Market Outlook, May 2, 2016

Of the most common investment assets, right now Canadian stocks appear to offer the most opportunity, especially small cap stocks with a value style (buying cheap). Prices aren’t particularly low compared to earnings, but earnings may be depressed and could jump higher with an economic recovery. To be fair, we’ve been waiting for a recovery since 2009, and the Canadian market is still below it’s 2008 peak. Having said that, other stocks and bonds look expensive at the moment. Fewer American stocks are showing upward momentum compared to last week.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.51%, the short government bond yield is 0.72% and the long government bond yield is 1.92%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher. Currently, corporate bonds are in greater favour than government bonds, long-term are favoured over short-term, and there doesn’t seem to be a clear preference between high quality and high yield. It may be that yields are so low that investors prefer long corporate bonds. Although the economy isn’t robust, there doesn’t seem to be a lot of fear of bankruptcy.
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Currency

The Brazilian Real (BZF), Japanese Yen (FXY), Canadian Dollar (FXC), Singapore Dollar (FXSG), Swedish Krona (FXS), Euro (FXE), Australian Dollar (FXA), Swiss Franc (FXF), and British Pound (FXB) 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 and US stocks both have an equally tepid outlook:
guage4
Canadian bonds are less desirable than Canadian stocks:
guage5

Global Markets

  • Brazil has risen 5.24% in price since last week’s close.
  • Japan has fallen -6.47% in price since last week’s close.

Comparing national stock markets, Peru (EPU), Brazil (EWZ), Russia (ERUS), Turkey (TUR), Norway (ENOR), Canada (EWC), New Zealand (ENZL), South Africa (EZA), UAE (UAE), Chile (ECH), Saudi Arabia (KSA), Australia (EWA), Austria (EWO), Spain (EWP), Sweden (EWD), United Kingdom (EWU), Denmark (EDEN), Thailand (THD), France (EWQ), Germany (EWG), Mexico (EWW), Singapore (EWS), Switzerland (EWL), Italy (EWI), Belgium (EWK), Netherlands (EWN), Hong Kong (EWH), South Korea (EWY), USA S&P 500 (IVV), Israel (EIS), Indonesia (EIDO), Finland (EFNL) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,065.30. This is -1.08% lower than last week’s price (2,087.79), and -0.36% lower than last month’s price (2,072.78), and 6.49% higher than the price three months ago (1,939.38), and -1.20% lower than the price six months ago (2,090.35), and -1.46% lower than the price one year ago (2,095.84).The average P/E ratio of the S&P 100 (equal weighted) is 21.46. 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 4.66% (before dividends).

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

  • California Resources Corporation (CRC)
  • Devon Energy Corporation (DVN)
  • Halliburton Company (HAL)
  • Conocophillips (COP)
  • Anadarko Petroleum Corporation (APC)
  • Amazon.com, Inc. (AMZN)
  • Norfolk Southern Corporation (NSC)
  • Bristol-myers Squibb Company (BMY)
  • Occidental Petroleum Corporation (OXY)
  • Chevron Corporation (CVX)
  • Union Pacific Corporation (UNP)
  • Schlumberger N.v. (SLB)
  • Exxon Mobil Corporation (XOM)

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 13,951.50. This is 1.13% higher than last week’s price (13,796.00), and 3.80% higher than last month’s price (13,440.40), and 10.08% higher than the price three months ago (12,674.40), and 1.16% higher than the price six months ago (13,791.90), and -7.94% lower than the price one year ago (15,154.70).The average P/E ratio of the TSX60 (equal weighted) is 24.84. 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 4.03% (before dividends).

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

  • Kinross Gold Corp. (K.to)
  • First Quantum Minerals Ltd (FM.to)
  • Teck Resources Limited (TCK-B.to)
  • Yamana Gold Inc (YRI.to)
  • Barrick Gold Corporation (ABX.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Eldorado Gold (ELD.to)
  • Silver Wheaton Corp. (SLW.to)
  • Goldcorp Inc (G.to)
  • Encana Corp. (ECA.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Franco-nevada Corporation (FNV.to)
  • Cenovus Energy Inc. (CVE.to)
  • Arc Resources Ltd. (ARX.to)
  • Cdn Natural Res (CNQ.to)
  • Pembina Pipeline Corporation (PPL.to)
  • Restaurant Brands International (QSR.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)
  • National Bank Of Canada (NA.to)

Other Assets

Base Metals (ZMT.to), Silver (HUZ.to), Crude Oil (HUC.to), Natural Gas (HUN.to), TSX Capped Composite (ZCN.to), Real Estate (XRE.to), Gold (IGT.to), USA S&P 500 (SPY) 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$), US stocks (XUS in US$), 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%) real estate
  • One unit (20%) Canadian stocks
  • 2 units (40%) cash

Market Outlook, April 25, 2016

guage5

Stocks are looking up in Canada, US and much of the rest of the developed world. The Canadian dollar is strengthening, along with the price of oil. I wouldn’t bet against either of them right now, although there’s no guarantee that they will continue to rise. Because of low earnings last year and last quarter, stocks don’t appear to present bargains. But a number of stocks are experiencing price increases that look set to continue for the near term.

