Market Outlook, September 19, 2016

I don’t like the look of the market. Bond values are falling as interest rates rise (a little). Stocks are pulling back, though not sliding into a correction. Gold is falling and oil has fallen 3.6% over the past week and 9.5% over a month. Having said that, this isn’t the time to panic, but a time for patience. The US$ is rising against the CDN$, making US stocks more attractive; US small caps are outperforming large caps.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.46%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.59%, the 10 year government bond yield is 1.20% and the long government bond yield is 1.84%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.49%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 2.93%. For small caps, it currently appears to be 2.95%.

Credit Environment

Corporate bonds are performing less badly than government bonds. High yield bonds are doing better than high quality. And short bonds are falling less quickly than long bonds, which is normal when interest rates begin to rise.
guageguage-1guage-2

Currency

Only the Brazilian Real (BZF) and Japanese Yen (FXY) are looking strong relative to the US dollar.
The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds and US stocks are both doing nothing:
guage-3
Canadian stocks (to the right) are slightly positive, which is better than bonds:
guage-4

Global Markets

  • Italy has changed -5.35% in price since last week’s close.

Comparing national stock markets, Hong Kong (EWH), China (MCHI), Brazil (EWZ), New Zealand (ENZL), Taiwan (EWT), India (INDA), Indonesia (EIDO), Russia (ERUS), Austria (EWO), Peru (EPU), Belgium (EWK), South Korea (EWY), Japan (EWJ), Finland (EFNL), and US S&P 500 (IVV) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,139.16. This is -0.92% lower than last week’s price (2,159.04), and -2.19% lower than last month’s price (2,187.02), and 2.68% higher than the price three months ago (2,083.25), and 4.37% higher than the price six months ago (2,049.58), and 5.95% higher than the price one year ago (2,018.94).The average P/E ratio of the S&P 100 (equal weighted) is 21.31. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.69% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Intel Corporation (INTC)
  • Amazon.com, Inc. (AMZN)
  • Facebook, Inc. (FB)
  • Morgan Stanley Common Stock (MS)
  • Apple Inc. (AAPL)
  • Paypal Holdings, Inc. (PYPL)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)
  • Chevron Corporation Common Stoc (CVX)

Canadian Stocks

Yesterday’s closing price was 14,450.70. This is -1.00% lower than last week’s price (14,597.10), and -1.67% lower than last month’s price (14,695.70), and 3.95% higher than the price three months ago (13,901.80), and 6.09% higher than the price six months ago (13,621.30), and 5.45% higher than the price one year ago (13,704.20).The average P/E ratio of the TSX60 (equal weighted) is 24.19. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.13% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

Crude Oil (HUC.to), Global Infrastructure (ZGI.to), Base Metals (ZMT.to), Natural Gas (HUN.to), Global Stocks (VDU.to), Canadian Stocks (ZCN.to), International Stocks (XIN.to), Silver (HUZ.to), and the US S&P 500 (SPY) are performing better than cash.
The gold price is falling, which may indicate bullishness toward stocks, but in this case seems more likely to be a drawdown to cash.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 2 units (40%) cash

Market Outlook, September 12, 2016

Short bonds yields are lower and long bond yields are slightly higher. As investments, bonds are currently unattractive. Over the past week, stocks barely moved, until Friday when it seemed like everyone decided they didn’t want to own stocks anymore. Sitting on the sidelines for a little while looks like an attractive option.

Interest Rates

The 3 month T-bill rate is 0.42%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.58%, the 10 year government bond yield is 1.09% and the long government bond yield is 1.70%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.43%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 3.03%. For small caps, it currently appears to be 3.04%.

Credit Environment

Government bond are out of favour, while corporate bonds are in favour.

Both short and long bonds are out of favour.

High yield bonds have momentum, while high quality bonds do not.

Currency

The Brazilian Real (BZF), and Japanese Yen (FXY) are looking strong relative to the US dollar.
The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds and US stocks are both going sideways:

Canadian stocks still have a little momentum:

Global Markets

  • Philippines has changed -7.46% in price since last week’s close.
  • Thailand has changed -7.61% in price since last week’s close.

