Market Outlook July 27, 2015

It’s not a fun time to be invested in stocks. The TSX is down 1.4% on the week. It’s 4.2% lower than a month ago and almost 8% lower than three months ago. It appears to be moving in the wrong direction (or there’s a big sale on stocks). Further, he 3-year government bond is lower than the 30-day T-bill, which is an inversion of that portion of the yield curve. The 10-year yield is still higher, but that’s small comfort.

The only asset class that has positive momentum is bonds, with the exception of cash (which is always right around zero). Oil looks less appealing than ever, which is not good for the Alberta economy. On the other hand, it reduces the input costs for manufacturing companies, which should support US and Ontario economies. For that reason, I’m not really surprised to see the US dollar doing well compared to other major currencies.

In Canada, Valeant (VRX) continues to run away. Why didn’t I buy and hold that about two years ago? I ask myself that, but the obvious answer is that I couldn’t have foreseen this type of growth. In the US, Google (GOOG) continues to look impressive and Amazon (AMZN) looks as promising as Valeant at the moment.

Market Outlook July 20, 2015

I have not much to say about the markets. The TSX really hasn’t changed must compared to last week. Inflation has ticked up a basis point, interest rates are down a little, and the Canadian dollar is worse compared to the US dollar. The American dollar is actually appreciating compared to all currencies.

Looking at various markets and assets, European stocks appear modestly attractive, but nothing else does. (OIL looks downright awful.)

The only change in individual stocks is Google (GOOG), which experienced a huge jump. I assume it’s due to their recent earnings announcement. The best way to benefit from that would have been to own stock before the announcement, but it may continue to run a little further yet.

Market Outlook July 13, 2015

The TSX dropped almost 2% over the past week. It’s a little surprising to see that the American markets were flat over the same time period. To make matters worse, the Canadian dollar continues to fare poorly compared to the US dollar.

Every asset class that I compare has negative momentum, and for the first time in the years that I’ve been observing the markets, cash is the only safe haven. Oil has the worst outlook of anything, and the emerging markets, especially China and Brazil, look scary.

The same stocks that I mentioned last week still look attractive, in both the US and Canada, with one exception. Agrium looks weaker, now, and Telus (T) appears somewhat attractive.

Market Outlook July 6, 2015

Last week was not a good one for the stock market. Actually, there was only one bad day, but what a day Monday was. The TSX opened about 1.5% lower than the prior Friday close, then continued to drop, ending the day over 2% lower. That could have been the beginning of a serious market correction, but the rest of the week recovered a portion of the losses. It is more likely that this was an emotional over-reaction of the market to bad news.

Bonds and stocks both have negative momentum. Oil is the worst among the asset classes I track. Only gold (IGT) has moderately positive momentum presently. That’s not a good sign. Even the Canadian dollar has a weak outlook, with the British Pound looking the most promising. At least the yield curve is normal.

Among Canadian stocks, Valeant (VRX) still looks promising, along with Catamaran Corporation (CCT). With the possible exception of Agrium (AGU), others look far less appealing. In the American market, Williams Companies (WMB), Lilly (LLY), Amazon (AMZN) and Nike (NKE) appear attractive. It speaks to the weakness across the market.

Market Outlook June 29, 2015

Stocks are up over 1% since last week. Conversely, bonds are down almost 1%. This is good news for the stock market, but it’s too soon to really get excited — the TSX is 1.9% lower than it was a year ago. A more realistic way to look at it is that bonds are doing poorly and stocks are doing less poorly, since neither are actually doing well. A balanced portfolio should be neither over- nor underweight.

Comparing asset classes is interesting, but not cheerful. Only US small caps (IWM) present any real positive momentum, and even that is muted. There are no obvious opportunities at the moment.

Some individual stocks may hold promise. In Canada, VRX and CCT are still the clear leaders among the TSX 60, although SunLife (SLF) now looks good. In the US, I believe I already mentioned Lilly, Gilead, Amazon and Nike. They are now joined (and surpassed) by Williams Companies (WMB), a company that provides energy infrastructure. I would treat that one with caution, given a recent spike in price that coincided with a huge increase in buys. The trend is not obviously positive.

Market Outlook June 22, 2015

The past week wasn’t a particularly good one for stock markets. Canadian large caps sank, while bonds rose. In fact, one group is claiming that we have experienced a bear market in stocks for 1000 days. Despite the relatively short timeline of the chart, it’s interesting to note that bull markets generally outlast bears, and advance much farther than bears fall. But if we look at a longer time frame, we can see that 10-15 year secular moves aren’t uncommon.

Recently, I’ve been thinking about bull and bear markets in commodities. Commodity market cycles have lasted at least 12 years, with one exception (8 yrs), since the 1800s. It appears that the commodity market has shifted into bear territory over the past couple years, which would explain the upheaval in the oil and gas sector here in Alberta.

There’s no reason for stock markets and commodity markets to move together or opposite. In fact, the past five years seem to be a case where the stock market and commodity market have both been in bear mode. What does it mean? The only hint I can come up with at the moment is that investing for income should outperform investing for capital gains.

