Interest Rates

yieldcurve

The 30-day T-bill rate is 0.43%, the short government bond yield is 0.56% and the long government bond yield is 1.89%. 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.
guageguage-1guage-2

Currency

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

Global Markets

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

US Stocks

Yesterday’s closing price was 2,035.94. This is -0.67% lower than last week’s price (2,049.58), and 4.32% higher than last month’s price (1,951.70), and -1.37% lower than the price three months ago (2,064.29), and 5.01% higher than the price six months ago (1,938.76), and -3.37% lower than the price one year ago (2,106.85).The average P/E ratio of the S&P 100 (equal weighted) is 20.97. 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 4.77% (before dividends).

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

  • California Resources Corporatio (CRC)
  • Exelon Corporation Common Stock (EXC)
  • Fedex Corporation Common Stock (FDX)
  • Accenture Plc Class A Ordinary (ACN)
  • Emerson Electric Company Common (EMR)
  • Caterpillar, Inc. Common Stock (CAT)
  • Oracle Corporation Common Stock (ORCL)
  • Chevron Corporation Common Stoc (CVX)
  • Philip Morris International Inc (PM)
  • Facebook, Inc. (FB)
  • Devon Energy Corporation Common (DVN)
  • Verizon Communications Inc. Com (VZ)
  • International Business Machines (IBM)
  • Honeywell International Inc. Co (HON)
  • At&t Inc. (T)
  • Mcdonald’s Corporation Common S (MCD)
  • United Parcel Service, Inc. Com (UPS)
  • General Electric Company Common (GE)
  • Southern Company (the) Common S (SO)

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 13,358.10. This is -1.03% lower than last week’s price (13,497.10), and 4.74% higher than last month’s price (12,753.60), and 0.55% higher than the price three months ago (13,284.90), and -0.19% lower than the price six months ago (13,383.70), and -12.95% lower than the price one year ago (15,346.10).The average P/E ratio of the TSX60 (equal weighted) is 24.66. 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 4.05% (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

Base Metals (ZMT.to), Natural Gas (HUN.to), TSX REIT (XRE.to), S&P 500 (SPY), S&P/TSX Capped Composite (ZCN.to), Crude Oil (HUC.to), Global Infrastructure (ZGI.to), Silver (HUZ.to), Gold (IGT.to), Canadian Universe Bond (XBB.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%) bonds
Market Outlook, March 28, 2016

Leave a Reply

Your email address will not be published. Required fields are marked *