Comparing national stock markets, New Zealand (ENZL), China (MCHI), Brazil (EWZ), Hong Kong (EWH), Russia (ERUS), Austria (EWO), Peru (EPU), South Korea (EWY), India (INDA), Japan (EWJ), Spain (EWP), Taiwan (EWT), Finland (EFNL), Belgium (EWK), Israel (EIS), Canada (EWC) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,127.81. This is -2.39% lower than last week’s price (2,179.98), and -2.65% lower than last month’s price (2,185.79), and 2.34% higher than the price three months ago (2,079.06), and 5.22% higher than the price six months ago (2,022.19), and 6.70% higher than the price one year ago (1,994.24).The average P/E ratio of the S&P 100 (equal weighted) is 21.24. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.71% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Morgan Stanley Common Stock (MS)
  • Kinder Morgan, Inc. Common Stoc (KMI)
  • Bank Of America Corporation Com (BAC)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)

Canadian Stocks

Yesterday’s closing price was 14,540.00. This is -1.73% lower than last week’s price (14,795.70), and -1.73% lower than last month’s price (14,796.10), and 3.58% higher than the price three months ago (14,037.50), and 8.68% higher than the price six months ago (13,379.10), and 4.79% higher than the price one year ago (13,875.30).The average P/E ratio of the TSX60 (equal weighted) is 24.25. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.12% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

Crude Oil Etf (HUC.to), Sptsx Eql Wgt Glb Metal Hed (ZMT.to), Silver Etf (HUZ.to), Global Infrastructure Index (ZGI.to), Vanguard Ftse Developed Ac Ex U (VDU.to), Sp Tsx Capped Comp Idx Etf (ZCN.to), Msci Eafe Index Etf (XIN.to), Gold Trust (IGT.to) are performing better than cash.
The gold price is neutral.
The oil price is rising, which increases manufacturing input costs and energy costs and may slow economic expansion.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) Canadian stocks
  • One unit (20%) international stocks
  • 3 units (60%) cash

Market Outlook, September 5, 2016

The market is closed for the Labour Day holiday today. My outlook is a bit more cautious than in the past. Oil and gold prices appear to have stalled, and real estate looks shaky. The equity risk premium is slightly higher, implying that investors are looking for more safety.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.44%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.56%, the 10 year government bond yield is 1.00% and the long government bond yield is 1.62%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.41%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 3.02%. For small caps, it currently appears to be 3.13%.

Credit Environment

Corporate bonds are starting to appear more highly sought-after compared to government bonds, probably for the higher yield.
guage

Long bonds remain in much greater favour than short bonds.

guage-1

And even high yield bonds are slightly preferred to high quality bonds.guage-2

Currency

The Brazilian Real (BZF), Canadian dollar (FXC), Japanese Yen (FXY), and Australian dollar (FXA) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks are close to even:
guage-3
Canadian bonds vs. Canadian stocks give the latter an advantage:
guage-4

Global Markets

Comparing national stock markets, Brazil (EWZ), China (MCHI), New Zealand (ENZL), Peru (EPU), South Korea (EWY), Russia (ERUS), Thailand (THD), Austria (EWO), Hong Kong (EWH), Finland (EFNL), Netherlands (EWN), Canada (EWC), India (INDA), Japan (EWJ), Qatar (QAT), Ireland (EIRL), Germany (EWG), Taiwan (EWT), Belgium (EWK), Indonesia (EIDO), United Kingdom (EWU), Spain (EWP), US S&P 500 (IVV), Philippines (EPHE), France (EWQ), Norway (ENOR), Mexico (EWW), Israel (EIS), Sweden (EWD), Switzerland (EWL), Turkey (TUR), Chile (ECH), Denmark (EDEN), Australia (EWA) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,179.98. This is -0.02% lower than last week’s price (2,180.38), and -0.13% lower than last month’s price (2,182.87), and 3.21% higher than the price three months ago (2,112.13), and 8.90% higher than the price six months ago (2,001.76), and 8.27% higher than the price one year ago (2,013.43).The average P/E ratio of the S&P 100 (equal weighted) is 21.77. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.59% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Morgan Stanley (MS)
  • Kinder Morgan, Inc. (KMI)
  • Bank Of America Corporation (BAC)
  • Texas Instruments Incorporated (TXN)
  • Intel Corporation (INTC)
  • Amazon.com, Inc. (AMZN)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)
  • Metlife, Inc. Common Stock (MET)

