent camps on the debate. The first is that these unprofitable tech companies, many of them very good, if there is a recession, then certainly we will see interest rates come down, the discount rate is coming down and that something that took a big bite out of their valuations last year, that's the bull case on them, that they would re-rate.
Now, the bear camp will go on and say, hang on a second. We understand they are cheaper but they are cheaper from unsustainable valuations.
So they are really cheap, it's just you're measuring it off the wrong base.
And on the other hand, in a recession, what's going to happen to the revenue stream and profitability of these unproven, unprofitable tech companies?
Will the buyers of their services, in a recession, really say, I'm willing to continue to buy from a relatively unknown company?
Or are they going to say, that was a nice experiments.
We tried their product. It was very exciting in boom times.
But we are going to take the next best product from Microsoft, with whom we already have a great partnership.
So we got to be careful about this.
>> Let's get to a question about Microsoft.
Could you please ask why has a stock been going down?
This is a bit tougher. You don't have a crystal ball.
But will it come back?
>> I don't have it off the top of my head but I don't… 30% range which I would wager is in line with the overall tech sectors of the first thing to say is, broadly speaking, the decline of Microsoft has been because of the same factors that took down technology stocks. A lot of that is been with the higher rates and discount rates, inflation and a weaker economic backdrop that we have seen.
Now, in Microsoft's case, it has been a relatively resilient business.
It talks about prior sales.
It doesn't sell a lot to customers but it is enterprise spending.
It is mission-critical.
This makes it not immune but quite resilient to a weaker economy.
So Microsoft also going back to our framework at the beginning of the show has been one of the more vocal companies about making sure that investors know they can get costs under control. So if you're thinking about what it is that's going to set up Microsoft's stock to be a potential performer in 2023, well, back to our framework, are they going to stay resilient on the top line and grow faster than GDP?
Think about the product suite they have, I will leave that to the viewer to analyse.
And then at the same time, were they going to do as far as cost control?
If they can get those two things right in a year with a slower economy, maybe a recession, Microsoft may have a good set up.
>> Is the biggest risk that they don't get those two things right or maybe not even one of them right?
>> Yes.
If they fail on both of those, that certainly… It doesn't pass my test.
Maybe the market sees it differently, but I don't see a good outcome of that scenario.
>> We will get to another question now, talk about e-commerce. What's your guest outlook for e-commerce and socks like Shopify?
>> E-commerce has been boom and bust lately. Tremendous growth rates from 2020, 2021.
Dovetailing in 2022, for obvious reasons.
I think last year e-commerce will come in having grown around 10, 11% for the full year.
That's pretty much in line with what we saw out of e-commerce heading into the pandemic. So we can see that it's more or less normalized which is encouraging, we can analyse things again on a more normal rate.
That's good.
But looking ahead, e-commerce has something in the bull camp and something in the bear camp. The bear camp is of course if you are negative on retail spending, since bad Prince coming out recently, e-commerce is calmer so they will not be immune to it.
But on the other hand, you finally have a normalization of e-commerce trends.
forecaster calling for your 10% growth. I think there may be something there, but in a slowing economy, customers might use e-commerce more to find deals as they find their finances stretched. I will say it will be a normalized year is going to be a bigger story for me is the jockeying for position within e-commerce.
What motive e-commerce is going to work and who is it going to be that has the upper hand? The Shopify, the Amazon?
>> The Amazon types, we have a question here. This is a great follow-up from someone watching the show. Do you think the pressure Amazon stock came under the new normal for the company?
>> Amazon is not going away. So fall was not normal for them.
I don't think it is.
If we decompose their fall, one of the elements of their fall has been the deceleration of cloud, DWS, which has done no wrong but has to face economic had wings. The cloud is going to continue to grow at multiples of GDP year and could triage that problem which will eventually resolve itself.
The bigger problem for Amazon has been their inability to deliver anything close to consistency regarding operating costs.
Investors are asking what they are supposed to value.
No surprise the stock is flat over five years, believe it or not. For Amazon to work, it really has to be about getting back to earning money and earning money consistently so that investors can predict their earnings in a year or two. Early signals as far as commentary is concerned, Amazon is going in that direction. They will say that there have been costs out of our control that are coming back in our direction as deflation kicks in, but they are cost under our control that we are fixing it after the last results we have seen the company step up.
.
.
They talk to layoffs at the corporate level, streamlining operations, cutting the fat in a lot of areas of spending, spending 10 billion on Alexa, you can imagine the kind of projects that they have.
I don't think this 1 Has Lost Its Way, but we need to see the evidence, luckily they are reporting soon.
>> We will get back to your questions on tech stocks for Vitali Mossounov in a moment. Do your own research before you make investment decisions. A reminder that you can get in touch with us anytime.
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 to 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 writing your question in his hand. We will see if one of our guests can get you the answer right here at MoneyTalk Live.
The Bank of Canada releasing its latest business outlook sentiment survey showing that most businesses expect a mild recession. Anthony Okolie has been digging in and breaking down the numbers and tell us what it means for interest rates going forward.
>> Most Canadian businesses expect a mild recession over the next year because higher rates are curbing investment plans and spending according to the latest Bank of Canada survey.