In the last paragraph, I wondered why US stocks are performing better than cash, but aren’t in my model portfolio. The answer is the currency. If you buy US stocks hedged to CAD dollars, you will experience growth. But the falling USD dollar negates the growth of US stocks.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.51%, the short government bond yield is 0.68% and the long government bond yield is 1.93%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guage1guage2guage3

Currency

The Brazilian Real (BZF), Canadian dollar (FXC), Australian dollar (FXA), Japanese Yen (FXY), Swedish Krona (FXS), Singapore dollar (FXSG), and Euro (FXE) are looking strong relative to the US dollar. Which is probably another way of saying that the US dollar is depreciating.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
In the US market, stocks have the advantage.
guage4
Also, in the Canadian market.
guage5

Global Markets

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

US Stocks

Yesterday’s closing price was 2,091.58. This is -0.13% lower than last week’s price (2,094.34), and 2.73% higher than last month’s price (2,035.94), and 11.43% higher than the price three months ago (1,877.08), and 3.60% higher than the price six months ago (2,018.94), and -1.38% lower than the price one year ago (2,120.79).The average P/E ratio of the S&P 100 (equal weighted) is 21.72. 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 4.60% (before dividends).

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

  • California Resources Corporatio (CRC)
  • Devon Energy Corporation Common (DVN)
  • Halliburton Company Common Stoc (HAL)
  • Conocophillips Common Stock (COP)
  • Anadarko Petroleum Corporation (APC)
  • Norfolk Southern Corporation Co (NSC)
  • Bristol-myers Squibb Company Co (BMY)
  • Blackrock, Inc. Common Stock (BLK)
  • Union Pacific Corporation Commo (UNP)
  • Occidental Petroleum Corporatio (OXY)
  • Schlumberger N.v. Common Stock (SLB)
  • Twenty-first Century Fox, Inc. (FOXA)
  • Chevron Corporation Common Stoc (CVX)
  • Bank Of New York Mellon Corpora (BK)
  • Twenty-first Century Fox, Inc. (FOX)
  • Capital One Financial Corporati (COF)
  • United Technologies Corporation (UTX)
  • Unitedhealth Group Incorporated (UNH)
  • Abbvie Inc. Common Stock (ABBV)
  • Caterpillar, Inc. Common Stock (CAT)
  • Gilead Sciences, Inc. (GILD)
  • Citigroup, Inc. Common Stock (C)
  • Johnson & Johnson Common Stock (JNJ)
  • Emerson Electric Company Common (EMR)
  • Fedex Corporation Common Stock (FDX)
  • Pfizer, Inc. Common Stock (PFE)
  • American Express Company Common (AXP)
  • Bank Of America Corporation Com (BAC)
  • Amazon.com, Inc. (AMZN)
  • Time Warner Inc. New Common Sto (TWX)

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 13,874.00. This is 1.12% higher than last week’s price (13,719.80), and 3.86% higher than last month’s price (13,358.10), and 14.25% higher than the price three months ago (12,143.20), and -0.03% lower than the price six months ago (13,878.10), and -8.18% lower than the price one year ago (15,110.50).The average P/E ratio of the TSX60 (equal weighted) is 24.99. 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 4.00% (before dividends).

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

  • Kinross Gold Corp. (K.to)
  • First Quantum Minerals Ltd (FM.to)
  • Yamana Gold Inc (YRI.to)
  • Teck Resources Limited (TCK-B.to)
  • Barrick Gold Corporation (ABX.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • Eldorado Gold (ELD.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Cdn Natural Res (CNQ.to)
  • Silver Wheaton Corp. (SLW.to)
  • Franco-nevada Corporation (FNV.to)
  • Goldcorp Inc (G.to)
  • Pembina Pipeline Corporation (PPL.to)
  • Dollarama Inc (DOL.to)
  • Husky Energy Inc. (HSE.to)
  • Arc Resources Ltd. (ARX.to)
  • National Bank Of Canada (NA.to)
  • Cenovus Energy Inc. (CVE.to)
  • Canadian Tire Corporation, Cl. (CTC-A.to)
  • Canadian Pacific Railway Limite (CP.to)
  • Inter Pipeline Ltd (IPL.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)
  • National Bank Of Canada (NA.to)

Other Assets

S&p/tsx Eqwt Glb Bm Hdgd T (ZMT.to), Silver Etf (HUZ.to), Natural Gas Etf (HUN.to), Crude Oil Etf (HUC.to), S&p/tsx Capped Composite E (ZCN.to), Spdr S&p 500 (SPY), S&p/tsx Capped Reit (XRE.to), Msci Eafe Cad-hedged (XIN.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$), US stocks (XUS in US$), 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
  • 3 units (60%) cash

Market Outlook, April 18, 2016

guage (4)

The oil price has dropped, which hurts the outlook for the Canadian market. Stocks still look slightly more attractive than bonds, both in Canada and the US. Strangely, Canadian small caps have outpaced large caps for the past couple weeks, and appear positioned to continue. It’s a good time to find bargains (if your expectations for the future aren’t too grim) and relative safety. Cheap REITs may the the best bet for the moment.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.49%, the short government bond yield is 0.58% 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.