Canadian Stocks

Yesterday’s closing price was 14,795.70. This is 0.77% higher than last week’s price (14,682.00), and 1.00% higher than last month’s price (14,648.80), and 3.64% higher than the price three months ago (14,276.20), and 11.98% higher than the price six months ago (13,212.50), and 6.69% higher than the price one year ago (13,868.40).The average P/E ratio of the TSX60 (equal weighted) is 24.88. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.02% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Teck Resources Limited Cl B (TCK-B.to)
  • Encana Corp. (ECA.to)
  • Silver Wheaton Corp. (SLW.to)
  • Alimentation Couche-tard Inc Cl (ATD-B.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Saputo Inc. (SAP.to)
  • Canadian Pacific Railway Limite (CP.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Restaurant Brands International (QSR.to)
  • Bank Of Nova Scotia (BNS.to)
  • Dollarama Inc (DOL.to)
  • Cdn Natural Res (CNQ.to)
  • Valeant Pharmaceuticals Intl In (VRX.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)

Other Assets

Crude Oil (HUC.to), Base Metals (ZMT.to), Silver Etf (HUZ.to), Canadian Stocks (ZCN.to), EAFE Stocks (XIN.to), US Stocks (SPY), Global Infrastructure (ZGI.to), International Stocks (VDU.to), Canadian Bonds (XBB.to), and Gold (IGT.to) are performing better than cash.
The gold price is neutral.
The oil price is rising, which increases manufacturing input costs and energy costs and may slow economic expansion.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 2 units (40%) bonds

Stock return forecast for September

I’m happy with my stock “forecast” for August. I predicted a 64% probability of the market finishing the month higher than it began.It rose from14,566.65 to 14,597.95, for a gain of 0.2%. It’s not much of a gain, and it doesn’t indicate any momentum in the stock market.

The forecast for September is negative. I predict just a 43% chance that the TSX will end the month higher than14,597.95, meaning a 57% chance it will end lower. And if it does, it will likely be a pullback of 5%.

Market Outlook, August 29, 2016

The stock market fell less than 1% over the past week. Looking back to the beginning of the month, it’s risen less than 1% since that time. The general view seems a little gloomy, and September and October are just about upon us. I don’t expect great things from the stock market for the next few weeks.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.44%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.59%, the 10 year government bond yield is 1.06% and the long government bond yield is 1.67%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.41%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 2.92%. For small caps, it currently appears to be 3.10%.

Credit Environment

With yields so very low, investors seem to be moving money into longer bonds. If they are increasing the duration, they either feel that the additional risk is justified, or that there is little risk of interest rates rising.
guageguage-1guage-2

Currency

The Brazilian Real (BZF), Japanese Yen (FXY), Australian dollar (FXA), and Canadian dollar (FXC) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

US stocks are in slightly greater favour than US bonds:
guage-3
And Canadian stocks appear to have a slight advantage over Canadian bonds:
guage-4

Global Markets

  • All Peru Et has changed -5.74% in price since last week’s close.
  • South Africa has changed -7.70% in price since last week’s close.

