ce.

Interest Rates

yieldcurve

The 3 month T-bill rate is 0.42%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.73%, the 10 year government bond yield is 1.55% and the long government bond yield is 2.17%. 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 1.78%. 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 2.65%. For small caps, it currently appears to be 2.78%.

Credit Environment

Bonds are universally unattractive. This is what happens when interest rates and bond yields begin to rise.
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Currency

The US dollar currently appears to be the strongest currency.
The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
While US bonds have a negative outlook, US stocks show some potential:
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Likewise, Canadian stocks are in favour, while bonds are not:
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Global Markets

  • Italy has changed -5.52% in price since last week’s close.
  • Poland has changed -5.27% in price since last week’s close.

Comparing national stock markets, Japan (EWJ), Malaysia (EWM), Russia (ERUS), Taiwan (EWT), Singapore (EWS), United Kingdom (EWU), Italy (EWI), Saudi Arabia (KSA), US S&P 500 (IVV) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 2,181.90. This is 0.82% higher than last week’s price (2,164.20), and 1.90% higher than last month’s price ($2,141.16), and -0.23% lower than the price three months ago (2,186.90), and 6.54% higher than the price six months ago (2,048.04), and 5.87% higher than the price one year ago (2,060.99).The average P/E ratio of the S&P 100 (equal weighted) is 21.55. 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 4.64% (before dividends).

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

  • Morgan Stanley (MS)
  • Bank Of America Corporation (BAC)
  • Goldman Sachs Group, Inc. (the) (GS)
  • Metlife, Inc. (MET)
  • Celgene Corporation (CELG)
  • Jp Morgan Chase & Co. (JPM)
  • Citigroup, Inc. (C)
  • Wells Fargo & Company  (WFC)
  • U.s. Bancorp (USB)
  • Bank Of New York Mellon Corpora (BK)
  • Capital One Financial Corporati (COF)
  • Lockheed Martin Corporation (LMT)
  • Caterpillar, Inc. (CAT)
  • General Dynamics Corporation Co (GD)
  • Fedex Corporation (FDX)
  • Union Pacific Corporation (UNP)
  • Target Corporation (TGT)
  • Chevron Corporation (CVX)
  • Boeing Company (the) (BA)
  • Time Warner Inc. (TWX)
  • Biogen Inc. (BIIB)

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 14,864.00. This is 1.82% higher than last week’s price (14,598.50), and -0.50% lower than last month’s price (14,939.00), and 0.79% higher than the price three months ago (14,748.20), and 7.58% higher than the price six months ago (13,817.30), and 13.61% higher than the price one year ago (13,082.90).The average P/E ratio of the TSX60 (equal weighted) is 23.80. 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 4.20% (before dividends).

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

  • Teck Resources Limited Cl B (TCK-B.to)
  • First Quantum Minerals Ltd (FM.to)
  • Manulife Fin (MFC.to)
  • Sun Life Financial Inc. (SLF.to)
  • Encana Corp. (ECA.to)
  • Agrium Inc (AGU.to)
  • Suncor Energy Inc. (SU.to)
  • Potash Corp Of Sask Inc (POT.to)
  • Constellation Software Inc. (CSU.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Td Us Small-cap Equity – I (TD.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Canadian Imperial Bank Of Commerce (CM.to)

Other Assets

Base Metals (ZMT.to), Crude Oil (HUC.to), US Stocks (SPY), Canadian Stocks (ZCN.to), Gold (IGT.to), and International Stocks (XIN.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
  • 2 units (40%) cash
Market Outlook, November 21, 2016

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