Corporate bonds have the advantage over governments:
guageLong bonds are outperforming short bonds:

guage (1)

High quality bonds are preferable to high yield bonds:

guage (2)

Currency

The Brazilian Real (BZF), Japanese Yen (FXY), Australian Dollar (FXA), Canadian Dollar (FXC), Singapore Dollar (FXSG), Swedish Drona (FXS), and Euro (FXE) 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: stocks have a better outlook.
guage (3)
Canadian bonds vs. Canadian stocks: stocks look better, today.
guage (4)

Global Markets

  • Australia has changed 6.88% in price since last week’s close.
  • Brazil has changed 7.64% in price since last week’s close.
  • Peru has changed 14.23% in price since last week’s close.
  • South Africa has changed 5.69% in price since last week’s close.

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

US Stocks

Yesterday’s closing price was 2,080.73. This is 1.90% higher than last week’s price (2,041.99), and 1.97% higher than last month’s price (2,040.59), and 10.66% higher than the price three months ago (1,880.33), and 4.34% higher than the price six months ago (1,994.24), and -2.12% lower than the price one year ago (2,125.85).The average P/E ratio of the S&P 100 (equal weighted) is 21.43. 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 4.67% (before dividends).

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

  • Amazon.com, Inc. (AMZN)
  • Caterpillar, Inc. (CAT)
  • Accenture Plc  (ACN)
  • Visa Inc. (V)
  • United Technologies Corporation (UTX)
  • Emerson Electric Company (EMR)
  • Devon Energy Corporation (DVN)
  • Texas Instruments (TXN)
  • FedEx Corporation  (FDX)
  • Mcdonald’s Corporation  (MCD)
  • Amgen Inc. (AMGN)
  • Blackrock, Inc.  (BLK)
  • Bristol-myers Squibb Company (BMY)
  • Honeywell International Inc. (HON)
  • 3M Company (MMM)
  • Merck & Company, Inc. (MRK)

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)

Canadian Stocks

Yesterday’s closing price was 13,637.20. This is 1.60% higher than last week’s price (13,422.80), and 0.12% higher than last month’s price (13,621.30), and 14.19% higher than the price three months ago (11,942.20), and -1.39% lower than the price six months ago (13,829.00), and -9.52% lower than the price one year ago (15,072.80).The average P/E ratio of the TSX60 (equal weighted) is 24.71. 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 4.05% (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)
  • Potash Corp Of Sask Inc (POT.to)
  • National Bank Of Canada (NA.to)

Other Assets

Base metals (ZMT.to), Silver (HUZ.to), TSX Capped REIT (XRE.to), S&P 500 (SPY), TSX Capped Composite E (ZCN.to), Canadian Universe Bond (XBB.to), Crude Oil (HUC.to), MSCI EAFE Cad-hedged (XIN.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$), US stocks (XUS in US$), 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
  • 3 units (60%) bonds

Market Outlook, April 11, 2016

guage5

It appears that the market is taking a breather, waiting for financial data to catch up to the optimistic outlook that seemed to command the last couple weeks. This week looks like it will be flat at best. That also means it will probably be a little easier to find value this week than earlier.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.46%, the short government bond yield is 0.56% and the long government bond yield is 1.82%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.

Corporate bonds are performing slightly better than governments, but both are positive.
guage1

Long bonds are the place to be, although I couldn’t say why.

guage2

High quality have momentum, while high yield are out of favour.

guage3

In sum, long-term high-quality corporate bonds appear to be most in favour.

Currency

The Japanese Yen (FXY), Brazilian Real (BZF), Swedish Krona (FXS), Swiss Franc (FXF), Euro (FXE), Canadian dollar (FXC), Singapore dollar (FXSG), Australian dollar (FXA), Chinese Yuan (FXCH) 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:
guage4
Canadian bonds vs. Canadian stocks:
guage5

Global Markets

Comparing national stock markets, Turkey (TUR), Brazil (EWZ), New Zealand (ENZL), Russia (ERUS), Peru (EPU), South Africa (EZA), Chile (ECH), Malaysia (EWM), Denmark (EDEN), Philippines (EPHE), Belgium (EWK), Canada (EWC), Ireland (EIRL), Indonesia (EIDO), USA S&P 500 (IVV), South Korea (EWY), Poland (EPOL), Netherlands (EWN), Hong Kong (EWH), Mexico (EWW), Austria (EWO), Sweden (EWD), Singapore (EWS) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,047.60. This is -0.90% lower than last week’s price (2,066.13), and 2.92% higher than last month’s price (1,989.57), and 6.53% higher than the price three months ago (1,922.03), and 2.59% higher than the price six months ago (1,995.83), and -2.42% lower than the price one year ago (2,098.48).The average P/E ratio of the S&P 100 (equal weighted) is 21.02. 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 4.76% (before dividends).

