Interest Rates

The 3 month T-bill rate is 0.67%, the 1 year T-bill rate is 0.91%, the 3 year government bond yield is 1.36%, the 10 year government bond yield is 2.00% and the long government bond yield is 2.42%. 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 1.63%. 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 2.29%. For small caps, it currently appears to be 2.23%.

Credit Environment

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

Currency

The Canadian dollar (FXC), Euro (FXE), Australian dollar (FXA), Swedish krona (FXS), Swiss franc (FXF), Singapore dollar (FXSG), Chinese Yuan (FXCH), and Japanese Yen (FXY) 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

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

US Stocks

I still haven’t taken the time to fix this. I really should work on it, one day soon.

Canadian Stocks

Yesterday’s closing price was $15,128.70. This is -0.36% lower than last week’s price ($15,183.10), and -0.35% lower than last month’s price ($15,182.20), and -2.93% lower than the price three months ago ($15,586.10), and -2.87% lower than the price six months ago ($15,575.80), and 3.74% higher than the price one year ago ($14,582.70).The average P/E ratio of the TSX60 (equal weighted) is 23.29. 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 4.29% (before dividends).

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

  • Valeant Pharmaceuticals Intl In (VRX.to)
  • First Quantum Minerals Ltd (FM.to)
  • Rogers Communications Inc., Cl. (RCI-B.to)

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

  • Telus – (T.to)
  • TD Bank (TD.to)
  • Power Corporation Of Canada (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Crescent Point Energy Corp. (CPG.to)

Other Assets

Base Metals (ZMT.to), US Stocks (SPY), Global Stocks (XIN.to), and International Stocks (VDU.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%) US stocks
  • One unit (20%) international stocks
  • 3 units (60%) cash
Market Outlook, July 31, 2017

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