Bonds are struggling. Canadian stocks had a good week. US stocks have greater momentum, but the strengthening Canadian dollar dampens the returns (for us). Surprisingly, the oil price has risen, breaking $50 for the first time in quite a while.

Interest Rates

The 3 month T-bill rate is 0.84%, the 1 year T-bill rate is 1.16%, the 3 year government bond yield is 1.65%, the 10 year government bond yield is 2.12% and the long government bond yield is 2.46%. 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 1.64%. 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 2.43%. For small caps, it currently appears to be 2.11%.

Credit Environment

Bonds are sucking. I don’t see much opportunity there.

Currency

The British Pound (FXB), Canadian Dollar (FXC), Brazilian Real (BZF), Chinese Yuan (FXCH), Swedish Krona (FXS), Euro (FXE), Australian Dollar (FXA), and Singapore Dollar (FXSG) 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

  • Turkey Investable has changed -5.42% in price since last week’s close.

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

US Stocks

I’m still having trouble with the US Stocks section. I guess it’s harder for the computer to figure out šŸ™‚

Canadian Stocks

Yesterday’s closing price was 15,454.20. This is 1.85% higher than last week’s price (15,173.00), and 2.64% higher than last month’s price (15,056.00), and 0.88% higher than the price three months ago (15,319.60), and 0.07% higher than the price six months ago (15,442.70), and 5.15% higher than the price one year ago (14,697.90).The average P/E ratio of the TSX60 (equal weighted) is 21.98. 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 4.55% (before dividends).

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

  • Dollarama Inc (DOL.to)
  • Kinross Gold Corp. (K.to)
  • Cenovus Energy Inc. (CVE.to)
  • Encana Corp. (ECA.to)
  • Magna International Inc (MG.to)
  • Suncor Energy Inc. (SU.to)

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

  • Crescent Point Energy Corp. (CPG.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)

Other Assets

Base Metals (ZMT.to), Crude Oil (HUC.to), US Stocks (SPY), Natural Gas (HUN.to), Silver (HUZ.to), Global Stocks (XIN.to), and Canadian Stocks (ZCN.to)Ā 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.

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%) Canadian stocks
  • One unit (20%) US stocks
  • 3 units (60%) cash
Market Outlook, September 25, 2017

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