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

  • Fedex Corporation Common Stock (FDX)
  • Mcdonald’s Corporation Common S (MCD)
  • Philip Morris International Inc (PM)
  • Accenture Plc Class A Ordinary (ACN)
  • Emerson Electric Company Common (EMR)
  • Visa Inc. (V)

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 13,396.70. This is 0.45% higher than last week’s price (13,336.20), and 0.13% higher than last month’s price (13,379.10), and 8.75% higher than the price three months ago (12,319.30), and -3.40% lower than the price six months ago (13,868.40), and -10.95% lower than the price one year ago (15,043.20).The average P/E ratio of the TSX60 (equal weighted) is 24.48. 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):

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

  • Potash Corp Of Sask Inc (POT.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • National Bank Of Canada (NA.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Bank Of Nova Scotia (BNS.to)

Other Assets

TSX Capped REIT (XRE.to), S&P 500 (SPY), Canadian Universe Bond (XBB.to), Silver (HUZ.to), Global Infrastructure (ZGI.to), Gold (IGT.to) are performing better than cash.
The gold price is neutral.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Portfolio

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

As of today, the theoretical portfolio would hold:

  • One unit (20%) real estate
  • 4 units (80%) bonds

Sell Discipline

A couple weeks ago, I got a little bit of money together and bought some stocks. Markets are a bit lower than a year ago, so it’s pretty hard to go wrong. Knowing which stocks to buy isn’t easy, but it’s not rocket science either. In the past, I’ve invested for value, for income and for momentum. I’ve had both good and bad luck and I’ve made both good and bad decisions. As an aside, my worst decision was “catching a falling knife.” Based on my experience and my understanding, my strategy is mainly a value approach, leaning toward GARP.

Now that I own stocks, I’m faced with new questions, to which I was insufficiently attentive before. Was I right or wrong to buy them? How can I tell if I was wrong? Right or wrong, when do I sell? The sell decision has just as much impact on long-term success as the buy decision, but less attention is paid to getting it right (70 per cent of the companies polled were not approaching the selling of stocks in a “highly disciplined” manner). Most investment managers articulate one or more of these three approaches to the sell decision: “when a price target is hit, an investment thesis has changed, or when a more desirable investment is found.”

Setting a target price for a stock at the time of purchase is a good idea. It helps an investor to quantify their expectation for a stock investment. Further, it gives a benchmark to evaluate stock performance over time. It doesn’t necessarily force the investor to sell the stock when the target is reached, but it provides a hint that the stock research should be re-done. This is an optimistic approach that answers the question: Was I right? When a stock reaches a target, I was right. Based on research, I can then either set a new target, take profit or sell the position.

The other two approaches, a change that affects the investment thesis and finding a more desirable investment, begin to address the cases where I was wrong. But I notice that both approaches skirt the possibility of making a mistake, and blame the problem on external factors: something in the environment has changed or it’s only performing poorly by comparison to others. (Avoiding responsibility is a subconscious human reaction.) But it also underlines the fact that it’s very hard to determine if a decision was right or wrong, especially based on a stock price that fluctuates by the second.

My preferred approach is based on program evaluation. It starts by asking: What is the purpose of the (investment) program? Possible answers may include: market-based return, beating the market, income, safety, meeting financial planning targets or being part of the next big thing. Next, each stock that goes into the portfolio should have a purpose, e.g. income, capital growth, diversification or speculation. Each should also have an evaluation criteria, e.g. income level, target price, volatility. Once a stock has been chosen and its purpose and evaluation criteria set, it is added to the portfolio. The buy portion is complete.

The sell portion begins after the purchase is made. I will suggest that the portfolio and each of its holdings should be evaluated somewhere between monthly and quarterly. Compare each stock against its criteria, based on its purpose in the portfolio. Is it meeting its objective, missing, or falling far short? Has anything changed?  If the stock is performing to expectations, no action is required, although targets may be updated. If it is exceeding expectations, the manager will have to decide between adding to the position (greater potential) and trimming the position (greater safety). If it is missing targets, the manager will have to decide between adding to the position (greater risk and potential) and cutting losses. If the stock is falling far short, it is probably best to admit a mistake and close the position, freeing up the capital for a better opportunity.

Setting a target price or income level makes sense over a long period of time, but evaluating progress quarterly will probably most make sense in comparison to the market. If the price of my stock is down, further from its target, but less than the market, I will assume that’s good news since it has performed better than expected, given prevailing headwinds.

