Interest Rates

yieldcurveThe 30-day T-bill rate is 0.42%, the short government bond yield is 0.42% and the long government bond yield is 1.87%.

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 (1)

guage (2)Currency

The US dollar currently appears to be the strongest currency.
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

  • Brazil Inde has changed 9.68% in price since last week’s close.
  • Chile Inves has changed 5.87% in price since last week’s close.
  • Malaysia Fun has changed 6.57% in price since last week’s close.
  • Mexico Inve has changed 6.38% in price since last week’s close.
  • All Peru Et has changed 5.15% in price since last week’s close.
  • Philippines has changed 8.14% in price since last week’s close.
  • Qatar has changed 7.79% in price since last week’s close.
  • Russia has changed 8.21% in price since last week’s close.
  • South Africa has changed 11.43% in price since last week’s close.
  • Turkey Investable has changed 7.08% in price since last week’s close.

Comparing national stock markets, Indonesia (EIDO) is rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was $1,940.24. This is 3.36% higher than last week’s price ($1,877.08), and -5.97% lower than last month’s price ($2,063.36), and -7.14% lower than the price three months ago ($2,089.41), and -7.99% lower than the price six months ago ($2,108.63), and -7.65% lower than the price one year ago ($2,101.04).

The average P/E ratio of the S&P 100 (equal weighted) is 19.30. This implies the market is fairly priced. This implies a forward capital return of 5.18% (before dividends).

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

  • Facebook, Inc. (FB)
  • Mcdonald’s Corporation Common S (MCD)

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

  • Conocophillips Common Stock (COP)
  • Ford Motor Company Common Stock (F)
  • General Motors Company Common S (GM)
  • Metlife, Inc. Common Stock (MET)

Canadian Stocks

Yesterday’s closing price was $12,822.10. This is 5.59% higher than last week’s price ($12,143.20), and -1.44% lower than last month’s price ($13,010.00), and -5.23% lower than the price three months ago ($13,529.20), and -10.35% lower than the price six months ago ($14,301.80), and -14.99% lower than the price one year ago ($15,082.80).

The average P/E ratio of the TSX60 (equal weighted) is 26.75. 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 3.74% (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)
  • Agnico Eagle Mines Limited (AEM.to)
  • Cgi Group Inc., Cl.a, Sv (GIB-A.to)
  • Canadian Oil Sands Limited (COS.to)
  • Fortis Inc (FTS.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)
  • National Bank Of Canada (NA.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Bank Of Nova Scotia (BNS.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Yamana Gold Inc (YRI.to)
  • Bank Of Montreal (BMO.to)
  • Potash Corp Of Sask Inc (POT.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.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XUS in US$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) of gold
  • 4 units (80%) cash
Market Outlook, February 1, 2016

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