Interest Rates

yieldcurveThe 30-day T-bill rate is 0.44%, the short government bond yield is 0.58% and the long government bond yield is 1.97%. 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.

Government vs. Corporate bonds:
guage

Short vs. Long bonds:guage (1)

High Quality vs. High Yield bonds:guage (2)

Currency

The Brazilian Real (BZF), Australian Dollar (FXA), Canadian Dollar (FXC), Singapore Dollar (FXSG), Japanese Yen (FXY), and Swedish Krona (FXS) 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:
guage (3)
Canadian bonds vs. Canadian stocks:
guage (4)

Global Markets

  • Austria Inv has changed 5.34% in price since last week’s close.
  • Spain has changed 5.57% in price since last week’s close.

Comparing national stock markets, Brazil (EWZ), Russia (ERUS), Peru (EPU), Turkey (TUR), UAE (UAE), Australia (EWA), Thailand (THD), New Zealand (ENZL), Indonesia (EIDO), Canada (EWC), Norway (ENOR), South Africa (EZA), Taiwan (EWT), Mexico (EWW), Chile (ECH), Singapore (EWS), Netherlands (EWN), Denmark (EDEN), Philippines (EPHE), Austria (EWO), Sweden (EWD), France (EWQ), Spain (EWP), Qatar (QAT), South Korea (EWY), US S&P 500 (IVV), Poland (EPOL), Japan (EWJ), China (MCHI), Italy (EWI), Hong Kong (EWH), India (INDA), Ireland (EIRL), Belgium (EWK), Finland (EFNL), Germany (EWG), United Kingdom (EWU), Israel (EIS), Switzerland (EWL) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,022.19. This is 1.02% higher than last week’s price (2,001.76), and 10.56% higher than last month’s price (1,829.08), and -1.46% lower than the price three months ago (2,052.23), and 3.58% higher than the price six months ago (1,952.29), and -3.93% lower than the price one year ago (2,104.99).

The average P/E ratio of the S&P 100 (equal weighted) is 20.80. 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 4.81% (before dividends).

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

  • Exelon Corporation (EXC)
  • The Priceline Group Inc. (PCLN)
  • Target Corporation (TGT)
  • Halliburton Company (HAL)
  • Caterpillar, Inc. (CAT)
  • International Business Machines (IBM)
  • Qualcomm Incorporated (QCOM)
  • Philip Morris International Inc (PM)
  • Kinder Morgan, Inc. (KMI)
  • Chevron Corporation (CVX)
  • Emerson Electric Company (EMR)
  • Unitedhealth Group Incorporated (UNH)
  • Facebook, Inc. (FB)
  • Simon Property Group, Inc. (SPG)
  • AT&T Inc. (T)
  • Accenture Plc (ACN)
  • Paypal Holdings, Inc. (PYPL)
  • Amazon.com, Inc. (AMZN)
  • Cisco Systems, Inc. (CSCO)
  • Time Warner Inc. (TWX)
  • Twenty-first Century Fox, Inc. (FOX)
  • Blackrock, Inc. (BLK)
  • Verizon Communications Inc. (VZ)
  • Metlife, Inc. (MET)
  • Twenty-first Century Fox, Inc. (FOXA)
  • United Technologies Corporation (UTX)
  • General Electric Company (GE)
  • Mondelez International, Inc. (MDLZ)
  • Home Depot, Inc. (the) (HD)
  • Conocophillips  (COP)
  • Ford Motor Company  (F)
  • Texas Instruments Incorporated (TXN)

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 13,522.00. This is 1.03% higher than last week’s price (13,383.60), and 11.87% higher than last month’s price (12,087.40), and 3.88% higher than the price three months ago (13,016.60), and -0.35% lower than the price six months ago (13,569.90), and -12.48% lower than the price one year ago (15,450.90).

The average P/E ratio of the TSX60 (equal weighted) is 27.65. 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 3.62% (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):

  • Power Corporation Of Canada, Sv (POW.to)
  • National Bank Of Canada (NA.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

TSX Capped Composite (ZCN.to), S&P 500 (SPY), MSCI EAFE (hedged) (XIN.to), TSX Capped REIT (XRE.to), Crude Oil (HUC.to), Gold (IGT.to), Silver (HUZ.to), 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 rising, which increases manufacturing input costs and energy costs and may slow economic expansion.

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
  • One unit (20%) international stocks
Market Outlook, March 14, 2016

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