The decision to sell is not an easy one. There is no clear signal that the best profit has already been earned or that the purchase was a mistake. But this reliance on judgement is what makes investment management so interesting.

 

Market Outlook, April 4, 2016

guage-4

In talking with a portfolio manager and in looking at the data, it appears that the market is taking a breather after rallying too far, too fast. The quick, deep correction in January was painful, and it was hard to see what fundamental information caused the pessimism. The outlook wasn’t good, but it hadn’t been for months. When the correction had run its course, the market rallied, again without the support of fundamental data. Both market movements seemed due to investor sentiment.

With many companies having completed Q4 reporting, the news wasn’t great. It wasn’t worse than expected, but it was positive enough to justify a rally of almost 10% over a month and a half. All this to say that the outlook is uncertain and stocks, while they looked attractive a couple weeks ago, could fluctuate quite a bit over the coming weeks.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.44%, the short government bond yield is 0.53% and the long government bond yield is 1.86%. 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.

Credit Environment

Corporate bonds (riskier) are performing better than government bonds (safer):
guage

Long-term bonds are performing better than short-term bonds:guage-1

High quality (safer) bonds are preferable to high yield bonds (riskier):guage-2

Currency

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

Equities

In both cases, bonds and stocks have approximately equal momentum.
US bonds vs. US stocks:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

Comparing national stock markets, Peru (EPU), Brazil (EWZ), Turkey (TUR), New Zealand (ENZL), Poland (EPOL), Chile (ECH), Russia (ERUS), Philippines (EPHE), Indonesia (EIDO), South Africa (EZA), Austria (EWO), Mexico (EWW), Malaysia (EWM), Canada (EWC), Ireland (EIRL), South Korea (EWY), Thailand (THD), Denmark (EDEN), Belgium (EWK), USA S&P 500 (IVV), Netherlands (EWN), Qatar (QAT), Singapore (EWS), Taiwan (EWT), Sweden (EWD), UAE (UAE), Germany (EWG), and Israel (EIS) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,072.78. This is 1.75% higher than last week’s price (2,037.05), and 3.98% higher than last month’s price (1,993.40), and 1.41% higher than the price three months ago (2,043.94), and 7.96% higher than the price six months ago (1,920.03), and -0.35% lower than the price one year ago (2,080.15).The average P/E ratio of the S&P 100 (equal weighted) is 21.29. 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 4.70% (before dividends).

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

  • Accenture Plc (ACN)
  • Exelon Corporation (EXC)
  • Fedex Corporation (FDX)
  • Facebook, Inc. (FB)
  • Mcdonald’s (MCD)
  • Philip Morris International (PM)
  • Emerson Electric Company (EMR)
  • Verizon Communications Inc. (VZ)
  • International Business Machines (IBM)
  • Oracle Corporation (ORCL)
  • Southern Company (the) (SO)
  • Microsoft Corporation (MSFT)
  • Coca-cola Company (the) (KO)
  • Unitedhealth Group Incorporated (UNH)
  • AT&T Inc. (T)

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 13,440.40. This is 0.37% higher than last week’s price (13,390.20), and 2.41% higher than last month’s price (13,123.70), and 3.97% higher than the price three months ago (12,927.20), and 1.00% higher than the price six months ago (13,307.00), and -11.42% lower than the price one year ago (15,173.90).The average P/E ratio of the TSX60 (equal weighted) is 24.74. 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 4.04% (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)
  • National Bank Of Canada (NA.to)
  • Potash Corp Of Sask Inc (POT.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

TSX Capped REIT (XRE.to), S&P 500 (SPY), TSX Capped Composite (ZCN.to), Natural Gas (HUN.to), Canadian Universe Bond (XBB.to) are performing better than cash.
The gold price is falling, which may indicate bullishness toward stocks.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XUS in US$), 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
  • 2 units (40%) bonds

Market Outlook, March 28, 2016

guage-4

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.43%, the short government bond yield is 0.56% and the long government bond yield is 1.89%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guageguage-1guage-2

Currency

The Brazilian Real (BZF), Australian Dollar (FXA), Singapore Dollar (FXSG), Japanese Yen (FXY), Canadian Dollar (FXC), Euro (FXE), Swedish Krona (FXS), Swiss Franc (FXF), and Chinese Yuan (FXCH) 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:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

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

US Stocks

Yesterday’s closing price was 2,035.94. This is -0.67% lower than last week’s price (2,049.58), and 4.32% higher than last month’s price (1,951.70), and -1.37% lower than the price three months ago (2,064.29), and 5.01% higher than the price six months ago (1,938.76), and -3.37% lower than the price one year ago (2,106.85).The average P/E ratio of the S&P 100 (equal weighted) is 20.97. 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 4.77% (before dividends).