Comparing national stock markets, Brazil (EWZ), China (MCHI), New Zealand (ENZL), Indonesia (EIDO), Thailand (THD), South Korea (EWY), Taiwan (EWT), Russia (ERUS), Qatar (QAT), Canada (EWC), Hong Kong (EWH), Finland (EFNL), Australia (EWA), Japan (EWJ), Philippines (EPHE), Austria (EWO), Mexico (EWW), US S&P 500 (IVV), Germany (EWG), Israel (EIS), India (INDA), Netherlands (EWN), Ireland (EIRL), Malaysia (EWM), Belgium Inv (EWK), South Africa (EZA), Norway (ENOR), Singapore (EWS), Turkey (TUR), Chile (ECH), UAE (UAE), Sweden (EWD), and Poland (EPOL) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,169.04. This is -0.62% lower than last week’s price (2,182.64), and -0.21% lower than last month’s price (2,173.60), and 3.44% higher than the price three months ago (2,096.95), and 12.26% higher than the price six months ago (1,932.23), and 12.75% higher than the price one year ago (1,923.82).The average P/E ratio of the S&P 100 (equal weighted) is 21.68. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.61% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Merck & Company, Inc. (MRK)
  • Morgan Stanley (MS)
  • Bank Of America Corporation (BAC)
  • Amazon.com, Inc. (AMZN)
  • Texas Instruments Incorporated (TXN)
  • Kinder Morgan, Inc. (KMI)
  • The Priceline Group Inc. (PCLN)
  • Biogen Inc. (BIIB)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company (GM)
  • Ford Motor Company (F)
  • Metlife, Inc. (MET)

Canadian Stocks

Yesterday’s closing price was 14,639.90. This is -0.73% lower than last week’s price (14,748.20), and 0.60% higher than last month’s price (14,552.70), and 3.93% higher than the price three months ago (14,086.70), and 14.39% higher than the price six months ago (12,797.80), and 10.02% higher than the price one year ago (13,307.00).The average P/E ratio of the TSX60 (equal weighted) is 25.15. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.98% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Teck Resources Limited (TCK-B.to)
  • Encana Corp. (ECA.to)
  • Silver Wheaton Corp. (SLW.to)
  • First Quantum Minerals Ltd (FM.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Alimentation Couche-tard Inc Cl (ATD-B.to)
  • Valeant Pharmaceuticals Intl In (VRX.to)
  • Cdn Natural Res (CNQ.to)
  • Saputo Inc. (SAP.to)
  • Restaurant Brands International (QSR.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • National Bank Of Canada (NA.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Bank Of Nova Scotia (BNS.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)

Other Assets

Crude Oil (HUC.to), Base Metals (ZMT.to), Canadian Stocks TSX (ZCN.to), Natural Gas (HUN.to), US Stocks S&P 500 (SPY), Global Infrastructure (ZGI.to), Silver (HUZ.to), MSCI EAFE (XIN.to), Gold (IGT.to), World ex-US (VDU.to), and Canadian Universe Bond (XBB.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is rising, which increases manufacturing input costs and energy costs and may slow economic expansion.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) of gold
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) cash

Market Outlook, August 22, 2016

Oil prices have risen somewhat; no higher than they were a couple months ago, but better than last week. The past week was negative for stocks, but of the one-step-forward-one-step-back variety. Canadian small caps continue to shine. And the Canadian dollar has picked up a little momentum in relation to the US dollar.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.45%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.57%, the 10 year government bond yield is 1.04% and the long government bond yield is 1.66%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.39%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 3.03%. For small caps, it currently appears to be 3.12%.

Credit Environment

There is a clear preference among investors for long-term bonds (middle dial).
guageguage-1guage-2

Currency

The Brazilian Real (BZF), Japanese Yen (FXY), Australian Dollar (FXA), Canadian Dollar (FXC), Swiss Franc (FXF), Euro (FXE), Swedish Krona (FXS), and Singapore Dollar (FXSG) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US stocks have the advantage over bonds:
guage-3
And Canadian stocks are outperforming Canadian bonds:
guage-4

