The past week was a good one for US stocks, and less rosy for Canadian stocks, which are lagging. Bonds continue to struggle. As an aside, I won’t be able to post next week, because of spring break here in Calgary.

Interest Rates

The 3 month T-bill rate is 0.43%, the 1 year T-bill rate is 0.53%, the 3 year government bond yield is 0.96%, the 10 year government bond yield is 1.80% and the long government bond yield is 2.45%. 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 1.70%. 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 1.61%. For small caps, it currently appears to be 2.15%.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.

Currency

The Australian dollar (FXA), Swedish krona (FXS), Singapore dollar (FXSG), and Euro (FXE) 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:

Canadian bonds vs. Canadian stocks:

Global Markets

  • Mexico Inve has changed 5.30% in price since last week’s close.
  • Poland has changed 5.98% in price since last week’s close.
  • Russia has changed 6.75% in price since last week’s close.
  • South Africa has changed 6.11% in price since last week’s close.
  • South Korea has changed 5.02% in price since last week’s close.

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

US Stocks

Yesterday’s closing price was 2,378.25. This is 0.20% higher than last week’s price (2,373.47), and 1.32% higher than last month’s price (2,347.22), and 5.14% higher than the price three months ago (2,262.03), and 10.76% higher than the price six months ago (2,147.26), and 13.71% higher than the price one year ago (2,091.48).The average P/E ratio of the S&P 100 (equal weighted) is 22.55. 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 4.43% (before dividends).

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

  • Bank Of America Corporation (BAC)
  • The Priceline Group Inc. (PCLN)
  • Philip Morris International Inc (PM)
  • Boeing Company (the) (BA)
  • Texas Instruments Incorporated (TXN)
  • Oracle Corporation (ORCL)
  • Lowe’s Companies, Inc. (LOW)
  • Apple Inc. (AAPL)
  • Unitedhealth Group Incorporated (UNH)
  • General Dynamics Corporation (GD)
  • Johnson & Johnson (JNJ)
  • Facebook, Inc. (FB)
  • E.i. Du Pont De Nemours And Com (DD)
  • Jp Morgan Chase & Co. (JPM)
  • Dow Chemical Company (the) (DOW)
  • Morgan Stanley (MS)
  • Allstate Corporation (the) (ALL)
  • Home Depot, Inc. (the) (HD)
  • Altria Group, Inc. (MO)
  • Time Warner Inc. New (TWX)

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 15,490.50. This is -0.35% lower than last week’s price (15,544.80), and -2.36% lower than last month’s price (15,864.20), and 1.79% higher than the price three months ago (15,218.30), and 6.80% higher than the price six months ago (14,503.70), and 11.35% higher than the price one year ago (13,911.30).The average P/E ratio of the TSX60 (equal weighted) is 29.37. 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 3.41% (before dividends).

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

Other Assets

Vanguard Ftse Developed Ac Ex U (VDU.to), Msci Eafe Index Etf (XIN.to), Global Infrastructure Index (ZGI.to), Spdr S&p 500 (SPY), Sptsx Eql Wgt Glb Metal Hed (ZMT.to), Sp Tsx Capped Comp Idx Etf (ZCN.to), Sp Tsx Capped Reit Inde (XRE.to) are performing better than cash.
The gold price is falling, which may indicate bullishness toward stocks.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

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 20, 2017

Leave a Reply

Your email address will not be published. Required fields are marked *