The oil price remains stubbornly below $50. The stock market had a volatile month, ending slightly ahead of where it started.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.46%, the 1 year T-bill rate is 0.52%, the 3 year government bond yield is 0.48%, the 10 year government bond yield is 0.95% and the long government bond yield is 1.62%. 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.

Expected (forward-looking) inflation is 1.47%. This is within the Canadian central bank’s target band of 1% to 3%.

The equity risk premium for large caps, in Canada, currently appears to be 3.03%. For small caps, it currently appears to be 3.14%.

Credit Environment

There is little preference between government bonds and corporate bonds.
guage

Long bonds are in greater demand than short bonds.guage-1

High yield bonds are slightly ahead of high quality bonds.guage-2

Currency

The Brazilian Real (BZF), Japanese Yen (FXY), and Australian Dollar (FXA) are looking strong relative to the US dollar.
The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks is a virtual tie:
guage-3
Canadian bonds vs. Canadian stocks gives a slight advantage to stocks:
guage-4

Global Markets

  • Turkey Investable has changed -5.35% in price since last week’s close.

Comparing national stock markets, Taiwan (EWT), Peru (EPU), Indonesia (EIDO), Brazil (EWZ), Hong Kong (EWH), China (MCHI), Norway (ENOR), Austria (EWO), Russia (ERUS), South Korea (EWY), Australia (EWA), New Zealand (ENZL), Japan (EWJ), Finland (EFNL), Belgium (EWK), South Africa (EZA), Germany (EWG), Canada (EWC), Netherlands (EWN), Thailand (THD), Singapore (EWS), Sweden (EWD), USA S&P 500 (IVV), Poland (EPOL), UAE (UAE), and Switzerland (EWL) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,168.27. This is 1.03% higher than last week’s price (2,146.10), and -0.12% lower than last month’s price (2,170.86), and 3.82% higher than the price three months ago (2,088.55), and 4.94% higher than the price six months ago (2,066.13), and 3.14% higher than the price one year ago (2,102.31).The average P/E ratio of the S&P 100 (equal weighted) is 21.44. 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 4.67% (before dividends).

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

  • Qualcomm Incorporated (QCOM)
  • Amazon.com, Inc. (AMZN)
  • Caterpillar, Inc. (CAT)
  • Paypal Holdings, Inc. (PYPL)
  • Kinder Morgan, Inc. (KMI)
  • Intel Corporation (INTC)
  • Biogen Inc. (BIIB)
  • Morgan Stanley (MS)
  • Fedex Corporation (FDX)

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 14,725.90. This is 0.73% higher than last week’s price (14,619.50), and 0.29% higher than last month’s price (14,683.90), and 3.28% higher than the price three months ago (14,258.90), and 9.56% higher than the price six months ago (13,440.40), and 7.79% higher than the price one year ago (13,661.80).The average P/E ratio of the TSX60 (equal weighted) is 25.12. 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 3.98% (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):

  • Trans Canadian Fixed Pay Gif – (T.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Commerce (CM.to)

Other Assets

Oil (HUC.to), Base Metals (ZMT.to), Global Infrastructure (ZGI.to), Silver (HUZ.to), Global (VDU.to), Canadian Stocks (ZCN.to), International Stocks (XIN.to), US Stocks (SPY), Gold (IGT.to), Canadian Bonds (XBB.to), Natural Gas (HUN.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$), US stocks (XSP hedged to Cdn$), 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%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) bonds
Market Outlook, October 3, 2016

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