I fixed the coding behind the market outlook, replacing Yahoo Finance (let us never speak of them again) with AlphaVantage.co. The new data source is free to use, so I don’t mind that it’s not perfect. It’s certainly better than nothing and it’s the right price for my personal, educational usage. On that topic, I also using Morningstar as a data source for company fundamentals and historical financials (in my stock research, not on this page) and the Bank of Canada for interest rates.

June is traditional a pretty rocky month for stocks, potentially because traders close out positions before the quiet summer months. Canadian stocks have retreated a bit, bonds have advanced and, in fact, look more attractive than stocks at the moment. Bond yields are very low (still / again) and it’s hard to argue that bonds would be a good long-term investment. Recently, international stocks have been the best investment.

Interest Rates

The 3 month T-bill rate is 0.45%, 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 1.42% and the long government bond yield is 2.03%. 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 1.55%. 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 2.49%. For small caps, it currently appears to be 2.49%.

Credit Environment

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

Currency

The Swiss Franc (FXF), Euro (FXE), Japanese Yen (FXY), Swedish Krona (FXS), Chinese RMB (FXCH), and British Pound (FXB) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
In the US, stocks have been outperforming bonds, which are also positive,

but the situation in Canada is the reverse, where bonds appear more attractive than stocks.

Global Markets

  • Qatar has changed -5.81% in price since last week’s close.

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

US Stocks

Yesterday’s closing price was 2,431.77. This is -0.30% lower than last week’s price (2,439.07), and 1.71% higher than last month’s price (2,390.90), and 2.49% higher than the price three months ago (2,372.60), and 7.62% higher than the price six months ago (2,259.53), and 16.02% higher than the price one year ago (2,096.07).The average P/E ratio of the S&P 100 (equal weighted) is 22.41. 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 4.46% (before dividends).

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

  • Paypal Holdings, Inc. (PYPL)
  • Philip Morris International Inc (PM)
  • Amazon.com, Inc. (AMZN)
  • Mcdonald’s Corporation (MCD)
  • Mastercard Incorporated (MA)
  • Starbucks Corporation (SBUX)
  • Alphabet Inc. (GOOG)
  • Alphabet Inc. (GOOGL)
  • Microsoft Corporation (MSFT)
  • Apple Inc. (AAPL)
  • The Priceline Group Inc. (PCLN)
  • Nextera Energy, Inc. (NEE)
  • Boeing Company (the) (BA)
  • Facebook, Inc. (FB)
  • Blackrock, Inc. (BLK)
  • Wal-mart Stores, Inc. (WMT)
  • General Dynamics Corporation (GD)
  • Costco Wholesale Corporation (COST)
  • 3M Company (MMM)

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 15,473.21. This is 0.20% higher than last week’s price (15,442.80), and -0.42% lower than last month’s price (15,537.90), and -0.22% lower than the price three months ago (15,506.70), and 1.05% higher than the price six months ago (15,312.20), and 10.23% higher than the price one year ago (14,037.50).The average P/E ratio of the TSX60 (equal weighted) is 25.56. 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 3.91% (before dividends).

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

  • Blackberry Limited (BB.to)
  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Dollarama Inc (DOL.to) (This looks wildly overvalued to me)
  • Kinross Gold Corp. (K.to)
  • Franco-nevada Corporation (FNV.to)
  • Constellation Software Inc. (CSU.to)
  • Restaurant Brands International (QSR.to)
  • Gildan Activewear Inc. (GIL.to)

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

  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

International Stocks (VDU.to), Silver (HUZ.to), Global Stocks (XIN.to) Infrastructure (ZGI.to), US Stocks (SPY), Real Estate (XRE.to), Canadian Bond (XBB.to), and Canadian Stocks (ZCN.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%) bonds
Market Outlook, June 12, 2017

3 thoughts on “Market Outlook, June 12, 2017

  • June 15, 2017 at 1:56 pm
    Permalink

    Hi Robert. Been reading your website for a few years now. Am interested in hearing your thoughts on rising interest rates and who wins and loses as a result. With the US raising their rate for a third time and BoC suggesting Canada might follow within a year – does that not bode bell for preferred shares and insurance companies? I see you think POW is a good long term bet. But why not Manulife or Sunlife as well?

    Reply
    • June 15, 2017 at 2:58 pm
      Permalink

      Those are good questions. I’ll write a couple blog posts for you.

      Reply

Leave a Reply

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