Interest Rates

yieldcurve

The 30-day T-bill rate is 0.42%, the short government bond yield is 0.53% and the long government bond yield is 1.93%. 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.
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Currency

The Brazilian Real (BZF), Australian Dollar (FXA), Canadian Dollar (FXC), Japanese Yen (FXY), Swedish Krona (FXS), Singapore Dollar (FXSG), Euro (FXE), Swiss Franc (FXF), and Chinese Yuan (FXCH) 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:
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Canadian bonds vs. Canadian stocks:
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Global Markets

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

US Stocks

Yesterday’s closing price was 2,049.58. This is 1.48% higher than last week’s price (2,019.64), and 6.87% higher than last month’s price (1,917.78), and 0.38% higher than the price three months ago (2,041.89), and 2.98% higher than the price six months ago (1,990.20), and -3.00% lower than the price one year ago (2,112.93).The average P/E ratio of the S&P 100 (equal weighted) is 21.14. 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 4.73% (before dividends).

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

  • California Resources Corporation (CRC)
  • Devon Energy Corporation (DVN)
  • Anadarko Petroleum Corporation (APC)
  • Fedex Corporation (FDX)
  • Emerson Electric Company (EMR)
  • Conocophillips (COP)
  • Exelon Corporation (EXC)
  • Target Corporation (TGT)
  • Caterpillar, Inc. (CAT)
  • Chevron Corporation (CVX)
  • Oracle Corporation (ORCL)
  • Philip Morris International Inc (PM)
  • Halliburton Company (HAL)
  • Time Warner Inc. New (TWX)
  • Mcdonald’s Corporation (MCD)
  • Dow Chemical Company (the) (DOW)
  • Intel Corporation (INTC)
  • At&t Inc. (T)
  • United Technologies Corporation (UTX)
  • Facebook, Inc. (FB)
  • Verizon Communications Inc. (VZ)
  • E.i. Du Pont De Nemours (DD)
  • Boeing Company (the) (BA)
  • Accenture Plc (ACN)
  • General Electric Company (GE)
  • International Business Machines (IBM)
  • Simon Property Group, Inc. (SPG)
  • 3m Company (MMM)
  • Texas Instruments Incorporated (TXN)
  • Blackrock, Inc. (BLK)
  • United Parcel Service, Inc. (UPS)
  • 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)

Canadian Stocks

Yesterday’s closing price was 13,497.10. This is 0.15% higher than last week’s price (13,477.50), and 5.34% higher than last month’s price (12,813.40), and 3.74% higher than the price three months ago (13,009.90), and -2.10% lower than the price six months ago (13,787.20), and -11.81% lower than the price one year ago (15,304.80).The average P/E ratio of the TSX60 (equal weighted) is 24.74. 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 4.04% (before dividends).

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

  • First Quantum Minerals Ltd (FM.to)
  • Teck Resources Limited (TCK-B.to)
  • Encana Corp. (ECA.to)
  • Barrick Gold Corporation (ABX.to)
  • Yamana Gold Inc (YRI.to)
  • Cdn Natural Res (CNQ.to)
  • Kinross Gold Corp. (K.to)
  • Franco-nevada Corporation (FNV.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Silver Wheaton Corp. (SLW.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Snc-lavalin Sv (SNC.to)
  • Husky Energy Inc. (HSE.to)
  • Bank Of Nova Scotia (BNS.to)
  • Cenovus Energy Inc. (CVE.to)
  • Saputo Inc. (SAP.to)
  • Goldcorp Inc (G.to)
  • Enbridge Inc (ENB.to)
  • National Bank Of Canada (NA.to)
  • Loblaw Co (L.to)
  • Restaurant Brands International (QSR.to)
  • Magna International Inc (MG.to)
  • Metro Inc (MRU.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Inter Pipeline Ltd (IPL.to)

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)

Other Assets

S&P/TSX Base Metals (ZMT.to), Crude Oil (HUC.to), S&P/TSX Capped REIT (XRE.to), S&P 500 (SPY), Silver (HUZ.to), S&P/TSX Capped Composite (ZCN.to), Natural Gas (HUN.to), Global Infrastructure (ZGI.to), MSCI EAFE (hedged) (XIN.to), and Gold (IGT.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
  • 1 unit (20%) cash
Market Outlook, March 21, 2016

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