Now the business Outlook indicator or BeOS, it fell in the fourth quarter to roughly 0. You can take a look at the chart.
That's slightly below the average over the past 10 years.
So business confidence is weaker than usual.
this is a significant jump over the past year.
Close to 3/10 firms expect salesTo decline, as the next chart shows, mostly due to we can demand.
Firms have pointed out the rising rates related to housing activity and household consumption as one of the reasons for weakening demand. Others say that high inflation outlook among households is causing a reduction in spending among Canadians.
Still, overall, firms expect sales will continue to grow.
Finally, approximately three quarters of businesses reported that rising interest rates are having unfavourable effectsOn their operations and decisions.
These firms have weaker outlooks than others across multiple indicators as the next chart shows. The businesses that anticipate weaker sales growth expect to raise their output prices at a much lower pace.
>> The survey is done by the Bank of Canada. The next week, the Bank of Canada has an interest rate decision.
To these things play into each other?
> I think it's a clear sign that both household and business confidence on the business Outlook has weakened.
With most consumers and businesses expecting recession in the next 12 months, spending intentions are going to keep falling according to the survey.
They expect that this will set the stage for another 25 basis point rate hike on January 25. That will bring the terminal rate to 4 1/2% and that is when the Bank of Canada will likely sit on the sidelines and see what impact its interest rate hikes will have on the economy going forward.
>> Interesting staff. Thanks for breaking it down.
>> My pleasure.
>> MoneyTalk Anthony Okolie. A quick check in on the TSX Composite Index. The Americans are not trading today because it is the Martin Luther King Day holiday.
In Toronto, we have modest green on the screen.
It's more modest than we started the show. It's up 20 points or 1/10 of a percent. Lightspeed saw some of the tech names making modest gains. 2183.
Trading volumes are pretty low as is normally the case when the Americans aren't trading. It's up half about, a little bit more than 2% of this one. And First Quantum, a bit of downward pressure, the 30 bucks and $0.12, down a little bit more than a buck per share, 3 1/2%.
Now we are back with Vitali Mossounov,With TD Asset Management, talking about tech stocks.
What is the outlook for digital advertising in 2023?
> It's very highly tied to the overall economy.
It's a 4 to 5 times multiplier on GDP growth. It's highly cyclical. That's advertising overall.
Historically, digital has been a small but growing proportion.
In 2023, that's no longer the case.
Digital advertising is now 70%.
The numbers are as follows.
You've got 10% growth in digital advertising around 2022.
Expectations are for that to be half, cut in half in 2023.
Of course, these are forecasts and there is a lot of guessing out there because it's pretty hard to forecast the GDP. The Bank of Canada is trying. Business is trying.
But one thing for sure is that sentiment is low. There is a deceleration being baked in. I think it will come down to which advertising players are going to be beneficiaries of these negative trends? One thing we see typically is that when uncertainty happens, ad budgets will gravitate towards areas where they have breathability, trust and they know they can get a good return on the advertising spend.
That means taking money away from platforms like TikTok, Pinterest, a lot of discretionary spend there, a lot of demographics that were beneficiaries of the pandemic, and bring it back to something more safe than traditional, and that is Google, that is Facebook and Instagram.
So advertising, negative take on it relative to year-over-year, but there some winners and losers here.
>> Okay.
We are almost out of time. We will squeeze in another viewer question. This one about electric vehicles.
There seems to be a change of sentiment towards electric cars becoming less positive.
Do you see that impacting tech companies related to that sector? I guess you can test the thesis about EV sentiment and what it could mean for stocks.
>> Interesting question for sure because EV has become part of the technology narrative. I would say I'm not convinced that the narrative itself on electric vehicles is changing.
I think we are very early in the adoption curve, especially battery electric vehicles.
I don't see anything as far as societies or policies that are going to be the key adopters changing that.
So I think the stock market action the last couple of months has made it appear that EV adoption is slowing but I don't believe that's the case.
Now Tesla, of course, had quite a remarkable fall, a remarkable rise prior to that, but a remarkable fall prior to that. It was the second worst-performing stock on the S&P 500in December.
But that is not had a large correlation with the performance of the other tech stocks.
But I think the markets are sophisticated creatures and a lot of investors are watching and spending a lot of time on the individual industries, whether it's digital advertising, e-commerce, cloud as we talked about or EVs. And certainly on the businesses that are participating in those trends. So EV being a bit unique, I would say, driven by another set of spending factors, I don't think there is a contagion here to speak of that will affect the other companies.
>> Always a pleasure to have you here and tap your insight.
> Great to be here.
>> Our thanks to Vitali Mossounov, or flu manager at TD Asset Management.
Make sure to your own research before you make investment decisions. Stay tuned.
On tomorrow show, Thomas Feltmate, senior economist at TD Bank will be our guest take your questions about the economy.
I know you have questions about the future direction of the economy.
So a reminder, he can get them in ahead of time.
Email moneytalklive@td.com. Get your question with a head start.
That's all the time we have to show today.
Thanks for watching and will see you tomorrow.