Global Markets

Comparing national stock markets, Peru (EPU), Brazil (EWZ), New Zealand (ENZL), South Africa (EZA), Indonesia (EIDO), China (MCHI), South Korea (EWY), Turkey (TUR), Qatar (QAT), Thailand (THD), Taiwan (EWT), Russia (ERUS), Germany (EWG), Canada (EWC), India (INDA), Australia (EWA), Finland (EFNL), Belgium (EWK), Hong Kong (EWH), Japan (EWJ), Philippines (EPHE), Austria (EWO), Poland (EPOL), Mexico (EWW), Netherlands (EWN), USA S&P 500 (IVV), Ireland (EIRL), Israel (EIS), France (EWQ), Malaysia (EWM), Switzerland (EWL), Sweden (EWD), Norway (ENOR), Chile (ECH), Denmark (EDEN), UAE (UAE), United Kingdom (EWU), and Singapore (EWS) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,183.87. This is -0.29% lower than last week’s price (2,190.15), and 0.41% higher than last month’s price (2,175.03), and 6.63% higher than the price three months ago (2,048.04), and 12.25% higher than the price six months ago (1,945.50), and 13.02% higher than the price one year ago (1,932.24).The average P/E ratio of the S&P 100 (equal weighted) is 21.83. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.58% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Texas Instruments Incorporated (TXN)
  • Halliburton Company (HAL)
  • Biogen Inc. (BIIB)
  • Merck & Company, Inc. (MRK)
  • Caterpillar, Inc. (CAT)
  • Apple Inc. (AAPL)
  • The Priceline Group Inc. (PCLN)
  • Kinder Morgan, Inc. (KMI)
  • Amazon.com, Inc. (AMZN)
  • Raytheon Company (RTN)
  • Morgan Stanley (MS)
  • Abbvie Inc. (ABBV)
  • Amgen Inc. (AMGN)
  • Intel Corporation (INTC)
  • Qualcomm Incorporated (QCOM)
  • United Technologies Corporation (UTX)
  • Union Pacific Corporation (UNP)
  • Alphabet Inc. (GOOGL)
  • Fedex Corporation (FDX)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company (GM)
  • Ford Motor Company (F)
  • Metlife, Inc. (MET)

Canadian Stocks

Yesterday’s closing price was 14,687.50. This is -0.61% lower than last week’s price (14,777.00), and 0.84% higher than last month’s price (14,565.80), and 5.52% higher than the price three months ago (13,919.60), and 14.63% higher than the price six months ago (12,813.40), and 9.74% higher than the price one year ago (13,383.70).The average P/E ratio of the TSX60 (equal weighted) is 24.56. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.07% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Encana Corp. (ECA.to)
  • Teck Resources Limited (TCK-B.to)
  • First Quantum Minerals Ltd (FM.to)
  • Silver Wheaton Corp. (SLW.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Barrick Gold Corporation (ABX.to)
  • Yamana Gold Inc (YRI.to)
  • Blackberry Limited (BB.to)
  • Franco-nevada Corporation (FNV.to)
  • Kinross Gold Corp. (K.to)
  • Saputo Inc. (SAP.to)
  • Restaurant Brands International (QSR.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Cdn Natural Res (CNQ.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Cenovus Energy Inc. (CVE.to)
  • Husky Energy Inc. (HSE.to)
  • Cgi Group Inc., Cl.a, Sv (GIB-A.to)
  • Transcanada Corp. (TRP.to)
  • Snc-lavalin Sv (SNC.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)

Other Assets

Crude Oil (HUC.to), Base Metals (ZMT.to), Silver (HUZ.to), US stocks (SPY), Canadian stocks (ZCN.to), Natural Gas (HUN.to), Global Infrastructure (ZGI.to), World stocks (VDU.to), International stocks (XIN.to), Canadian Universe Bond (XBB.to), and Canadian Real Estate (XRE.to) are performing better than cash.
The gold price is falling, which may indicate bullishness toward stocks.
The oil price is rising, which increases manufacturing input costs and energy costs and may slow economic expansion.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) bonds

Market Outlook, August 15, 2016

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.47%, the 1 year T-bill rate is 0.52%, the 3 year government bond yield is 0.54%, the 10 year government bond yield is 1.04% and the long government bond yield is 1.64%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.38%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 3.05%. For small caps, it currently appears to be 3.27%.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher. Long bonds are in much greater demand than short bonds.
guageguage-1guage-2

Currency

The Brazilian Real (BZF), Japanese Yen (FXY), Australian Dollar (FXA), Singapore Dollar (FXSG), and Canadian Dollar (FXC) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

US stocks have greater momentum than US bonds:
guage-3
Canadian stocks also have greater momentum than Canadian bonds:
guage-4

Global Markets

  • Mexico has changed 5.16% in price since last week’s close.

