It appears that the market is taking a breather, waiting for financial data to catch up to the optimistic outlook that seemed to command the last couple weeks. This week looks like it will be flat at best. That also means it will probably be a little easier to find value this week than earlier.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.46%, the short government bond yield is 0.56% and the long government bond yield is 1.82%. 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.

Corporate bonds are performing slightly better than governments, but both are positive.
guage1

Long bonds are the place to be, although I couldn’t say why.

guage2

High quality have momentum, while high yield are out of favour.

guage3

In sum, long-term high-quality corporate bonds appear to be most in favour.

Currency

The Japanese Yen (FXY), Brazilian Real (BZF), Swedish Krona (FXS), Swiss Franc (FXF), Euro (FXE), Canadian dollar (FXC), Singapore dollar (FXSG), Australian dollar (FXA), 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:
guage4
Canadian bonds vs. Canadian stocks:
guage5

Global Markets

Comparing national stock markets, Turkey (TUR), Brazil (EWZ), New Zealand (ENZL), Russia (ERUS), Peru (EPU), South Africa (EZA), Chile (ECH), Malaysia (EWM), Denmark (EDEN), Philippines (EPHE), Belgium (EWK), Canada (EWC), Ireland (EIRL), Indonesia (EIDO), USA S&P 500 (IVV), South Korea (EWY), Poland (EPOL), Netherlands (EWN), Hong Kong (EWH), Mexico (EWW), Austria (EWO), Sweden (EWD), Singapore (EWS) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,047.60. This is -0.90% lower than last week’s price (2,066.13), and 2.92% higher than last month’s price (1,989.57), and 6.53% higher than the price three months ago (1,922.03), and 2.59% higher than the price six months ago (1,995.83), and -2.42% lower than the price one year ago (2,098.48).The average P/E ratio of the S&P 100 (equal weighted) is 21.02. 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 4.76% (before dividends).

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

  • Fedex Corporation Common Stock (FDX)
  • Mcdonald’s Corporation Common S (MCD)
  • Philip Morris International Inc (PM)
  • Accenture Plc Class A Ordinary (ACN)
  • Emerson Electric Company Common (EMR)
  • Visa Inc. (V)

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 13,396.70. This is 0.45% higher than last week’s price (13,336.20), and 0.13% higher than last month’s price (13,379.10), and 8.75% higher than the price three months ago (12,319.30), and -3.40% lower than the price six months ago (13,868.40), and -10.95% lower than the price one year ago (15,043.20).The average P/E ratio of the TSX60 (equal weighted) is 24.48. 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 4.09% (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):

  • Potash Corp Of Sask Inc (POT.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • National Bank Of Canada (NA.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Bank Of Nova Scotia (BNS.to)

Other Assets

TSX Capped REIT (XRE.to), S&P 500 (SPY), Canadian Universe Bond (XBB.to), Silver (HUZ.to), Global Infrastructure (ZGI.to), Gold (IGT.to) are performing better than cash.
The gold price is neutral.
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%) real estate
  • 4 units (80%) bonds
Market Outlook, April 11, 2016

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