[music]
Every day, I will be joined by guests from across TD, many of whom you will only see here. We are going to take you there with moving the markets and answer your questions about investing.
Coming up on today show, we are going to discuss the two big hurdles, tech stocks need to overcome to get back in the market again and Vitali Mossounov joins us for that. In today's WebBroker education segment, killing for me is going to take us through how you can research a specific sector and set up a watchlist for stocks if you want to keep an eye on them.
Here's how you get in touch with us. Email moneytalklive@td.com or you can fill is that your response box under the video player you're on WebBroker.
Before I get to our guest of the day, let's get you an update on the markets.
Americans aren't trading today, it's Martin Luther King Jr. day. We are trading in Toronto, there is a modest gain, 1/4 of a percent. There is no trading happening on Wall Street. But we have some names moving here. We were checking out Crescent Point energy. It's positive but modest, nine bucks and $0.65 per share. It's up not even a full percent. Mullen Group is under pressure today. The stock performed under the back half of last year. It's down about 7% right now. They are warning that the results from last year likely cannot be replicate at this year, they are talking about the rising rate environment, the slowing economy. A bit of pressure on the same. South of the border, they are not trading the let's take a look at the S&P 500. Just get an idea of the performance. Another rally we had on our hands in the last couple weeks of the new year. That the market update.
after a multiyear run of strength, tech stocks have been on the back burner recently. What hurdles would they have to clear if they were to regain some market leadership? Joining us now for more, Vitali Mossounov, global technology analyst at TD Asset Management.
Always great to have you on the show.let's talk about those tech stocks. What do you think the setup is for this year?
>> Tech outperforming the market. You can make that bet, set your watch to it. Make it happen. 21, things started to change. There is a tale of two halves there.
The first half of 21, tech is still a stronger performer. Second half of 22, that's where you're getting inflation talk.
That's where you are getting raises. So 21 the second half was weaker, but 22, the wheels fall off. The wheels fell off tech, as you said, 10 percentage points of underperformance.
so 23 for me is really make it or break it year for this test here in tech.
>> If it is a litmus test year, does that suggest there would be so benchmark you are looking for? If you are applying a test, what are the standards of the test?
> Tests do you have standards and will put a couple of standards on this test. Number one, we are going to be watching of thesebusinesses, especially the big tech names, we will refer to them often we are talking about technology, but can they continue to grow at that GDP plus rate? Can they continue to grow faster than the rest of the companies in the S&P 500?
Something that we have taken for granted year after year after year.
And by the way, that's baked into their valuations.
Even after a bad year, the stock still trade at a 20% premium to the S&P 500.
So they've got to deliver and there is some disbelief right now because remember, was 17, 18, 19, what did these years have in common?
Expansionary years.
How are the stocks going to do in your session?
We are watching the topline and whether it's defensive or not.
>> Topline is number one.
It's just that there is a number two.
I don't want to front run your answer but I think maybe some of these companies have made commitments on number two?
>> Well, they are making comments about it, and they will tell us that they are not commitments but they are comments.
We are going to find it shortly, earning start next week.
We are going to find out if their comments are commitments or something else. The nature of their comments… Number two, of course, is cost discipline.
I'm going to harp on this. In those Goldilocks years when economies were expanding and technology companies were taking market share from the other parts of the economy, costs didn't matter. Everyone was transfixed on growth, and rightly so at that point in time. But when everyone is transfixed on growth, the companies become a little… Let's call them undisciplined.
They take it for granted they can spend that extra million or billion in their case on some fancy project that may not be so necessary.
So investors are trying to send a message right now that show is that cost discipline because it just hasn't existed for the last few quarters for sure.
>> Of course, cost discipline can often lead to layoffs.
We did get some of those announcements from the mega text.
Beyond layoffs, what else can they do to start reading and cost?
>> Layoffs are going to be the primary way that they do it.
Take something like Meta example. That ties back to third-quarter results. They report and announceall sorts of spending, including on the Metaverse, their project that they have staked to the whole company on.they said things are tough out there in the advertising land, but we are going to continue.
The market, you might recall, punish them severely. The stock was down 20% the day after earnings.
shortly thereafter, that investor pressurizing because perhaps a change in sentiment all the way at the founder level because in November, Mark Zuckerberg goes out there saying, we will get costs under control and, sadly, but this is how the business model works, they will be laying off 11,000 staff. For company of 87,000, that's a big number.
So staff is the number. It's a labour business.
>> It seems that Facebook and that example was getting a message from the market.
Or any other tech names getting a message from the market?
>>we will see.
There are no hard commitments yet. There are comments because they were punished so severely after third-quarter results.
But I would say that on balance, every single one of the big tech businesses has made encouraging statements that they are coming around to the side of the shareholder. Amazon is a good example. They have also been out there talking about discipline and the ability to rein in costs.
Before it was always at the retail level but now there are signals even at the corporate level and they will be open to reducing their headcount. Microsoft certainly me arguably it be making the strongest statements. Microsoft out there saying that they will be able to keep the headcount roughly flat the entire year, after your 20% growth after fiscal 2022.
