Okay, how is it the middle of September already? Will the stock market continue to pull back? Will we see a correction or (touching wood) a crash? I don’t like the outlook for much of anything. The Canadian dollar is strengthening, but that means anything that is priced in US dollars, like US stocks and oil and potentially even global stocks, will suffer.

Interest Rates

The 3 month T-bill rate is 0.86%, the 1 year T-bill rate is 1.17%, the 3 year government bond yield is 1.63%, the 10 year government bond yield is 2.07% 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 1.65%. 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 2.51%. For small caps, it currently appears to be 2.06%.

Credit Environment

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


The Canadian dollar (FXC), Swedish krona (FXS), Brazilian Real (BZF), Euro (FXE), Chinese yuan (FXCH), Australian dollar (FXA), British pound(FXB), Swiss franc (FXF), Singapore dollar (FXSG), and Japanese yen (FXY) are looking strong relative to the US dollar.
The Canadian dollar has been appreciating compared to the US dollar.


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

US Stocks

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Canadian Stocks

Yesterday’s closing price was 15,173.00. This is 1.25% higher than last week’s price (14,985.30), and 1.48% higher than last month’s price (14,952.30), and -0.13% lower than the price three months ago (15,192.50), and -2.05% lower than the price six months ago (15,490.50), and 5.00% higher than the price one year ago (14,450.70).The average P/E ratio of the TSX60 (equal weighted) is 21.83. 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 4.58% (before dividends).

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

  • Dollarama Inc (DOL.to)
  • First Quantum Minerals Ltd (FM.to)
  • Kinross Gold Corp. (K.to)
  • Yamana Gold Inc (YRI.to)
  • Teck Resources Limited Cl B (TECK-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)
  • Crescent Point Energy Corp. (CPG.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Cenovus Energy Inc. (CVE.to)

Other Assets

Base Metals (ZMT.to), Silver (HUZ.to), US Stocks (SPY), Global Stocks (XIN.to), Crude Oil (HUC.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 rising, which increases manufacturing input costs and energy costs and may slow economic expansion.


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
  • 4 units (80%) cash
Market Outlook, September 18, 2017

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