Stocks are looking up in Canada, US and much of the rest of the developed world. The Canadian dollar is strengthening, along with the price of oil. I wouldn’t bet against either of them right now, although there’s no guarantee that they will continue to rise. Because of low earnings last year and last quarter, stocks don’t appear to present bargains. But a number of stocks are experiencing price increases that look set to continue for the near term.

In the last paragraph, I wondered why US stocks are performing better than cash, but aren’t in my model portfolio. The answer is the currency. If you buy US stocks hedged to CAD dollars, you will experience growth. But the falling USD dollar negates the growth of US stocks.

Interest Rates

yieldcurve

The 30-day T-bill rate is 0.51%, the short government bond yield is 0.68% 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), Canadian dollar (FXC), Australian dollar (FXA), Japanese Yen (FXY), Swedish Krona (FXS), Singapore dollar (FXSG), and Euro (FXE) are looking strong relative to the US dollar. Which is probably another way of saying that the US dollar is depreciating.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
In the US market, stocks have the advantage.
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Also, in the Canadian market.
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Global Markets

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

US Stocks

Yesterday’s closing price was 2,091.58. This is -0.13% lower than last week’s price (2,094.34), and 2.73% higher than last month’s price (2,035.94), and 11.43% higher than the price three months ago (1,877.08), and 3.60% higher than the price six months ago (2,018.94), and -1.38% lower than the price one year ago (2,120.79).The average P/E ratio of the S&P 100 (equal weighted) is 21.72. 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 4.60% (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)
  • Devon Energy Corporation Common (DVN)
  • Halliburton Company Common Stoc (HAL)
  • Conocophillips Common Stock (COP)
  • Anadarko Petroleum Corporation (APC)
  • Norfolk Southern Corporation Co (NSC)
  • Bristol-myers Squibb Company Co (BMY)
  • Blackrock, Inc. Common Stock (BLK)
  • Union Pacific Corporation Commo (UNP)
  • Occidental Petroleum Corporatio (OXY)
  • Schlumberger N.v. Common Stock (SLB)
  • Twenty-first Century Fox, Inc. (FOXA)
  • Chevron Corporation Common Stoc (CVX)
  • Bank Of New York Mellon Corpora (BK)
  • Twenty-first Century Fox, Inc. (FOX)
  • Capital One Financial Corporati (COF)
  • United Technologies Corporation (UTX)
  • Unitedhealth Group Incorporated (UNH)
  • Abbvie Inc. Common Stock (ABBV)
  • Caterpillar, Inc. Common Stock (CAT)
  • Gilead Sciences, Inc. (GILD)
  • Citigroup, Inc. Common Stock (C)
  • Johnson & Johnson Common Stock (JNJ)
  • Emerson Electric Company Common (EMR)
  • Fedex Corporation Common Stock (FDX)
  • Pfizer, Inc. Common Stock (PFE)
  • American Express Company Common (AXP)
  • Bank Of America Corporation Com (BAC)
  • Amazon.com, Inc. (AMZN)
  • Time Warner Inc. New Common Sto (TWX)

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)

Canadian Stocks

Yesterday’s closing price was 13,874.00. This is 1.12% higher than last week’s price (13,719.80), and 3.86% higher than last month’s price (13,358.10), and 14.25% higher than the price three months ago (12,143.20), and -0.03% lower than the price six months ago (13,878.10), and -8.18% lower than the price one year ago (15,110.50).The average P/E ratio of the TSX60 (equal weighted) is 24.99. 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 4.00% (before dividends).

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

  • Kinross Gold Corp. (K.to)
  • First Quantum Minerals Ltd (FM.to)
  • Yamana Gold Inc (YRI.to)
  • Teck Resources Limited (TCK-B.to)
  • Barrick Gold Corporation (ABX.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • Eldorado Gold (ELD.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Cdn Natural Res (CNQ.to)
  • Silver Wheaton Corp. (SLW.to)
  • Franco-nevada Corporation (FNV.to)
  • Goldcorp Inc (G.to)
  • Pembina Pipeline Corporation (PPL.to)
  • Dollarama Inc (DOL.to)
  • Husky Energy Inc. (HSE.to)
  • Arc Resources Ltd. (ARX.to)
  • National Bank Of Canada (NA.to)
  • Cenovus Energy Inc. (CVE.to)
  • Canadian Tire Corporation, Cl. (CTC-A.to)
  • Canadian Pacific Railway Limite (CP.to)
  • Inter Pipeline Ltd (IPL.to)
  • Saputo Inc. (SAP.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 Eqwt Glb Bm Hdgd T (ZMT.to), Silver Etf (HUZ.to), Natural Gas Etf (HUN.to), Crude Oil Etf (HUC.to), S&p/tsx Capped Composite E (ZCN.to), Spdr S&p 500 (SPY), S&p/tsx Capped Reit (XRE.to), Msci Eafe Cad-hedged (XIN.to) are performing better than cash.
The gold price is falling, which may indicate bullishness toward stocks.
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%) real estate
  • One unit (20%) Canadian stocks
  • 3 units (60%) cash
Market Outlook, April 25, 2016

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