And last but not least, apple, this one is a bit of an outstanding question for me. Apple has been most resilient on the top line throughout last year and so I find that the folks and their cost to investors is not as severe as it is in other businesses.
But even Apple has made encouraging comments. Of course we saw Tim Cook take a pretty large pay cut, down to $49 million for the coming year.
>> Hard to get by on 49 million. But I'm willing to give it a try.
>> It's a simple chart but it tells the entire story.
The line know that you are seeing on top is the revenue growth line for the last few quarters.
we see the impact from the softening of the economy and then the pull forward in some cases. Revenue growth is slowing and it's normalizing here in the five, six, 7% range.
As I said, that GDP plus level.
That's fine. We'll take 7% in this environment.
The problem has been that you're getting 7% revenue growth, the company saying, well, what I'm not going to give you is 7% earnings growth.
I'm going to give you, at the bottom line, 20% earnings declines. So you feel robbed as a shareholder because you see all of this money going into servers or people.
That's what needs to change, that cost line and that margin line, that really needs to go up because it's unacceptable to investors that spending levels are so low profit if you will.
>> Fascinating stuff and a great start to show. We are going to get your questions about technology stocks for Vitali Mossounov in just a moment's time.
A reminder that you get in touch with us at any time.
Email moneytalklive@td.com were below the viewer response box under the video player on WebBroker.
Now look at you updated on the top stories in the world of business and take a look at how the markets are trading.
TD Economics is the most recent home sales suggest the bottom may be forming for the housing market.
Home sales increased 1.3% month over month in December, although the levels are still at nearly 20 year lows.
TD Economics also noted that new listings fell significantly, suggesting there are no signs of forced selling at the moment.
Canadian business leaders are feeling less optimistic in the face of higher borrowing costs.
Bank of Canada's Business Outlook Survey find those businesses are expecting a recession in the next 12 months but they do expect it to be a mild contraction.
This survey is a key piece of information for the Bank of Canada as it heads into next week's interest rate decision and also gives new inflation numbers this week. It is shaping up to be another big week south of the border. US markets are closed today for the Martin Luther King Jr.
holiday but several big names are due to report this week, including Goldman Sachs and Netflix. Investors are watching closely for any commentary on the state of the economy was going to mean for corporate earnings.
We will check on the main benchmark index, the TSX Composite Index.
The Americans are not Trading. We have modest gains.
volumes are low relatives to normal, we are up 54 points or about 1/4 of a percent in Toronto.
We are back now with Vitali Mossounov, take your questions about technology stocks.
Let's get to them.
Viewers want to know, what is your outlook for IT spending this year?
>> IT spending, surprise surprise, is a controversial topic heading into 2023.
The pandemic early on in 2020 really put the brakes on IT spending.
But that was only a couple of months.
Then, a lot of companies and even consumers realize that you need to invest in digital tools and content in order to reach our customers.
So 21 and 22 that were very strong IT spending years.
There are some, such as a large IT consulting firm called Gardner, they are out on record saying IT spending growth will accelerate in 2023, and that IT budgets, at least for enterprises, were recession proof.
I was a very strong statement. I'm not sure I agree.
I do think there is a slowing coming in IT spending. I think it's already here and will continue into 2023.
Really it's going to be a refocusing of spend.
When the good times are here, companies were quite Pro, as we as consumers were, to spend that extra dollar on something that you may not need.
But the money as they are and what you going to do, put it into a savings account? It was 0% back then.
So let initiatives, marketing technology, all of these things could see headwinds.
Still grow multiple GDP, there is still sector growth in that area.
But it is going to be slower and they're going to be other areas of tech, PCs is a good example, that could continue to have difficult years.
That official number is out, PC is now 60% year-over-year 2022, a good example of pull forward there.
Down as much is 25 to 30% in Q4.
We will see in moderation spending and it will be very different depending on the pockets of spending were referring to.
>> Can we throw cybersecurity into the bucket of IT spending? It seems there are no shortage of headlines recently, of breaches.
If there is a thesis out there, you say you don't fully buy it, that IT spending is recession proof, do we still need to worry about the cyber criminals?
>> We do and just about everyone is worried about them.
That has been in as cleaning fear from the early days of the pandemic.
So companies have been able to make those investments already.
Of course, they never really stopped entirely but the bulk of cybersecurity investments by major companies were done in 2021 and 2022.
Lately, there has been evidence that even cyber spending within companies is slowing down.
It appears that nothing is immune.
>> Is that the cycle that will bring the IT spending back if we do hit a mild recession, which more and more camp seemed to think were going to hit, once we come out the other side, is that where you would see a potential ramp-up?
>> I would certainly be very logical.
The response of the cyclical parts of IT to the slowing is a logical response now and conversely, if things begin to get better, then yes, those budgets will open up for more IT.
That is exactly how such a sector would work.
>> Let's take another question now. Can Vitali give us his thoughts on the popular new chat GPT app? For those not familiar, I've taken a look at it a couple of times and decided to come back later.
I do understand its artificial intelligence and people getting excited. What's going on?
>> We have been talking about AI for a few years now.
