Note: I have found a solution to continue posting my market outlook. It isĀ an expansion on what I did previously. I believe there is still room for improvement, but I’ll resume posting on Mondays going forward. I’d be interested to hear feedback on this format, and also what could be added or improved.

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.43%, the short government bond yield is 0.50% and the long government bond yield is 2.01%. 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.
ZFLZLCXLBXSBLQDHYG

Currency

Japan (FXY) is 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 vs. US stocks:
AGGSPY
Canadian bonds vs. Canadian stocks:
XBBZCN

Global Markets

Comparing regional markets, all hedged to Canadian dollars. Core S&P 500 (XUS.to), FTSE Dev Europe All C (VE.to) are rising, while other regions appear to be neutral or falling.

US Stocks

The average P/E ratio of the S&P 100 (equal weighted) is 21.15. 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 4.73% (before dividends).

The following stocks appear to present short-term opportunities for price increase:

  • Amazon.com, Inc. (AMZN)
  • Alphabet Inc. (GOOG)
  • Alphabet Inc. (GOOGL)
  • Mcdonald’s Corporation Common S (MCD)
  • Raytheon Company Common Stock (RTN)
  • Microsoft Corporation (MSFT)
  • General Electric Company Common (GE)

These stocks appear to be priced attractively from a long-term perspective (buy low):

  • Conocophillips Common Stock (COP)
  • Philip Morris International Inc (PM)
  • Exelon Corporation Common Stock (EXC)
  • Chevron Corporation Common Stoc (CVX)

Canadian Stocks

The average P/E ratio of the TSX60 (equal weighted) is 29.47. 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 3.39% (before dividends).

The following stocks appear to present short-term opportunities for price increase:

  • Blackberry Limited (BB.to)
  • Barrick Gold Corporation (ABX.to)
  • Valeant Pharmaceuticals Intl In (VRX.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Franco-nevada Corporation (FNV.to)

These stocks appear to be priced attractively from a long-term perspective (buy low):

  • Husky Energy Inc. (HSE.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • Yamana Gold Inc (YRI.to)
  • Arc Resources Ltd. (ARX.to)
  • Potash Corp Of Sask Inc (POT.to)
  • Cenovus Energy Inc. (CVE.to)
  • Pembina Pipeline Corporation (PPL.to)
  • Power Corporation Of Canada, Sv (POW.to)

Other Assets

Canadian Universe Bond (XBB.to) is the only asset class 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 Alberta provincial government’s revenues.

Market Outlook, December 29, 2015

Leave a Reply

Your email address will not be published. Required fields are marked *