Market Outlook April 20, 2015

Inflation is a bit higher. What’s strange is that core inflation (2.4%) is higher than top line inflation (1.2%). That means fuel and food costs have very low inflation (or deflation), which I can see at the gas pumps. Normally, that should result in a “wealth effect”, where people spend more money elsewhere, since they’re saving it on gas. But in Alberta, that was pre-empted by the announcement of tax increases.

Surprisingly, Chinese stocks (FXI) are holding up, hardly changed from last week’s big jump. Emerging stocks (XEM) and European stocks (XIN) both have decent momentum. Canadian large caps (XIU) also look okay, better than US large and small caps.

I’m surprised to see this penny stock on the TSX60. If you like playing with fire, Penn West (PWT) appears to have potential. Canadian Oil Sands (COS) has similar momentum, but seems far more attractive. CCT and VRX continue to present impressive momentum, and now ERF can be added to that list. I’m happy to see so many good performers.

American stocks are struggling, so it’s harder to find opportunities. Amazon (AMZN) still appears well-positioned. Apache Corp (APA), an independent energy company, is the only other company that seems to have good momentum.

Market Outlook April 13, 2015

Interests rates inched up and, consequently, bonds fell back a little. Stocks continue to move ahead. The TSX 60 has hit a new high compared to any week since September 12, 2014. That means we’re back at the same level we were exactly seven months ago.

Remember what I said last week about Chinese stocks having the best momentum? And that I would ignore it, because it seemed to be a blip from a few months ago that was still working its way through the model? Well Chinese stocks (FXI) has a mind-bogglingly good week.

Chinese stocks (not surprisingly) continue to dominate the momentum. The funny thing about stock markets is that performance is generally asymmetrical. They rise slowly most of the time, but they fall quickly. The movements aren’t random, but fortunes are won slowly and lost quickly. It takes a lot of patience to win, but just one mistake to lose. Maybe that’s why human beings are generally terrible at investing.

Market Outlook April 6, 2015

Happy Easter! Markets were closed for Good Friday, but are open again today during regular hours.

Interest rates have fallen again, and are extremely low. That doesn’t reflect confidence in the economy. In fact, the interest rate and inflation rate indicators imply quite a weak economy.

My momentum model shows Chinese stocks (FXI) have the most promising outlook. However, it has had large, single-week jumps a couple times over the past few months, and I wouldn’t act on it this time. European stocks (XIN) still have good momentum, and holding it would keep transaction costs down.

Market Outlook March 30, 2015

Stock market outlook: not that great. I am seeing a lot of volatility, which doesn’t bode well. Investors don’t like volatility, and tend to respond by moving to safety. Interest rates have risen a little, but the economy still does not look strong. Man, this correction that began in 2008 is sure dragging on!

European stocks still have the momentum advantage. Having said that, they don’t have a great deal of momentum. Not to mention that my model, while performing quite well over 14 years, has recently shed a lot of value. It peaked on May 7, 2014 (beginning with a backtest going to Jan 1, 2000). In the ensuing year, it has lost about 30%. It has been very volatile, but never to this extent, especially when the TSX 60 was relatively stable.

In US stocks, WAG, UNH and BMY still appear relatively attractive. LOW has dropped off and been replaced by TGT.

In Canadian stocks, only VRX looks really attractive, and that comes mainly from a price spike in late February. Lately, the trend has been downward (or reversion to the mean).

Market Outlook March 23, 2015

Interest rates have fallen again. Normally I would suggest that bond values are higher, but this time I’m going to point out that interest rates are volatile. The economy is less predictable than usual and optimism does not appear to be high.

The asset rotation model continues to favour XIN. Either European stocks are doing well or the Canadian dollar is doing badly (or both). But I don’t trade currencies, so I’m not really interested in which it is.

Canadian stocks that look appealing include VRX, BAM.A and AGU.

American stocks that may be profitable in the short term include BMY, MAG and UNH.

