My market outlook still is not working and I still have not taken the time to fix it.

Interest Rates

The 3 month T-bill rate is 0.48%, the 1 year T-bill rate is 0.55%, the 3 year government bond yield is 0.77%, the 10 year government bond yield is 1.44% and the long government bond yield is 2.07%. 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 1.59%. 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 2.30%. For small caps, it currently appears to be 2.43%.

US Stocks

The average P/E ratio of the S&P 100 (equal weighted) is 22.15. 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 4.51% (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 26.72. 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 3.74% (before dividends).

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

  • TDĀ (TD.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Commerce (CM.to)
Market Outlook, May 29, 2017

Leave a Reply

Your email address will not be published.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