People look around and say, what's a killer app? The thing about chat GPT and open a eyes that we might finally have a killer app where you can use AI. So taking a step back, there's a lot of worldwide initiatives surrounding machine learning and AI, but 2015, and not-for-profit organization was started, one of the founders was Elon Musk, and the goal is really to do robust leading but responsible AI research.
We are getting into a very sensitive topic as these capabilities grow.
So of the many things that open AI has produced, November 30, I believe it was released, was this language model, chat GPT, really for the purposes of us as users, it means we can logon to their website and begin to interact in natural language, such as we are using today, and have a conversation with a computer.
Why it has taken off at least in these initial stages is the responses they are getting her often eloquent, thoughtful and correct. It says something about the state of AI and the novelty of this act when university students are able to use it to have it right exams.
> I was going to ask you about that part because it's one thing to have a scintillating conversation with an AI program and say wow, it can actually answer me and make me feel like maybe I am talking to an intelligence, but people seem to be looking at it and saying, it has education and workforce applications.
Is it that advanced?
>> I haven't applied it in my work yet.
but I certainly think that is the reason for this being a killer app. I've played around with some of these use cases to see, nothing is perfect at this stage but given how early we are in this technology, this is a big breakthrough that we should be paying attention to.
Finally, we begin to CAI with commercial use cases being necessary for anemerging technology. Their use cases now. They could be as basic as writing resumes orlet's call it assisting with essays or even trip planning. But this just the beginning and I think we can expect models like this and competitors will have similar offerings.
Certainly within customer service, chatbots have become quite popular but are still operated by human beings.
But say 90% of touch points of a large organization with his customers via the chat box are questions that are rather persistent, repetitive and this technology would be a perfect commercial application for a period >> You talked about competitors in this space and everyone trying to have their own product. What does this mean for stocks going forward?
>> It's tricky and it's actually very telling. Being used to buying stocks and big tech companies, Alphabet's and Microsoft, believing they are immune to destruction. We are finally getting to a stage where these businesses themselves are perhaps susceptible to their own kind of destruction.
Why I say this is a perfect illustration, Google, of course, is the sole source of truth for today. If you need to know something, you Google it.
Guess what? This chat GPT model appears to be a natural competitor to it because why don't I just query something like this that may even give you a more robust, a more natural and more involved answer?
So this is being seen as a bit of a crisis for Alphabet.
How will they deal with it?
What is their ability to come back and fight off this threat?
It's very nascent but it's got people's attention.
Microsoft is repression and made a large purchase of this organization a few years ago.
Now there talks of injecting an additional $10 million.
So Microsoft with its Bing search engine which worldwide has a 3% market share and in the US 7% may have an opening here.
My personal opinion is that these are still very tough businesses to disrupt for a variety of reasons.
I think it's a stretch, this being the killer app, Microsoft overtakes Google and search. Everything is possible but I would put that off to the side.
And even more exciting use case is what Microsoft can do it it's commercial and enterprise technologies to be able to design, and we talked about customer service bod, if you will, and inject this technology to it. The value they can deliver to the enterprise the money they can get for it. And conversely, I would wager that companies like Alphabet with their own our NDA I chops are not too far behind PD solutions.
The question is, are we at the dawn of our technology can begin to serve bigger role for its customers and therefore unlock more markets?
That would be a bold case on technology for sure, to be determined.
>> Is a fascinating topic. It's really new stuff.
The audience is quite fascinated by it to you.
We just got a question saying, you are not using it in your work, but could this kind of AI technology find its way into the investment industry?
>> It could.
I think I could find itself into any knowledge industry as you approach ever advancing levels and eventually, these general levels of completed autonomy and understanding.
So I think at first, as with anything, you maybe get spooked as an investment professional.
>> It's all going to start hosting shows, is it?
Help me out here, Vitali.
>> To be determined.
There's always a big fear when there's going to be some killer app that comes out, and I pick stocks, but the reality is that they then fade away.
And in any other industry, help a financial advisor more accurately predict and understand the financial picture of their clients.
That is going to be the real value add from the bottom up. Microsoft is doing something very similar with their recent acquisition called Nuance where they are able to use AI there to transcribe conversations that a patient may be having with a doctor, that saves a lot of bureaucracy, but analyse at an understand.
Is there anything missed?
Is the patient trying to get something?
Are there concerns the doctor may not be addressing?
There are all sorts of behavioural issues around it.
So with investments, absolutely, but we have to be careful not to exaggerate with this will be.
There will be good practical applications and that is exciting.
>> Fascinating stuff.
As always at home, do your own research before making any investment decisions.
Dr. questions for Vitali Mossounov on technology stocks in just a moment.
You can get in touch with us anytime, just email moneytalklive@td.com.
Now let's get our educational segment.
We are of course talking about technology stocks on the program today.
If you'd like to research the space, WebBroker has tools which can help. Caitlin Cormier, client education instructor TD Direct Investing joins us now for more.
Great to see you. Let's talk about WebBroker and how we get deeper into tech stocks on the platform.
>> Absolutely. We may as well stay with the theme of the day.
investors may be looking to do more research on the areas of the market, narrow down on the specific space.
we can definitely do that within WebBroker. So we are going to hop in and we're going to go under the research tab here and I'm going to start by clicking on the market overview.