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

  • California Resources Corporatio (CRC)
  • Exelon Corporation Common Stock (EXC)
  • Fedex Corporation Common Stock (FDX)
  • Accenture Plc Class A Ordinary (ACN)
  • Emerson Electric Company Common (EMR)
  • Caterpillar, Inc. Common Stock (CAT)
  • Oracle Corporation Common Stock (ORCL)
  • Chevron Corporation Common Stoc (CVX)
  • Philip Morris International Inc (PM)
  • Facebook, Inc. (FB)
  • Devon Energy Corporation Common (DVN)
  • Verizon Communications Inc. Com (VZ)
  • International Business Machines (IBM)
  • Honeywell International Inc. Co (HON)
  • At&t Inc. (T)
  • Mcdonald’s Corporation Common S (MCD)
  • United Parcel Service, Inc. Com (UPS)
  • General Electric Company Common (GE)
  • Southern Company (the) Common S (SO)

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 13,358.10. This is -1.03% lower than last week’s price (13,497.10), and 4.74% higher than last month’s price (12,753.60), and 0.55% higher than the price three months ago (13,284.90), and -0.19% lower than the price six months ago (13,383.70), and -12.95% lower than the price one year ago (15,346.10).The average P/E ratio of the TSX60 (equal weighted) is 24.66. 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 4.05% (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)
  • National Bank Of Canada (NA.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

Base Metals (ZMT.to), Natural Gas (HUN.to), TSX REIT (XRE.to), S&P 500 (SPY), S&P/TSX Capped Composite (ZCN.to), Crude Oil (HUC.to), Global Infrastructure (ZGI.to), Silver (HUZ.to), Gold (IGT.to), 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$), US stocks (XUS in US$), 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%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • 1 unit (20%) bonds

Market Outlook, March 21, 2016

guage-4

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.42%, the short government bond yield is 0.53% and the long government bond yield is 1.93%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guageguage-1guage-2

Currency

The Brazilian Real (BZF), Australian Dollar (FXA), Canadian Dollar (FXC), Japanese Yen (FXY), Swedish Krona (FXS), Singapore Dollar (FXSG), Euro (FXE), Swiss Franc (FXF), and Chinese Yuan (FXCH) 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:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

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

US Stocks

Yesterday’s closing price was 2,049.58. This is 1.48% higher than last week’s price (2,019.64), and 6.87% higher than last month’s price (1,917.78), and 0.38% higher than the price three months ago (2,041.89), and 2.98% higher than the price six months ago (1,990.20), and -3.00% lower than the price one year ago (2,112.93).The average P/E ratio of the S&P 100 (equal weighted) is 21.14. 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 4.73% (before dividends).

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

  • California Resources Corporation (CRC)
  • Devon Energy Corporation (DVN)
  • Anadarko Petroleum Corporation (APC)
  • Fedex Corporation (FDX)
  • Emerson Electric Company (EMR)
  • Conocophillips (COP)
  • Exelon Corporation (EXC)
  • Target Corporation (TGT)
  • Caterpillar, Inc. (CAT)
  • Chevron Corporation (CVX)
  • Oracle Corporation (ORCL)
  • Philip Morris International Inc (PM)
  • Halliburton Company (HAL)
  • Time Warner Inc. New (TWX)
  • Mcdonald’s Corporation (MCD)
  • Dow Chemical Company (the) (DOW)
  • Intel Corporation (INTC)
  • At&t Inc. (T)
  • United Technologies Corporation (UTX)
  • Facebook, Inc. (FB)
  • Verizon Communications Inc. (VZ)
  • E.i. Du Pont De Nemours (DD)
  • Boeing Company (the) (BA)
  • Accenture Plc (ACN)
  • General Electric Company (GE)
  • International Business Machines (IBM)
  • Simon Property Group, Inc. (SPG)
  • 3m Company (MMM)
  • Texas Instruments Incorporated (TXN)
  • Blackrock, Inc. (BLK)
  • United Parcel Service, Inc. (UPS)
  • Unitedhealth Group Incorporated (UNH)

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)

Canadian Stocks

Yesterday’s closing price was 13,497.10. This is 0.15% higher than last week’s price (13,477.50), and 5.34% higher than last month’s price (12,813.40), and 3.74% higher than the price three months ago (13,009.90), and -2.10% lower than the price six months ago (13,787.20), and -11.81% lower than the price one year ago (15,304.80).The average P/E ratio of the TSX60 (equal weighted) is 24.74. 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 4.04% (before dividends).

