We’re in a bear market, in Canada. Value investors will likely find bargains, but prices appear likely to fall further before the recovery begins. The US stock market still seems to have the advantage over the Canadian stock market, but anyone who’s looking for a short-term gain would do well to consider gold, as a safe haven at the least. It’s interesting to see that the stock of gold producers seems to be the best of a bad bunch right now.

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.36%, the short government bond yield is 0.33% and the long government bond yield is 1.91%. The yield curve is inverted in the short end. The Bank of Canada prime rate may rise to slow inflation and economic activity.

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 Japanese Yen is the only currency 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:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

  • Canada has changed -5.39% in price since last week’s close.
  • China has changed -5.45% in price since last week’s close.
  • Qatar has changed -7.02% in price since last week’s close.
  • Russia has changed -7.59% in price since last week’s close.
  • Saudi Arabia Cappe has changed -7.17% in price since last week’s close.
  • South Africa has changed -5.28% in price since last week’s close.

Comparing national stock markets, all regional markets are flat or falling. It may be time to consider a safe haven, such as bonds, cash or gold.

US Stocks

Yesterday’s closing price was 1,880.33. This is -2.25% lower than last week’s price (1,923.67), and -9.30% lower than last month’s price (2,073.07), and -7.51% lower than the price three months ago (2,033.11), and -11.58% lower than the price six months ago (2,126.64), and -10.90% lower than the price one year ago (2,110.30).

The average P/E ratio of the S&P 100 (equal weighted) is 19.17. This implies the market is fairly priced. This implies a forward capital return of 5.22% (before dividends).

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

  • Conocophillips Common Stock (COP)
  • Metlife, Inc. Common Stock (MET)
  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)
  • Occidental Petroleum Corporatio (OXY)
  • Exelon Corporation Common Stock (EXC)

Canadian Stocks

Yesterday’s closing price was 12,073.50. This is -2.00% lower than last week’s price (12,319.30), and -6.55% lower than last month’s price (12,919.60), and -12.75% lower than the price three months ago (13,838.10), and -17.66% lower than the price six months ago (14,662.30), and -20.64% lower than the price one year ago (15,212.80).

The average P/E ratio of the TSX60 (equal weighted) is 25.36. 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):

  • Agnico Eagle Mines Limited (AEM.to)
  • Barrick Gold Corporation (ABX.to)

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

  • Husky Energy Inc. (HSE.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Arc Resources Ltd. (ARX.to)
  • Potash Corp Of Sask Inc (POT.to)
  • Encana Corp. (ECA.to)
  • Teck Resources Limited (TCK-B.to)
  • National Bank Of Canada (NA.to)
  • Bank Of Nova Scotia (BNS.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Bank Of Montreal (BMO.to)
  • Inter Pipeline Ltd (IPL.to)
  • Royal Bank Of Canada (RY.to)

Other Assets

Canadian Universe Bond (XBB.to), Gold Trust (IGT.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.

Market Outlook, January 18, 2016

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