Risk on: If anyone is still sitting on the sidelines, it looks like it’s time to invest. It won’t be a smooth ride, but we can expect more ups than downs, from the way the markets look right now.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.45%, the short government bond yield is 0.52% and the long government bond yield is 1.91%. 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.
guage Government bonds are in greater favour than corporate bonds.

guage (1) Short bonds are in greater favour than long bonds.

guage (2)High yield bonds are in greater favour than high quality bonds.

Currency

The Australian dollar (FXA), Japanese yen (FXY), Brazilian Real (BZF), Canadian dollar (FXC), and Singapore dollar (FXSG) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks:

Canadian bonds vs. Canadian stocks:

Global Markets

  • Australia has changed 10.12% in price since last week’s close.
  • Brazil has changed 24.89% in price since last week’s close.
  • Chile has changed 6.12% in price since last week’s close.
  • China has changed 7.75% in price since last week’s close.
  • Hong Kong  has changed 5.52% in price since last week’s close.
  • India has changed 10.43% in price since last week’s close.
  • Indonesia has changed 7.78% in price since last week’s close.
  • Italy has changed 5.57% in price since last week’s close.
  • Malaysia has changed 7.72% in price since last week’s close.
  • Mexico has changed 6.56% in price since last week’s close.
  • New Zealand has changed 5.43% in price since last week’s close.
  • Norway has changed 8.58% in price since last week’s close.
  • Peru has changed 10.23% in price since last week’s close.
  • Philippines has changed 5.02% in price since last week’s close.
  • Russia has changed 11.59% in price since last week’s close.
  • Singapore has changed 10.75% in price since last week’s close.
  • South Africa has changed 12.96% in price since last week’s close.
  • South Korea has changed 7.43% in price since last week’s close.
  • Spain has changed 6.20% in price since last week’s close.
  • Taiwan has changed 6.02% in price since last week’s close.
  • Thailand has changed 5.96% in price since last week’s close.
  • Turkey has changed 8.34% in price since last week’s close.
  • UAE has changed 5.67% in price since last week’s close.

Comparing national stock markets, Brazil (EWZ), Peru (EPU), Russia (ERUS), Indonesia (EIDO), New Zealand (ENZL), Thailand (THD), Chile (ECH), Singapore (EWS), Australia (EWA), Turkey (TUR), Taiwan (EWT), Hong Kong (EWH), UAE (UAE), South Africa (EZA), Denmark (EDEN), Mexico (EWW), Norway (ENOR), USA S&P 500 (IVV), Canada (EWC), China (MCHI), Philippines (EPHE), South Korea (EWY), Qatar (QAT), Japan (EWJ), Netherlands (EWN), Sweden (EWD), Belgium (EWK), France (EWQ), Poland (EPOL) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 1,999.99. This is 3.51% higher than last week’s price (1,932.23), and 4.41% higher than last month’s price (1,915.45), and -2.42% lower than the price three months ago (2,049.62), and 2.62% higher than the price six months ago (1,948.86), and -4.36% lower than the price one year ago (2,091.18).

The average P/E ratio of the S&P 100 (equal weighted) is 20.65. 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 4.84% (before dividends).

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

  • The Priceline Group Inc. (PCLN)
  • Target Corporation (TGT)
  • Qualcomm Incorporated (QCOM)
  • Amazon.com, Inc. (AMZN)
  • Cisco Systems, Inc. (CSCO)
  • Ford Motor Company  (F)
  • Conocophillips  (COP)
  • Altria Group, Inc. (MO)
  • General Electric Company (GE)
  • Philip Morris International Inc (PM)
  • Simon Property Group, Inc. (SPG)
  • Emerson Electric Company (EMR)
  • UnitedHealth Group Incorporated (UNH)

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

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

Canadian Stocks

Yesterday’s closing price was 13,212.50. This is 2.74% higher than last week’s price (12,860.40), and 3.43% higher than last month’s price (12,774.50), and -0.84% lower than the price three months ago (13,324.70), and -2.46% lower than the price six months ago (13,545.30), and -13.15% lower than the price one year ago (15,213.60).

The average P/E ratio of the TSX60 (equal weighted) is 26.45. 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 3.78% (before dividends).

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

  • Teck Resources Limited (TCK-B.to)
  • First Quantum Minerals Ltd (FM.to)
  • Barrick Gold Corporation (ABX.to)
  • Bombardier Inc., Cl. B (BBD-B.to)
  • Kinross Gold Corp. (K.to)
  • Yamana Gold Inc (YRI.to)
  • Silver Wheaton Corp. (SLW.to)
  • Snc-lavalin Sv (SNC.to)
  • Franco-nevada Corporation (FNV.to)
  • Cdn Natural Res (CNQ.to)
  • Eldorado Gold (ELD.to)
  • Saputo Inc. (SAP.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Canadian Tire Corporation (CTC-A.to)
  • Inter Pipeline Ltd (IPL.to)
  • Canadian Oil Sands Limited (COS.to)
  • Constellation Software Inc. (CSU.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Metro Inc (MRU.to)
  • Goldcorp Inc (G.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):

  • Crescent Point Energy Corp. (CPG.to)
  • National Bank Of Canada (NA.to)
  • Power Corporation Of Canada (POW.to)
  • Bank Of Nova Scotia (BNS.to)
  • Canadian Imperial Bank Of Commerce (CM.to)
  • Encana Corp. (ECA.to)
  • Bank Of Montreal (BMO.to)
  • Royal Bank Of Canada (RY.to)

Other Assets

S&P/TSX Capped Composite E (ZCN.to), S&P 500 (SPY), MSCI EAFE (CDN$) (XIN.to), S&P/TSX Capped REIT (XRE.to), Gold (IGT.to), Silver (HUZ.to), S&P/TSX Base Metals (ZMT.to), Global Infrastructure (ZGI.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
  • One unit (20%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • 1 unit (20%) cash
Market Outlook, March 7, 2016

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