Sadly, I still haven’t fixed my stock market outlook. The problem is that I can’t easily look up historical prices, so for the moment, this is incomplete.

Interest Rates

The 3 month T-bill rate is 0.46%, the 1 year T-bill rate is 0.55%, the 3 year government bond yield is 0.78%, the 10 year government bond yield is 1.60% and the long government bond yield is 2.24%. 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 1.60%. 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 2.12%. For small caps, it currently appears to be 2.09%.

US Stocks

The average P/E ratio of the S&P 100 (equal weighted) is 21.96. 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 4.55% (before dividends).

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

The average P/E ratio of the TSX60 (equal weighted) is 26.90. 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 3.72% (before dividends).

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

  • TelusĀ (T.to)
  • TD (TD.to)
  • Canadian Imperial Bank Of Commerce (CM.to)
  • Power Corporation Of Canada, Sv (POW.to)
Market Outlook, May 15, 2017

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