The past week was good for Canadian stocks, although they are still lower than at the beginning of June. Bonds still appear more attractive than stocks, at least in Canada. American stocks are looking good, and International stocks are looking even better. I have nothing good to say about the price of oil.

Interest Rates

The 3 month T-bill rate is 0.54%, the 1 year T-bill rate is 0.67%, the 3 year government bond yield is 0.99%, the 10 year government bond yield is 1.50% and the long government bond yield is 1.99%. 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 1.44%. 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 2.41%. For small caps, it currently appears to be 2.63%.

Credit Environment

Government bonds are lagging corporate bonds; short bonds are going nowhere, while long bonds are doing quite well; and high quality bonds are in greater demand than high yield bonds.

Currency

The Australian dollar (FXA), Euro (FXE), Canadian dollar (FXC), Singapore dollar (FXSG), and Swiss franc (FXF) 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?
US bonds vs. US stocks:

Canadian bonds vs. Canadian stocks:

Global Markets

  • Qatar has changed -10.94% in price since last week’s close.
  • Saudi Arabia Cappe has changed 10.16% in price since last week’s close.
  • UAE has changed -5.78% in price since last week’s close.

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

US Stocks

I’m still working out a bug in this section šŸ™

Canadian Stocks

Yesterday’s closing price was 15,319.60. This is 0.84% higher than last week’s price (15,192.50), and -0.63% lower than last month’s price (15,416.90), and -0.80% lower than the price three months ago (15,442.70), and -0.06% lower than the price six months ago (15,328.20), and 10.28% higher than the price one year ago (13,891.90).The average P/E ratio of the TSX60 (equal weighted) is 25.59. 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):

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

Global stocks (XIN.to), International stocks (VDU.to), US stocks (SPY), Real estate (XRE.to), Global Infrastructure (ZGI.to), and Canadian Bonds (XBB.to)Ā 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%) US stocks
  • One unit (20%) international stocks
  • 2 units (40%) bonds
Market Outlook, June 26, 2017

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