Interest Rates

yieldcurveThe 30-day T-bill rate is 0.44%, the short government bond yield is 0.37% and the long government bond yield is 1.79%. 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 (1)guage (2)

Currency

Singapore dollar (FXSG), Japanese Yen (FXY), Brazilian Real Ā (BZF), Swedish Krona (FXS) are 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

  • Italy has changed -5.14% in price since last week’s close.

Comparing national stock markets, Indonesia (EIDO), Chile (ECH), Turkey (TUR), Thailand (THD) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 1,880.05. This is -3.06% lower than last week’s price (1,939.38), and -3.24% lower than last month’s price (1,943.09), and -10.47% lower than the price three months ago (2,099.93), and -9.77% lower than the price six months ago (2,083.56), and -9.00% lower than the price one year ago (2,065.95).

The average P/E ratio of the S&P 100 (equal weighted) is 18.89. This implies the market is fairly priced. This implies a forward capital return of 5.29% (before dividends).

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

  • Exelon Corporation Common Stock (EXC)
  • Verizon Communications Inc. Com (VZ)
  • AT&T Inc. (T)

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

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

Canadian Stocks

Yesterday’s closing price was 12,764.00. This is 0.71% higher than last week’s price (12,674.40), and 2.56% higher than last month’s price (12,445.50), and -5.82% lower than the price three months ago (13,553.30), and -11.40% lower than the price six months ago (14,405.90), and -13.40% lower than the price one year ago (14,739.20).

The average P/E ratio of the TSX60 (equal weighted) is 25.62. 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 3.90% (before dividends).

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

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

  • 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)
  • Bank Of Montreal (BMO.to)

Other Assets

Canadian Universe Bond (XBB.to), Gold (IGT.to), Silver (HUZ.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.

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%) bonds
Market Outlook, February 8, 2016

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