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

  • First Quantum Minerals Ltd (FM.to)
  • Teck Resources Limited (TCK-B.to)
  • Encana Corp. (ECA.to)
  • Barrick Gold Corporation (ABX.to)
  • Yamana Gold Inc (YRI.to)
  • Cdn Natural Res (CNQ.to)
  • Kinross Gold Corp. (K.to)
  • Franco-nevada Corporation (FNV.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Silver Wheaton Corp. (SLW.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Snc-lavalin Sv (SNC.to)
  • Husky Energy Inc. (HSE.to)
  • Bank Of Nova Scotia (BNS.to)
  • Cenovus Energy Inc. (CVE.to)
  • Saputo Inc. (SAP.to)
  • Goldcorp Inc (G.to)
  • Enbridge Inc (ENB.to)
  • National Bank Of Canada (NA.to)
  • Loblaw Co (L.to)
  • Restaurant Brands International (QSR.to)
  • Magna International Inc (MG.to)
  • Metro Inc (MRU.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Inter Pipeline Ltd (IPL.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)
  • National Bank Of Canada (NA.to)

Other Assets

S&P/TSX Base Metals (ZMT.to), Crude Oil (HUC.to), S&P/TSX Capped REIT (XRE.to), S&P 500 (SPY), Silver (HUZ.to), S&P/TSX Capped Composite (ZCN.to), Natural Gas (HUN.to), Global Infrastructure (ZGI.to), MSCI EAFE (hedged) (XIN.to), and Gold (IGT.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$), US stocks (XUS in US$), 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%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • 1 unit (20%) cash

Market Outlook, March 14, 2016

guage (4)

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.44%, the short government bond yield is 0.58% and the long government bond yield is 1.97%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.

Government vs. Corporate bonds:
guage

Short vs. Long bonds:guage (1)

High Quality vs. High Yield bonds:guage (2)

Currency

The Brazilian Real (BZF), Australian Dollar (FXA), Canadian Dollar (FXC), Singapore Dollar (FXSG), Japanese Yen (FXY), and Swedish Krona (FXS) 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:
guage (3)
Canadian bonds vs. Canadian stocks:
guage (4)

Global Markets

  • Austria Inv has changed 5.34% in price since last week’s close.
  • Spain has changed 5.57% in price since last week’s close.

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

US Stocks

Yesterday’s closing price was 2,022.19. This is 1.02% higher than last week’s price (2,001.76), and 10.56% higher than last month’s price (1,829.08), and -1.46% lower than the price three months ago (2,052.23), and 3.58% higher than the price six months ago (1,952.29), and -3.93% lower than the price one year ago (2,104.99).

The average P/E ratio of the S&P 100 (equal weighted) is 20.80. 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 4.81% (before dividends).

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

  • Exelon Corporation (EXC)
  • The Priceline Group Inc. (PCLN)
  • Target Corporation (TGT)
  • Halliburton Company (HAL)
  • Caterpillar, Inc. (CAT)
  • International Business Machines (IBM)
  • Qualcomm Incorporated (QCOM)
  • Philip Morris International Inc (PM)
  • Kinder Morgan, Inc. (KMI)
  • Chevron Corporation (CVX)
  • Emerson Electric Company (EMR)
  • Unitedhealth Group Incorporated (UNH)
  • Facebook, Inc. (FB)
  • Simon Property Group, Inc. (SPG)
  • AT&T Inc. (T)
  • Accenture Plc (ACN)
  • Paypal Holdings, Inc. (PYPL)
  • Amazon.com, Inc. (AMZN)
  • Cisco Systems, Inc. (CSCO)
  • Time Warner Inc. (TWX)
  • Twenty-first Century Fox, Inc. (FOX)
  • Blackrock, Inc. (BLK)
  • Verizon Communications Inc. (VZ)
  • Metlife, Inc. (MET)
  • Twenty-first Century Fox, Inc. (FOXA)
  • United Technologies Corporation (UTX)
  • General Electric Company (GE)
  • Mondelez International, Inc. (MDLZ)
  • Home Depot, Inc. (the) (HD)
  • Conocophillips  (COP)
  • Ford Motor Company  (F)
  • Texas Instruments Incorporated (TXN)

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 13,522.00. This is 1.03% higher than last week’s price (13,383.60), and 11.87% higher than last month’s price (12,087.40), and 3.88% higher than the price three months ago (13,016.60), and -0.35% lower than the price six months ago (13,569.90), and -12.48% lower than the price one year ago (15,450.90).

The average P/E ratio of the TSX60 (equal weighted) is 27.65. 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 3.62% (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)
  • National Bank Of Canada (NA.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

TSX Capped Composite (ZCN.to), S&P 500 (SPY), MSCI EAFE (hedged) (XIN.to), TSX Capped REIT (XRE.to), Crude Oil (HUC.to), Gold (IGT.to), Silver (HUZ.to), Base Metals (ZMT.to), Global Infrastructure (ZGI.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$), US stocks (XUS in US$), 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%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks

Market Outlook, March 7, 2016

Risk on: If anyone is still sitting on the sidelines, it looks like it’s time to invest. It won’t be a smooth ride, but we can expect more ups than downs, from the way the markets look right now.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.45%, the short government bond yield is 0.52% and the long government bond yield is 1.91%. 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.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guage Government bonds are in greater favour than corporate bonds.

guage (1) Short bonds are in greater favour than long bonds.

guage (2)High yield bonds are in greater favour than high quality bonds.