Comparing national stock markets, Brazil (EWZ), Peru (EPU), South Africa (EZA), Indonesia (EIDO), Taiwan (EWT), New Zealand (ENZL), Thailand (THD), South Korea (EWY), China (MCHI), Poland (EPOL), Hong Kong (EWH), Germany (EWG), India (INDA), Qatar (QAT), Finland (EFNL), Chile (ECH), Australia (EWA), Japan (EWJ), Mexico (EWW), Canada (EWC), Russia (ERUS), Netherlands (EWN), Philippines (EPHE), Belgium (EWK), US S&P 500 (IVV), Austria (EWO), Norway (ENOR), France (EWQ), Sweden (EWD), Uae (UAE), Switzerland (EWL), Israel (EIS), Singapore (EWS), United Kingdom (EWU), Spain (EWP), Ireland (EIRL), Denmark (EDEN) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,184.05. This is 0.14% higher than last week’s price (2,180.89), and 1.03% higher than last month’s price (2,161.74), and 5.68% higher than the price three months ago (2,066.66), and 17.12% higher than the price six months ago (1,864.78), and 9.74% higher than the price one year ago (1,990.20).The average P/E ratio of the S&P 100 (equal weighted) is 21.91. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.56% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Biogen Inc. (BIIB)
  • Qualcomm Incorporated (QCOM)
  • Texas Instruments Incorporated (TXN)
  • Amazon.com, Inc. (AMZN)
  • Apple Inc. (AAPL)
  • Merck & Company, Inc. (MRK)
  • Alphabet Inc. (GOOGL)
  • Microsoft Corporation (MSFT)
  • Alphabet Inc. (GOOG)
  • Abbott Laboratories (ABT)
  • Celgene Corporation (CELG)
  • The Priceline Group Inc. (PCLN)
  • Facebook, Inc. (FB)
  • Bank Of America Corporation (BAC)
  • Caterpillar, Inc. (CAT)
  • Amgen Inc. (AMGN)
  • Cisco Systems, Inc. (CSCO)
  • Abbvie Inc. (ABBV)
  • Lockheed Martin Corporation (LMT)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company (GM)
  • Ford Motor Company (F)
  • Metlife, Inc. (MET)

Canadian Stocks

Yesterday’s closing price was 14,747.50. This is -0.05% lower than last week’s price (14,755.60), and 1.61% higher than last month’s price (14,514.50), and 7.27% higher than the price three months ago (13,748.60), and 22.01% higher than the price six months ago (12,087.40), and 7.15% higher than the price one year ago (13,763.80).The average P/E ratio of the TSX60 (equal weighted) is 24.44. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.09% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Teck Resources Limited (TCK-B.to)
  • First Quantum Minerals Ltd (FM.to)
  • Silver Wheaton Corp. (SLW.to)
  • Encana Corp. (ECA.to)
  • Blackberry Limited (BB.to)
  • Barrick Gold Corporation (ABX.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Yamana Gold Inc (YRI.to)
  • Restaurant Brands International (QSR.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Kinross Gold Corp. (K.to)
  • Husky Energy Inc. (HSE.to)
  • Rogers Communications Inc., Cl. (RCI-B.to)
  • Franco-nevada Corporation (FNV.to)
  • Cgi Group Inc., Cl.a, Sv (GIB-A.to)
  • Saputo Inc. (SAP.to)
  • Arc Resources Ltd. (ARX.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Cdn Natural Res (CNQ.to)
  • Dollarama Inc (DOL.to)
  • Transcanada Corp. (TRP.to)
  • Snc-lavalin Sv (SNC.to)
  • Constellation Software Inc. (CSU.to)
  • Shaw Communications Inc., Cl.b, (SJR-B.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)