So as we get to this page, we're just going to scroll down a little bit on the left-hand side.
We are going to see a sector here, sector and industry here. It's going to list all of these different sectors that are available.
We can switch between the Canadian sectors or the US.
As you said, US markets being closed might be less relevant today.
For today, we will go into the Canadian side of things.
And then we can choose a specific sector that we would like to narrow in on. Let's go ahead and choose technology today.
When we get to this page, there's quite a bit of information available.
We can see the other sectors, of course. We have a Sector Insider Report that is available on technology.
We can see here are some kind of price-to-earnings price-to-book, kind of a visual graph here as we scroll down, we can see the specific industries within technology.
So again, we can deep dive to a specific part of technology or, on the right-hand side, we have some company movers as well as differentiating between high dividend, earnings for growth and price discount over book value available.
So lots of area to find some different technology names, do a little bit more research specifically within that area of the market and in this case, specifically technology.
>> With some of the information had a broker, there is some information and talked he might want to keep an eye on. I have found in recent years the utility of lists.
I used to think I could keep everything up here and it turns out that's not the truth. So how do you put lists together on WebBroker?
>> Right. You do all the legwork, you got all the different stocks, so how do you actually keep track of them and make sure that when you come back, you can remember which ones you were looking at?
Make use of that research.
So a great tool that we have is our watchlist tool. The watchlist tool allows you to combine a bunch of different security is together on a list and you will be able to rootrevisit that list and did additional research and have it all in one spot even before you have purchase the securities. So maybe will for your making decisions you are doing some research.
So let's hop back into that sector and industry page.
We will jump off where we started. So in here, we can scroll down and I can choose anywhere to choose different securities but today I'm just going to go under and choose these ones in the top company.
I'm going to click on the actual security ticker symbol right here. And it's going to pop up this little box and you will see it says, add to watchlist. This is a tool we will use to do some tracking so I will click add to watchlist. In this case, I'm going to go ahead and choose list to you and it's added.
I'm going to exit out of there and choose the next security. I'm going to add a couple here so we have some to look at.
Again, that's two, X out, and you will at this third one here, add to watchlist.
And again, listen to.
Make sure that it gets added there. Okay, perfect.
Once we have all the securities added or have added some and want to take a peek, we go up on the screen and click the little star and come upon watchlist. A minute click on list to which is the one I just created. This is showing me the securities that I added to the watchlist.
It's giving me some information about quotes.
It's got the bid and ask and volume for the day.
If I click this little arrow, is going to actually show me a bit of price chart. This is showing me a one year price chart this particular security.
We've got the volume list at the bottom as well. On the right-hand side, you can see if it pays a dividend and what the dividend date is.
That sort of information as well as the analyst rating information is available as well.
So the about this is it's a way to keep all of those securities in one list, keep them altogether and you can kind of jump off and do additional research on those securities pretty quickly just by jumping in and clicking here, seeing a bit of information that comes up or also at the bottom, you can click on overview to go to that additional information about the stock.
Just to take that research that you will be doing, take the information you are looking for and put it together in one stock and keep in mind with the stocks you were researching were.
>> Great stuff as always. Thanks for that.
> Thank you.
>> Our thanks to Caitlin Cormier, client education instructor TD Direct Investing.
Check out the learning section in WebBroker for more information.
Before you back to your questions on technology for Vitali Mossounov, a reminder of how you get in touch with us.
Send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime@moneytalklive@td.com.
Or you can use the question box right below the screen here in WebBroker.
Just right in your question and hit send. We will see if one of our guests can get you the answer right here at MoneyTalk Live.
> We are back now with Vitali Mossounov, taking your questions about technology stocks. Lots coming in, let's get to them.
The viewer wants to know, if the technology sector remains flat, what areas might do well in technology?
>> This will be a very interesting year because if the technology sector remains flat, one thing that, there is never a promise, but one thing I'm quite sure of is there is going to be a lot of variability in the distribution of stock performance.
That's not always the case but in a year like this with so many pockets of debate, it's going to be a rich year for stockpicking specifically. So if you are looking for sectors that will outperform, I think one way to look at this is to say,where is there the most negativity and, conversely, the highest expectations for socks?
If you go into a year saying, the stocks are going up, everybody feels great about it, right?
That may work but it could be a very dangerous proposition because the problem is the market has already priced it in. So you can say things are going to go and a bunch of different directions next year, some stocks up and others down, so you have to go through an exercise in selecting stocks that may outperform but remember, the expectations are already very high for those stocks outperform and what kind of business are they in ultimately?
What kind of business are they in it relative to the economic worldview that you yourself as an investor are forecasting the your head? Because if you are forecasting a recession and you're picking a company that is very vulnerable to a recession, the rest of the markets as the price as of today, he believes is going to be recession proof? That won't be a good recipe.
Those are some things to keep in mind.
> Also, in the boom times of tech, sometimes you'll be surprised that a stock does well.
It wasn't a problem in the past.
In a recession, it is unprofitable tech deserve caution?
>> More than a little caution.