Currency

The Australian dollar (FXA), Japanese yen (FXY), Brazilian Real (BZF), Canadian dollar (FXC), 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 bonds vs. US stocks:

Canadian bonds vs. Canadian stocks:

Global Markets

  • Australia has changed 10.12% in price since last week’s close.
  • Brazil has changed 24.89% in price since last week’s close.
  • Chile has changed 6.12% in price since last week’s close.
  • China has changed 7.75% in price since last week’s close.
  • Hong Kong  has changed 5.52% in price since last week’s close.
  • India has changed 10.43% in price since last week’s close.
  • Indonesia has changed 7.78% in price since last week’s close.
  • Italy has changed 5.57% in price since last week’s close.
  • Malaysia has changed 7.72% in price since last week’s close.
  • Mexico has changed 6.56% in price since last week’s close.
  • New Zealand has changed 5.43% in price since last week’s close.
  • Norway has changed 8.58% in price since last week’s close.
  • Peru has changed 10.23% in price since last week’s close.
  • Philippines has changed 5.02% in price since last week’s close.
  • Russia has changed 11.59% in price since last week’s close.
  • Singapore has changed 10.75% in price since last week’s close.
  • South Africa has changed 12.96% in price since last week’s close.
  • South Korea has changed 7.43% in price since last week’s close.
  • Spain has changed 6.20% in price since last week’s close.
  • Taiwan has changed 6.02% in price since last week’s close.
  • Thailand has changed 5.96% in price since last week’s close.
  • Turkey has changed 8.34% in price since last week’s close.
  • UAE has changed 5.67% in price since last week’s close.

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

US Stocks

Yesterday’s closing price was 1,999.99. This is 3.51% higher than last week’s price (1,932.23), and 4.41% higher than last month’s price (1,915.45), and -2.42% lower than the price three months ago (2,049.62), and 2.62% higher than the price six months ago (1,948.86), and -4.36% lower than the price one year ago (2,091.18).

The average P/E ratio of the S&P 100 (equal weighted) is 20.65. 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 4.84% (before dividends).

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

  • The Priceline Group Inc. (PCLN)
  • Target Corporation (TGT)
  • Qualcomm Incorporated (QCOM)
  • Amazon.com, Inc. (AMZN)
  • Cisco Systems, Inc. (CSCO)
  • Ford Motor Company  (F)
  • Conocophillips  (COP)
  • Altria Group, Inc. (MO)
  • General Electric Company (GE)
  • Philip Morris International Inc (PM)
  • Simon Property Group, Inc. (SPG)
  • Emerson Electric Company (EMR)
  • UnitedHealth Group Incorporated (UNH)

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 13,212.50. This is 2.74% higher than last week’s price (12,860.40), and 3.43% higher than last month’s price (12,774.50), and -0.84% lower than the price three months ago (13,324.70), and -2.46% lower than the price six months ago (13,545.30), and -13.15% lower than the price one year ago (15,213.60).

The average P/E ratio of the TSX60 (equal weighted) is 26.45. 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 3.78% (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)
  • Barrick Gold Corporation (ABX.to)
  • Bombardier Inc., Cl. B (BBD-B.to)
  • Kinross Gold Corp. (K.to)
  • Yamana Gold Inc (YRI.to)
  • Silver Wheaton Corp. (SLW.to)
  • Snc-lavalin Sv (SNC.to)
  • Franco-nevada Corporation (FNV.to)
  • Cdn Natural Res (CNQ.to)
  • Eldorado Gold (ELD.to)
  • Saputo Inc. (SAP.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Canadian Tire Corporation (CTC-A.to)
  • Inter Pipeline Ltd (IPL.to)
  • Canadian Oil Sands Limited (COS.to)
  • Constellation Software Inc. (CSU.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Metro Inc (MRU.to)
  • Goldcorp Inc (G.to)
  • Restaurant Brands International (QSR.to)

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

  • Crescent Point Energy Corp. (CPG.to)
  • National Bank Of Canada (NA.to)
  • Power Corporation Of Canada (POW.to)
  • Bank Of Nova Scotia (BNS.to)
  • Canadian Imperial Bank Of Commerce (CM.to)
  • Encana Corp. (ECA.to)
  • Bank Of Montreal (BMO.to)
  • Royal Bank Of Canada (RY.to)

Other Assets

S&P/TSX Capped Composite E (ZCN.to), S&P 500 (SPY), MSCI EAFE (CDN$) (XIN.to), S&P/TSX Capped REIT (XRE.to), Gold (IGT.to), Silver (HUZ.to), S&P/TSX Base Metals (ZMT.to), Global Infrastructure (ZGI.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XUS in US$), 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%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • 1 unit (20%) cash