Last week was a roller coaster. I know people who bought at the bottom and I know people who sold at the bottom. The difference is what they are trying to achieve. We likely have a bumpy ride ahead of us, so sitting on the sidelines might save some stress. But if you’re a long-term investor, many potential purchases look cheap. Especially oil & gas stocks, but also banks and others. Maybe I’ll put together a list later this week.

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.44%, the short government bond yield is 0.46% and the long government bond yield is 1.88%. The yield curve is normal.

Long government bonds appear very overvalued. This makes sense when everyone would rather own bonds than stocks or other risky assets. But it provides precious little return to investors, and creates risk of capital losses for anyone who doesn’t directly hold individual bonds (which mature at par).

Credit Environment

The market prefers government bonds to corporate bonds:
guage

Slight preference for short bonds over long bonds (expecting interest rates to rise?)

guage-1

And preference for high quality over high yield (much like the first guage).

guage-2

Currency

The Japanese Yen continues to look strong relative to the US dollar, but it’s the only currency (of the ones I watch) that seems to be holding up so well. The Canadian dollar has been losing value compared to the US dollar, although the last couple days may be the start of a turnaround (if the oil price continues to recover; we seem to have a real petro-dollar).

Equities

Where does there appear to be more opportunity right now?
US bonds are in favour over US stocks:
guage-3
Canadian bonds vs. Canadian stocks likewise:
guage-4

Global Markets

  • Australia Fu has changed 5.91% in price since last week’s close.
  • Canada has changed 5.48% in price since last week’s close.
  • Malaysia Fun has changed 5.99% in price since last week’s close.
  • Norway has changed 5.06% in price since last week’s close.
  • Russia has changed 7.68% in price since last week’s close.
  • South Africa has changed 5.22% in price since last week’s close.

As noted, some regional markets have recovered some of the pull-back or correction that occurred during the beginning of the year. Having said that, no national stock markets appear to have positive momentum. There will be a little ways further to recover before I am satisfied that the correction is finished. If you bought stocks on Wednesday, you are braver than me.

US Stocks

Yesterday’s closing price was $1,906.90. This is 1.41% higher than last week’s price ($1,880.33), and -6.48% lower than last month’s price ($2,038.97), and -7.09% lower than the price three months ago ($2,052.51), and -9.29% lower than the price six months ago ($2,102.15), and -9.66% lower than the price one year ago ($2,110.74).

The average P/E ratio of the S&P 100 (equal weighted) is 19.52. This implies the market is fairly priced. This implies a forward capital return of 5.12% (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)
  • General Motors Company Common S (GM)
  • Occidental Petroleum Corporatio (OXY)
  • Metlife, Inc. Common Stock (MET)
  • Ford Motor Company Common Stock (F)
  • Exelon Corporation Common Stock (EXC)
  • Devon Energy Corporation Common (DVN)

Canadian Stocks

Yesterday’s closing price was $12,389.60. This is 3.75% higher than last week’s price ($11,942.20), and -5.30% lower than last month’s price ($13,082.90), and -11.21% lower than the price three months ago ($13,953.70), and -13.40% lower than the price six months ago ($14,307.10), and -18.64% lower than the price one year ago ($15,228.60).

The average P/E ratio of the TSX60 (equal weighted) is 25.85. 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 3.87% (before dividends).

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

  • Barrick Gold Corporation (ABX.to)

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

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

Other Assets

Gold Trust (IGT.to) is the only asset class 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 25, 2016

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