The oil price appears fairly stable around $53.00. US large-cap stocks are outperforming other asset classes and the US dollar has also picked up steam. Although the Canadian stock market was positive this week, it seems to be encountering resistance before 16,000.

Interest Rates

The 3 month T-bill rate is 0.47%, 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 1.70% 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 1.59%. For small caps, it currently appears to be 2.27%.

Credit Environment

While government bonds continue to fall in price, corporate bonds are just flat.

Short bonds are also flat, but long bonds are falling in price.

High quality bonds are flat, and high yield bonds are rising slightly.

Currency

The US dollar is the strongest of the currencies that I follow. The Canadian dollar has been losing value compared to the US dollar. Good thing I already have US dollars for my trip to the US.

Equities

US large cap stocks have the best outlook of all the asset classes that I watch. They are outperforming US bonds (easily), Canadian stocks and world stocks.
US bonds vs. US stocks:

Canadian stocks are likewise outperforming Canadian bonds.

Global Markets

  • Italy has changed 5.73% in price since last week’s close.

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

US Stocks

Yesterday’s closing price was 2,383.12. This is 0.57% higher than last week’s price (2,369.73), and 4.48% higher than last month’s price (2,280.85), and 8.76% higher than the price three months ago ($2,191.08), and 9.77% higher than the price six months ago (2,170.95), and 16.71% higher than the price one year ago (2,041.91).The average P/E ratio of the S&P 100 (equal weighted) is 22.53. 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 4.44% (before dividends).

I think this is the longest list I’ve seen here. The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Bank Of America Corporation (BAC)
  • Boeing Company (the) (BA)
  • Apple Inc. (AAPL)
  • Morgan Stanley (MS)
  • Goldman Sachs Group, Inc. (the) (GS)
  • Jp Morgan Chase & Co. (JPM)
  • The Priceline Group Inc. (PCLN)
  • Philip Morris International Inc (PM)
  • Amgen Inc. (AMGN)
  • Eli Lilly And Company (LLY)
  • Cisco Systems, Inc. (CSCO)
  • Lowe’s Companies, Inc. (LOW)
  • Capital One Financial Corporati (COF)
  • Citigroup, Inc. (C)
  • Colgate-palmolive Company (CL)
  • Allstate Corporation (the) (ALL)
  • Paypal Holdings, Inc. (PYPL)
  • Altria Group, Inc. (MO)
  • Amazon.com, Inc. (AMZN)
  • Allergan Plc Ordinary Shares (AGN)
  • Dow Chemical Company (the) (DOW)
  • U.s. Bancorp (USB)
  • Home Depot, Inc. (the) (HD)
  • Facebook, Inc. (FB)
  • Abbott Laboratories (ABT)
  • Johnson & Johnson (JNJ)
  • 3m Company (MMM)
  • Celgene Corporation (CELG)
  • Biogen Inc. (BIIB)
  • General Motors Company (GM)
  • Mastercard Incorporated (MA)
  • General Dynamics Corporation (GD)
  • Bristol-myers Squibb Company (BMY)
  • American Express Company (AXP)
  • Honeywell International Inc. (HON)
  • Monsanto Company (MON)
  • Time Warner Inc. New (TWX)
  • Accenture Plc Class A Ordinary (ACN)
  • Visa Inc. (V)
  • Nextera Energy, Inc. (NEE)
  • Unitedhealth Group Incorporated (UNH)

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

  • General Motors Company (GM)
  • Ford Motor Company (F)

Canadian Stocks

Yesterday’s closing price was 15,608.50. This is 0.94% higher than last week’s price (15,463.50), and 1.36% higher than last month’s price (15,399.10), and 3.87% higher than the price three months ago (15,027.50), and 6.92% higher than the price six months ago (14,598.00), and 16.94% higher than the price one year ago (13,347.50).The average P/E ratio of the TSX60 (equal weighted) is 30.43. 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 3.29% (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)
  • Restaurant Brands International (QSR.to)
  • National Bank Of Canada (NA.to)
  • Constellation Software Inc. (CSU.to)
  • Bank Of Montreal (BMO.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Canadian Tire Corporation, Cl. (CTC-A.to)
  • Royal Bank Of Canada (RY.to)
  • First Quantum Minerals Ltd (FM.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Canadian National Railway Co. (CNR.to)
  • Brookfield Asset Management Inc (BAM-A.to)
  • Cameco Corp (CCO.to)

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

Other Assets

Base Metals (ZMT.to), US Stocks (SPY), Crude Oil (HUC.to), Global Infrastructure (ZGI.to), EAFE stocks (XIN.to), World Stocks (VDU.to), Canadian Stocks (ZCN.to), Real Estate (XRE.to), and Silver (HUZ.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$), US stocks (XSP hedged to Cdn$), 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
Market Outlook, March 6, 2017

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