There are two prominent camps on the debate. The first is that these unprofitable tech companies, many of them very good, if there is a recession, then certainly we will see interest rates come down, the discount rate is coming down and that something that took a big bite out of their valuations last year, that's the bull case on them, that they would re-rate.
Now, the bear camp will go on and say, hang on a second. We understand they are cheaper but they are cheaper from unsustainable valuations.
So they are really cheap, it's just you're measuring it off the wrong base.
And on the other hand, in a recession, what's going to happen to the revenue stream and profitability of these unproven, unprofitable tech companies?
Will the buyers of their services, in a recession, really say, I'm willing to continue to buy from a relatively unknown company?
Or are they going to say, that was a nice experiments.
We tried their product. It was very exciting in boom times.
But we are going to take the next best product from Microsoft, with whom we already have a great partnership.
So we got to be careful about this.
>> Let's get to a question about Microsoft.
Could you please ask why has a stock been going down?
This is a bit tougher. You don't have a crystal ball.
But will it come back?
>> I don't have it off the top of my head but I don't… 30% range which I would wager is in line with the overall tech sectors of the first thing to say is, broadly speaking, the decline of Microsoft has been because of the same factors that took down technology stocks. A lot of that is been with the higher rates and discount rates, inflation and a weaker economic backdrop that we have seen.
Now, in Microsoft's case, it has been a relatively resilient business.
It talks about prior sales.
It doesn't sell a lot to customers but it is enterprise spending.
It is mission-critical.
This makes it not immune but quite resilient to a weaker economy.
So Microsoft also going back to our framework at the beginning of the show has been one of the more vocal companies about making sure that investors know they can get costs under control. So if you're thinking about what it is that's going to set up Microsoft's stock to be a potential performer in 2023, well, back to our framework, are they going to stay resilient on the top line and grow faster than GDP?
Think about the product suite they have, I will leave that to the viewer to analyse.
And then at the same time, were they going to do as far as cost control?
If they can get those two things right in a year with a slower economy, maybe a recession, Microsoft may have a good set up.
>> Is the biggest risk that they don't get those two things right or maybe not even one of them right?
>> Yes.
If they fail on both of those, that certainly… It doesn't pass my test.
Maybe the market sees it differently, but I don't see a good outcome of that scenario.
>> We will get to another question now, talk about e-commerce. What's your guest outlook for e-commerce and socks like Shopify?
>> E-commerce has been boom and bust lately. Tremendous growth rates from 2020, 2021.
Dovetailing in 2022, for obvious reasons.
I think last year e-commerce will come in having grown around 10, 11% for the full year.
That's pretty much in line with what we saw out of e-commerce heading into the pandemic. So we can see that it's more or less normalized which is encouraging, we can analyse things again on a more normal rate.
That's good.
But looking ahead, e-commerce has something in the bull camp and something in the bear camp. The bear camp is of course if you are negative on retail spending, since bad Prince coming out recently, e-commerce is calmer so they will not be immune to it.
But on the other hand, you finally have a normalization of e-commerce trends.
forecaster calling for your 10% growth. I think there may be something there, but in a slowing economy, customers might use e-commerce more to find deals as they find their finances stretched. I will say it will be a normalized year is going to be a bigger story for me is the jockeying for position within e-commerce.
What motive e-commerce is going to work and who is it going to be that has the upper hand? The Shopify, the Amazon?
>> The Amazon types, we have a question here. This is a great follow-up from someone watching the show. Do you think the pressure Amazon stock came under the new normal for the company?
>> Amazon is not going away. So fall was not normal for them.
I don't think it is.
If we decompose their fall, one of the elements of their fall has been the deceleration of cloud, DWS, which has done no wrong but has to face economic had wings. The cloud is going to continue to grow at multiples of GDP year and could triage that problem which will eventually resolve itself.
The bigger problem for Amazon has been their inability to deliver anything close to consistency regarding operating costs.
Investors are asking what they are supposed to value.
No surprise the stock is flat over five years, believe it or not. For Amazon to work, it really has to be about getting back to earning money and earning money consistently so that investors can predict their earnings in a year or two. Early signals as far as commentary is concerned, Amazon is going in that direction. They will say that there have been costs out of our control that are coming back in our direction as deflation kicks in, but they are cost under our control that we are fixing it after the last results we have seen the company step up.
.
.
They talk to layoffs at the corporate level, streamlining operations, cutting the fat in a lot of areas of spending, spending 10 billion on Alexa, you can imagine the kind of projects that they have.
I don't think this 1 Has Lost Its Way, but we need to see the evidence, luckily they are reporting soon.
>> We will get back to your questions on tech stocks for Vitali Mossounov in a moment. Do your own research before you make investment decisions. A reminder that you can get in touch with us anytime.
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 to 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 writing your question in his hand. We will see if one of our guests can get you the answer right here at MoneyTalk Live.
The Bank of Canada releasing its latest business outlook sentiment survey showing that most businesses expect a mild recession. Anthony Okolie has been digging in and breaking down the numbers and tell us what it means for interest rates going forward.