Other Assets

Crude Oil (HUC.to), Base Metals (ZMT.to), Silver Etf (HUZ.to), TSX Composite (ZCN.to), US S&P 500 (SPY), FTSE Developped Ex-US (VDU.to), Global Infrastructure (ZGI.to), MSCI EAFE (XIN.to), TSX REIT (XRE.to), Canadian Universe Bond (XBB.to), Natural Gas (HUN.to) are performing better than cash.
The gold price is falling, which may indicate bullishness toward stocks.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) bonds

Market Outlook, August 8, 2016

I don’t like the look of bonds or oil prices, or even gold. The bond yield curve is quite flat, which seems to be in response to lower long-term yields. I find it surprising to see that Canadian, American and International stocks are all pretty evenly balanced in their potential. Small caps have better momentum than large caps, and the momentum style is outperforming the value style. We’re likely moving into a period that is good for stock ownership.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.50%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.54%, the 10 year government bond yield is 1.05% and the long government bond yield is 1.64%. The yield curve is normal. Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Expected (forward-looking) inflation is 1.38%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 2.89%. For small caps, it currently appears to be 3.05%.

Credit Environment

Government bonds are in greater favour than corporate bonds:
guage

Long bonds are more popular than short bonds:guage-1High yield bonds are outperforming high quality bonds:
guage-2

Currency

The Brazilian Real (BZF), Japanese Yen (FXY), and Australian dollar (FXA) are looking strong relative to the US dollar.
The Canadian dollar has been losing value compared to the US dollar.

Equities

While bonds haven’t quite gotten to the point where they’re losing money, stocks are in a much better position, both in the US and in Canada.

US bonds vs. US stocks:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

Comparing national stock markets, Brazil (EWZ), Peru (EPU), Taiwan (EWT), South Africa (EZA), Indonesia (EIDO), New Zealand (ENZL), South Korea (EWY), Hong Kong (EWH), Poland (EPOL), Australia (EWA), Thailand (THD), China (MCHI), Philippines (EPHE), India (INDA), Russia (ERUS), Germany (EWG), Qatar (QAT), US S&P 500 (IVV), Japan (EWJ), Austria (EWO), Chile (ECH), Canada (EWC), Finland (EFNL), UAE (UAE), Israel (EIS), Netherlands (EWN), Belgium (EWK), France (EWQ), United Kingdom (EWU), Switzerland (EWL), Singapore (EWS), Sweden (EWD), Denmark (EDEN), Mexico (EWW), and Ireland (EIRL) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,182.87. This is 0.55% higher than last week’s price (2,170.84), and 2.49% higher than last month’s price (2,129.90), and 6.03% higher than the price three months ago (2,058.69), and 16.11% higher than the price six months ago (1,880.05), and 11.81% higher than the price one year ago (1,952.29).The average P/E ratio of the S&P 100 (equal weighted) is 21.92. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.56% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Biogen Inc. (BIIB)
  • Qualcomm Incorporated (QCOM)
  • Texas Instruments Incorporated (TXN)
  • Microsoft Corporation (MSFT)
  • Alphabet Inc. (GOOGL)
  • Amazon.com, Inc. (AMZN)
  • Merck & Company, Inc. (MRK)
  • Kinder Morgan, Inc. (KMI)
  • Cisco Systems, Inc. (CSCO)
  • Apple Inc. (AAPL)
  • Alphabet Inc. (GOOG)
  • The Priceline Group Inc. (PCLN)
  • Bank Of America Corporation (BAC)
  • Celgene Corporation (CELG)
  • Abbott Laboratories (ABT)
  • E.i. Du Pont De Nemours (DD)
  • Amgen Inc. (AMGN)
  • Caterpillar, Inc. (CAT)
  • Blackrock, Inc. (BLK)
  • American International Group (AIG)
  • Morgan Stanley (MS)
  • International Business Machines (IBM)
  • Facebook, Inc. (FB)
  • Dow Chemical Company (DOW)
  • Intel Corporation (INTC)
  • Monsanto Company (MON)
  • MasterCard Incorporated (MA)
  • JP Morgan Chase & Co. (JPM)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company (GM)
  • Ford Motor Company (F)
  • Metlife, Inc. (MET)