Market Outlook March 8, 2015

Interest rates have bounced back up (a bit) from rock bottom, where they were last week. As a result, bond values fell. China also fell, right when I thought it was an attractive buy. Ouch! It looks like it’s back to holding European stocks (XIN).

Some American names that look promising, along with those I mentioned last week, include UnitedHealth Group (UNH) and Bristol-Myers Squibb (BMY).

Canadian names from last week also remain attractive, but now include Brookfield Asset Management (BAM.a).

In other news, the Apple Watch announcement is today. I’m not buying one until it’s suitable for swimmers.

Market Outlook March 2, 2015

Interest rates are extremely low. Total inflation has fallen to 1.0%. That’s the very bottom of the Bank of Canada’s target range for inflation (1%-3%). This is when they start to think about doing something to boost the economy. I was even more surprised by real return bonds, which have fallen to 0.05% annually. They pay (virtually) no interest! That’s not a vote of confidence in the current investment environment.

Over the past four weeks, stocks have shown an advantage over bonds in comparing their relative momentum. However, the lead is slim, and I’m not prepared to guess that it will necessarily remain.

Comparing various asset classes, Chinese stocks (FXI) have surged lately, and now have the advantage. Others have been volatile, but US stocks (IWM, SPY) continue to show strength. Bonds remain positive, but not strong, and gold has turned negative, so it doesn’t appear to be time to hunker down. The next few weeks are likely to be bumpy, but tolerable.

In the US, Lowes (LOW), Disney (DIS) and Walgreen (WAL) still look good, along with Home Depot (HD). Is it home renovation season?

In Canada, Valeant (VRX) experienced a huge jump about three weeks ago, which distorts the momentum. Agrium (AGU), Talisman (TLM) and First Quantum Minerals (FM) all appear attractive. Can you imagine, resource stocks in Canada?

Market Outlook February 23, 2015

This is not very good news. Interest rates are really low, but somehow, they are still falling slightly lower. The economy doesn’t seem to be strengthening, and there appears to be general panic (here in Canada) about the falling price of oil. In manufacturing countries, I’m sure they are happy, as the cost of a major input falls.

The stock market seems to be struggling. The asset class that has the best momentum is European stocks (XIN), but as I’ve said before, it’s doing well in Canadian dollar terms, likely mainly because the Canadian dollar is so weak. US small caps (IWM) and large caps (SPY) are also well-positioned for continued growth.

The most attractive of US large caps this week appear to be Amazon (AMZN), Beoing (BA), Walgreen (WAG), Lowes (LOW) and The Walt Disney Company (DIS). Among Canadian large caps, I like the looks of VRX and BAM.A.

Market Outlook February 16, 2015

It’s a holiday today, so market’s aren’t open.

Interest rates have crept up a small amount, but remain so low that they will be supportive of business growth. That’s not so good for bondholders, and it may be time to consider taking profits.

Emerging market stocks (XEM) have taken the lead in momentum. European stocks, Canadian large caps and US large caps are all well-positioned to continue short-term growth.

The last six months have been painful, but it starts to look like the stock market may be ready for positive performance. Here’s hoping! (Hope is not a strategy.)

Market Outlook February 9, 2015

When I last wrote, gold (IGT) had the greatest momentum. After that, Chinese stocks briefly took the lead, but gold has been in favour over the past four weeks. This is likely due to a price jump about three weeks ago (when the Bank of Canada dropped interest rates?), so it makes sense to see what other asset classes are showing positive momentum. These include emerging markets (XEM) and European stocks (FXI), although the latter is hedged to C$, which are weakening, and that may be the source of the positive performance.

Even though interest rates were already low, the central bank has reduced prime. That’s good for bond owners, but not prospective buyers. In the longer term, lower rates should spur economic activity, which would produce stock market growth. Time will tell.

Some stocks to look at this week (none of which I own) might include: Valeant (VRX), Metro (MRU), AgnicoEagle (AEM) which may regress as gold prices return to the mean, Amazon (AMZN), Lowes (LOW), and, for gamblers, a penny stock: LTS.