>> Most Canadian businesses expect a mild recession over the next year because higher rates are curbing investment plans and spending according to the latest Bank of Canada survey.
Now the business Outlook indicator or BeOS, it fell in the fourth quarter to roughly 0. You can take a look at the chart.
That's slightly below the average over the past 10 years.
So business confidence is weaker than usual.
this is a significant jump over the past year.
Close to 3/10 firms expect salesTo decline, as the next chart shows, mostly due to we can demand.
Firms have pointed out the rising rates related to housing activity and household consumption as one of the reasons for weakening demand. Others say that high inflation outlook among households is causing a reduction in spending among Canadians.
Still, overall, firms expect sales will continue to grow.
Finally, approximately three quarters of businesses reported that rising interest rates are having unfavourable effectsOn their operations and decisions.
These firms have weaker outlooks than others across multiple indicators as the next chart shows. The businesses that anticipate weaker sales growth expect to raise their output prices at a much lower pace.
>> The survey is done by the Bank of Canada. The next week, the Bank of Canada has an interest rate decision.
To these things play into each other?
> I think it's a clear sign that both household and business confidence on the business Outlook has weakened.
With most consumers and businesses expecting recession in the next 12 months, spending intentions are going to keep falling according to the survey.
They expect that this will set the stage for another 25 basis point rate hike on January 25. That will bring the terminal rate to 4 1/2% and that is when the Bank of Canada will likely sit on the sidelines and see what impact its interest rate hikes will have on the economy going forward.
>> Interesting staff. Thanks for breaking it down.
>> My pleasure.
>> MoneyTalk Anthony Okolie. A quick check in on the TSX Composite Index. The Americans are not trading today because it is the Martin Luther King Day holiday.
In Toronto, we have modest green on the screen.
It's more modest than we started the show. It's up 20 points or 1/10 of a percent. Lightspeed saw some of the tech names making modest gains. 2183.
Trading volumes are pretty low as is normally the case when the Americans aren't trading. It's up half about, a little bit more than 2% of this one. And First Quantum, a bit of downward pressure, the 30 bucks and $0.12, down a little bit more than a buck per share, 3 1/2%.
Now we are back with Vitali Mossounov,With TD Asset Management, talking about tech stocks.
What is the outlook for digital advertising in 2023?
> It's very highly tied to the overall economy.
It's a 4 to 5 times multiplier on GDP growth. It's highly cyclical. That's advertising overall.
Historically, digital has been a small but growing proportion.
In 2023, that's no longer the case.
Digital advertising is now 70%.
The numbers are as follows.
You've got 10% growth in digital advertising around 2022.
Expectations are for that to be half, cut in half in 2023.
Of course, these are forecasts and there is a lot of guessing out there because it's pretty hard to forecast the GDP. The Bank of Canada is trying. Business is trying.
But one thing for sure is that sentiment is low. There is a deceleration being baked in. I think it will come down to which advertising players are going to be beneficiaries of these negative trends? One thing we see typically is that when uncertainty happens, ad budgets will gravitate towards areas where they have breathability, trust and they know they can get a good return on the advertising spend.
That means taking money away from platforms like TikTok, Pinterest, a lot of discretionary spend there, a lot of demographics that were beneficiaries of the pandemic, and bring it back to something more safe than traditional, and that is Google, that is Facebook and Instagram.
So advertising, negative take on it relative to year-over-year, but there some winners and losers here.
>> Okay.
We are almost out of time. We will squeeze in another viewer question. This one about electric vehicles.
There seems to be a change of sentiment towards electric cars becoming less positive.
Do you see that impacting tech companies related to that sector? I guess you can test the thesis about EV sentiment and what it could mean for stocks.
>> Interesting question for sure because EV has become part of the technology narrative. I would say I'm not convinced that the narrative itself on electric vehicles is changing.
I think we are very early in the adoption curve, especially battery electric vehicles.
I don't see anything as far as societies or policies that are going to be the key adopters changing that.
So I think the stock market action the last couple of months has made it appear that EV adoption is slowing but I don't believe that's the case.
Now Tesla, of course, had quite a remarkable fall, a remarkable rise prior to that, but a remarkable fall prior to that. It was the second worst-performing stock on the S&P 500in December.
But that is not had a large correlation with the performance of the other tech stocks.
But I think the markets are sophisticated creatures and a lot of investors are watching and spending a lot of time on the individual industries, whether it's digital advertising, e-commerce, cloud as we talked about or EVs. And certainly on the businesses that are participating in those trends. So EV being a bit unique, I would say, driven by another set of spending factors, I don't think there is a contagion here to speak of that will affect the other companies.
>> Always a pleasure to have you here and tap your insight.
> Great to be here.
>> Our thanks to Vitali Mossounov, or flu manager at TD Asset Management.
Make sure to your own research before you make investment decisions. Stay tuned.
On tomorrow show, Thomas Feltmate, senior economist at TD Bank will be our guest take your questions about the economy.
I know you have questions about the future direction of the economy.
So a reminder, he can get them in ahead of time.
Email moneytalklive@td.com. Get your question with a head start.
That's all the time we have to show today.
Thanks for watching and will see you tomorrow.
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