The stock market appears to be slowing or taking a pause. Bonds appear to be making some small progress. While stocks have run up quite a ways and have sparked much positive sentiment, I feel it is time to be cautious, especially in Canadian stocks. American stocks have more momentum and appear less expensive, relatively.
The 3 month T-bill rate is 0.44%, the 1 year T-bill rate is 0.51%, the 3 year government bond yield is 0.91%, the 10 year government bond yield is 1.67% and the long government bond yield is 2.40%. 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 1.73%. 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 1.63%. For small caps, it currently appears to be 2.16%.
When the dials point left, the credit environment is cautious and risks are priced higher.
Corporate bonds are looking up, while government bonds are not.
Long-term bonds have positive momentum, where short-term bonds are flat.
High yield bonds have slightly greater favour over high-quality bonds, but both are positive for the first time in the last few weeks.
The Canadian dollar has been appreciating compared to the US dollar.
Where does there appear to be more opportunity right now?
US bonds vs. US stocks:
Canadian bonds vs. Canadian stocks:
The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):
- Apple Inc. (AAPL)
- Bank Of America Corporation (BAC)
- Allergan Plc Ordinary Shares (AGN)
- Goldman Sachs Group, Inc. (the) (GS)
- Morgan Stanley (MS)
- Boeing Company (the) (BA)
- Philip Morris International Inc (PM)
- Amgen Inc. (AMGN)
- Abbott Laboratories (ABT)
- Cisco Systems, Inc. (CSCO)
- Jp Morgan Chase & Co. (JPM)
- Eli Lilly And Company (LLY)
- Costco Wholesale Corporation (COST)
- Colgate-palmolive Company (CL)
- Bristol-myers Squibb Company (BMY)
- Allstate Corporation (the) (ALL)
- Capital One Financial Corporati (COF)
- U.s. Bancorp (USB)
- Nextera Energy, Inc. (NEE)
- Dow Chemical Company (the) (DOW)
- American Express Company (AXP)
- Altria Group, Inc. (MO)
- Citigroup, Inc. (C)
- General Dynamics Corporation (GD)
- Exelon Corporation (EXC)
- Pfizer, Inc. (PFE)
- Johnson & Johnson (JNJ)
- Paypal Holdings, Inc. (PYPL)
- Merck & Company, Inc. (new) (MRK)
- Visa Inc. (V)
- Nike, Inc. (NKE)
These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):
- Teck Cominco (TCK-B.to)
- Barrick Gold Corporation (ABX.to)
- Restaurant Brands International (QSR.to)
- Canadian Tire Corporation, Cl. (CTC-A.to)
- National Bank Of Canada (NA.to)
- Goldcorp Inc (G.to)
- Canadian Imperial Bank Of Comme (CM.to)
- Bombardier Inc., Cl. B, Sv (BBD-B.to)
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.
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%) real estate
- One unit (20%) Canadian stocks
- One unit (20%) US stocks
- One unit (20%) international stocks
- 1 unit (20%) cash