I apologize for missing four weeks of market outlooks. My web app hasn’t been functioning as expected, and I’ve been too busy to fix it. You’ll notice there’s still no outlook for the US stock market… sigh. Interest rates are a bit higher at the short end, but long-term rates haven’t really budged. The Canadian dollar has stopped rising. The Canadian stock market is unchanged compared to last week, but 1.5% higher than last month, and there are certain stocks that have good momentum. This looks to be a choppy market where certain stocks perform better (and worse) than others, not all moving in sync (a stock-picker’s market).

Interest Rates

The 3 month T-bill rate is 0.84%, the 1 year T-bill rate is 1.14%, the 3 year government bond yield is 1.53%, the 10 year government bond yield is 2.03% and the long government bond yield is 2.37%. 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 1.61%. 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 2.44%. For small caps, it currently appears to be 2.21%.

Credit Environment

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

Currency

The Chinese Renminbi (FXCH) and Euro (FXE) are looking strong relative to the US dollar.
The Canadian dollar seems to be holding its own against the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds are negative vs. US stocks showing good potential:
Canadian bonds are lagging vs. Canadian stocks:

Global Markets

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

US Stocks

Yesterday’s closing price was 2,565.67. This is -0.37% lower than last week’s price (2,575.21), and 1.84% higher than last month’s price (2,519.36), and 3.79% higher than the price three months ago (2,472.10), and 7.61% higher than the price six months ago (2,384.20), and 20.66% higher than the price one year ago (2,126.41).

The average P/E ratio of the SP100 (equal weighted) is 26.19. 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 3.82% (before dividends).

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

  • Abbvie Inc. (ABBV)
  • General Motors Company (GM)
  • Paypal Holdings, Inc. (PYPL)
  • Wal-mart Stores, Inc. (WMT)
  • Caterpillar, Inc. (CAT)
  • Boeing Company (the) (BA)
  • Texas Instruments Incorporated (TXN)
  • Bank Of America Corporation (BAC)
  • Abbott Laboratories (ABT)
  • Johnson & Johnson (JNJ)
  • Blackrock, Inc. (BLK)
  • Intel Corporation (INTC)
  • Unitedhealth Group Incorporated (UNH)
  • Mastercard Incorporated (MA)
  • Morgan Stanley (MS)
  • 3m Company (MMM)
  • Biogen Inc. (BIIB)
  • Microsoft Corporation (MSFT)
  • International Business Machines (IBM)
  • Emerson Electric Company (EMR)
  • Jp Morgan Chase & Co. (JPM)
  • Lockheed Martin Corporation (LMT)
  • Mcdonald’s Corporation (MCD)

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

  • Ford Motor Company (F)

Canadian Stocks

Yesterday’s closing price was 15,868.00. This is 0.07% higher than last week’s price (15,857.20), and 1.49% higher than last month’s price (15,634.90), and 4.89% higher than the price three months ago (15,128.70), and 1.81% higher than the price six months ago (15,586.10), and 7.32% higher than the price one year ago (14,785.30).

The average P/E ratio of the TSX60 (equal weighted) is 22.36. 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 4.47% (before dividends).

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

  • Bombardier Inc., Cl. B, Sv (BBD-B.to)
  • Constellation Software Inc. (CSU.to)
  • Magna International Inc (MG.to)
  • Restaurant Brands International (QSR.to)
  • First Quantum Minerals Ltd (FM.to)
  • Dollarama Inc (DOL.to)
  • Canadian Pacific Railway Limite (CP.to)
  • Teck Resources Limited Cl B (TECK-B.to)
  • Brookfield Asset Management Inc (BAM-A.to)
  • National Bank Of Canada (NA.to)

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

  • TD Bank (TD.to)
  • 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), US Stocks (SPY), Global Stocks (XIN.to), International Stocks (VDU.to), Canadian Stocks (ZCN.to), Real Estate (XRE.to), Silver (HUZ.to), and Canadian Bonds (XBB.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, October 23, 2017

Leave a Reply

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