Comparing asset classes, Chinese stocks no longer look attractive. US small caps (IWM) are best positioned for short-term performance. The only other asset classes that have positive momentum are Hong Kong stocks (EWH) and oil (OIL). I don’t expect the next couple weeks to be any fun in the markets.

Canadian large caps appear to be faltering, as does the Canadian dollar. I expect capital to be looking for better opportunities elsewhere. The Swiss Franc is the best positioned among major currencies. The British Pound is next, and the Euro doesn’t look so bad. Even so, European stocks (in C$, XIN) has negative momentum.

Market Outlook June 15, 2015

Interest rates have risen and bond values have fallen. The yield curve is quite flat, and the economic outlook is not strong. The Canadian dollar is still relatively weak, at  just over $0.81 US. I’ve just started looking at currencies, but the Canadian dollar looks like it will continue to fall, in contrast with the Swiss Franc, which appears to be increasing in value.

I accidentally mixed in the currencies with the ETF I was looking at, and the Swiss Franc, incidentally, looks like a better bet than American large-caps, gold or real estate stocks. Does that even make sense?

Among asset classes, Chinese stocks (FXI) still appear to have the best outlook. US small caps (IWM) also look good. In Canada, only Valeant (VRX) and Catamaran Corp (CCT) still have good momentum. In the US S&P 100, Gilead (GILD) and Amazon (AMZN) still look good, but Eli Lilly (LLY) has surpassed both of them. Lilly had a big jump last week, and a small correction on Friday, so it’s hard to say if this positive momentum will persist.

 

Market Outlook June 8, 2015

I’ve missed posting for a couple weeks. I’ve experienced some minor computer problems, but I’ve also been rethinking how this work can be most useful and what I really want to accomplish with it. Based on my experiences, both good and bad, with investing, I understand that it’s extremely easy to get caught up in the reasoning for making trades, increasing risk by increasing trading, and eventually running into trouble. It’s very hard to remain disciplined. As a result, I’m not sure that I’m doing anyone favours by suggesting that a certain stock or asset class is poised to do well in the near term. Looking at the actual output of my model, it’s been right more often than wrong. At the same time, it has increased volatility and trading costs, and I’m not currently in a position to evaluate whether or not the increased performance is worth the increased costs.

With that in mind, I’m going to continue comparing the recent performance (using exponential moving averages) of asset classes (represented by ETFs) and individual stocks to point out where some risks and opportunities may lie. But more changes may be in store over the coming months.

Neither stocks nor bonds have positive momentum, and neither has an advantage over the other. They both had a slightly negative week, and both are basically flat over one month and three months.

Chinese stocks (FXI) have the best momentum currently, followed closely by Hong Kong stocks (EWH) and US small caps (IWM). I’m surprised to see US small caps outperforming US large caps, which usually don’t diverge too far.

Among individual large-cap stocks, in the US, only Gilead Sciences (GILD) appears attractive in the near-term. Here in Canada, Valeant Pharmaceuticals (VRX) continues its amazing run, and Catamaran Corp (CCT) also has reasonable momentum. That company provides pharmacy benefit management services and healthcare information technology. I think I detect a theme.

Market Outlook May 18, 2015

Not much has changed since last week. Plus, today is a holiday!

Interest rates and inflation have remained relatively steady. Bonds barely moved lower in price. However, gold jumped up a little higher. Stocks continue to have more momentum than bonds. Having said that, the economy doesn’t appear very strong.

Comparing various asset classes, Chinese stocks (FXI) still appear the most appealing. They are slightly lower than four weeks ago, but higher than at any point before that. Hong Kong stocks (EWH) have almost as much momentum.

Canadian large caps (XIU) have just turned negative. Anyone who has geographic weightings in their portfolio should be underweight Canada. European stocks (XIN) or US large caps (SPY) may be good candidates for an overweight position.

Among US large caps, the only individual stocks that really look attractive are Amazon (AMZN), Microsoft (MSFT) and Nike (NKE). The shoe company is a new addition this week. Among Canadian stocks, the pickings appear equally slim, with just three attractive stocks: VRX, FM and AEM, just like last week.

Market Outlook May 11, 2015

The past week wasn’t great for stocks. In fact, most asset classes fell in value, except gold, US large caps and US small caps. Interest rates rose, and the yield curve looks a little healthier. Having said that, the economy isn’t strong, but this environment should provide a little more support for future business growth.

Chinese stocks (FXI) continue to present the greatest momentum, but the rate has shrunk considerably. I would be at all surprised to see its momentum disappear by next week. However, among the remaining asset classes, there isn’t much positive outlook. Only European stocks (XIN) looks okay, but only because it’s stayed relatively unchanged over the past month.

Even individual stocks are losing their momentum. In Canada, Valean (VRX) continues to amaze me. First Quantum Minerals (FM) also appears attractive. If you want to gamble on mining stocks, you could also look into Pacific Rubiales (PRE) or Sherritt (S). In the US, only Amazon (AMZN), Freeport (FCX) and Microsoft (MSFT) look attractive among the S&P100. I’m seeing a trend among mining stocks, and it may be their time right now.