Canadian Stocks

Yesterday’s closing price was 14,648.80. This is 0.45% higher than last week’s price (14,582.70), and 3.64% higher than last month’s price (14,134.50), and 6.91% higher than the price three months ago (13,701.50), and 14.67% higher than the price six months ago (12,774.50), and 8.25% higher than the price one year ago (13,531.90).The average P/E ratio of the TSX60 (equal weighted) is 25.41. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.94% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Teck Resources Limited (TCK-B.to)
  • First Quantum Minerals Ltd (FM.to)
  • Silver Wheaton Corp. (SLW.to)
  • Yamana Gold Inc (YRI.to)
  • Encana Corp. (ECA.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Barrick Gold Corporation (ABX.to)
  • Kinross Gold Corp. (K.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Restaurant Brands International (QSR.to)
  • Blackberry Limited (BB.to)
  • Cgi Group Inc., Cl.a, Sv (GIB-A.to)
  • Rogers Communications Inc., Cl. (RCI-B.to)
  • Snc-lavalin Sv (SNC.to)
  • Dollarama Inc (DOL.to)
  • Franco-nevada Corporation (FNV.to)
  • Constellation Software Inc. (CSU.to)
  • Magna International Inc (MG.to)
  • Arc Resources Ltd. (ARX.to)
  • Cdn Natural Res (CNQ.to)
  • Transcanada Corp. (TRP.to)
  • Shaw Communications Inc., Cl.b, (SJR-B.to)
  • Husky Energy Inc. (HSE.to)
  • Canadian Pacific Railway Limite (CP.to)
  • Saputo Inc. (SAP.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

Crude Oil (HUC.to), Base Metals (ZMT.to), Silver (HUZ.to), US S&P 500 (SPY), TSX Capped Composite (ZCN.to), FTSE Developped All Cap Ex US (VDU.to), Global Infrastructure (ZGI.to), MSCI EAFE (XIN.to), TSX REIT (XRE.to), Natural Gas (HUN.to), Canadian Universe Bond (XBB.to) are performing better than cash.
The gold price is neutral.
The oil price is rising, which increases manufacturing input costs and energy costs and may slow economic expansion.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XSP hedged to Cdn$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) cash

Stock return forecast for August

Oops, I’m a couple days late. I’m happy with my stock “forecast” for July. I predicted a 62% of the market finishing the month higher than it began. It rose from 14,064.54 to 14,566.65, for a gain of 3.68%. I realize that my method is an almanac-style forecast, with results are satisfactory if not entirely helpful. I can’t imagine it’s much use to realize that there’s a good chance of losing money (or a relatively small chance of making money) one month and buying or selling your investments based on that. Such a strategy would be expensive and prone to error.

Having said that, the forecast for August is positive. I’ll predict about a 64% likelihood that the TSX will end the month higher than 14,566.65. And I don’t like the look of September.

 

Nintendo

The other day, a friend was teasing me for not knowing that the Nintendo stock would take off. Pokemon Go was released in a number of countries worldwide and has proven to be hugely popular. I’ll freely admit that I’ve been playing a lot of Pokemon Go (with and without my kids). It’s a really fun game, well thought out and easy to learn, but broad enough to hold sustained interest. And, unlike the prototype (Ingress), it is monetized. Chances are that Nintendo will do very well from this game.

Their share price (quote) doubled, rising 100% between July 7 and July 22. Wow. The question that I raise is: what is this stock price based on? It’s not based on reported earnings, or anything measurable, it’s based on expectations and a future outlook that seems very rosy. If the stock price doubles, that implies that the earnings will double, based only on a single game. Is that realistic?

Nintendo seemingly didn’t think so. They made a statement, saying that the financial impact from the game will be limited. The market reacted with a 17% drop in Nintendo’s share price on July 25. Some investors still made a huge gain, but I would expect the share price, at this point, to correct back to something more moderate and in-line with real-world earnings.

The stock isn’t easy for investors in North America to buy. It trades on the Tokyo exchange, with ADRs available over-the-counter and on certain European exchanges. On top of that, it’s purely speculative at the moment (and all the gains have probably already been made), I think it’s a very risky stock that isn’t worth my while.