Interest Rates

yieldcurveThe 30-day T-bill rate is 0.42%, the short government bond yield is 0.50% and the long government bond yield is 2.04%. 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.
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Currency

Only the Japanese Yen (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 and US stocks appear about even. This is a little strange, since they’re supposed to move in opposite directions. Stocks have been fluctuating up and down. It’s time to be patient.
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Canadian bonds are in greater favour than Canadian stocks. The stock market appears set to stagnate for the next couple weeks.
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Global Markets

Comparing national stock markets, New Zealand (ENZL), Ireland (EIRL), Belgium (EWK), and Denmark (EDEN) are rising, fewer than last week, while other regions appear to be neutral or falling.

US Stocks

The average P/E ratio of the S&P 100 (equal weighted) is 20.83. This implies the market is slightly overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 4.80% (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)
  • Alphabet Inc. (GOOG)
  • Alphabet Inc. (GOOGL)
  • General Electric Company Common (GE)
  • Mcdonald’s Corporation Common S (MCD)
  • Microsoft Corporation (MSFT)

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

  • Conocophillips Common Stock (chart)
  • Exelon Corporation Common Stock (chart)

Canadian Stocks

The average P/E ratio of the TSX60 (equal weighted) is 27.00. 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 3.70% (before dividends).

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

  • Blackberry Limited (BB.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):

  • Husky Energy Inc. (chart)
  • Crescent Point Energy Corp. (chart)
  • Arc Resources Ltd. (chart)
  • Potash Corp Of Sask Inc (chart)
  • Encana Corp. (chart)
  • National Bank Of Canada (chart)
  • Bank Of Nova Scotia (chart)
  • Teck Resources Limited (chart)
  • Power Corporation Of Canada, Sv (chart)
  • Canadian Imperial Bank Of Comme (chart)

It’s interesting to see a number of financials and it may be profitable to take a closer look. This could be a buying opportunity.

Other Assets

Canadian Universe Bond (XBB.to), GOLD TRUST (IGT.to) are performing better than cash, which corresponds to a cautious, risk-averse outlook.
The gold price is neutral.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Market Outlook, January 4, 2016

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