The past week was pretty uneventful. Stock markets receded a little, and so did oil. US and Canadian large-cap stocks look like the place to be this week, and the Canadian dollar may strengthen. Having said that, there are very few stocks that appear cheap. The outlook is optimistic, which places greater risk to the downside.

Interest Rates

The 3 month T-bill rate is 0.84%, the 1 year T-bill rate is 1.05%, the 3 year government bond yield is 1.53%, the 10 year government bond yield is 1.97% and the long government bond yield is 2.29%. 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%.

Credit Environment

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

Currency

The Euro (FXE), Singapore Dollar (FXSG), Canadian Dollar (FXC), British Pound (FXB), and Chinese Renminbi (FXCH) 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 -5.84% in price since last week’s close.
  • South Africa has changed 5.74% in price since last week’s close.

Comparing national stock markets, China (MCHI), South Korea (EWY), Russia (ERUS), Thailand (THD), Hong Kong (EWH), South Africa (EZA), Peru (EPU), Japan (EWJ), Singapore (EWS), Austria (EWO), Canada (EWC), Chile (ECH), Germany (EWG), Ireland (EIRL), USA (IVV), Poland (EPOL), Indonesia (EIDO), India (INDA), Philippines (EPHE), Taiwan (EWT), Italy (EWI), Netherlands (EWN), France (EWQ), Malaysia (EWM), Australia (EWA), and Switzerland (EWL) are rising, while other regions appear to be neutral or falling.

US Stocks

Last week’s closing price was $2,578.85. This is -0.13% lower than the prior week’s price ($2,582.30), and 0.14% higher than last month’s price ($2,575.21), and 6.32% higher than the price three months ago ($2,425.55), and 8.28% higher than the price six months ago ($2,381.73), and 18.19% higher than the price one year ago ($2,181.90).The get_avgpe function is broken.The average P/E ratio of the SP100 (equal weighted) is 0.00. This implies the market is very undervalued. This looks like a good buying opportunity. This implies a forward capital return of 0.00% (before dividends).

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

  • Qualcomm Inc (QCOM)
  • PayPal Holdings Inc (PYPL)
  • Twenty-First Century Fox Inc Class B (FOX)
  • Twenty-First Century Fox Inc Class A (FOXA)
  • AbbVie Inc (ABBV)
  • Boeing Co (BA)
  • Allstate Corp (ALL)
  • General Motors Co (GM)
  • Nike Inc B (NKE)
  • Caterpillar Inc (CAT)
  • Amazon.com Inc (AMZN)
  • Intel Corp (INTC)
  • Occidental Petroleum Corp (OXY)
  • Cisco Systems Inc (CSCO)
  • Abbott Laboratories (ABT)
  • Texas Instruments Inc (TXN)

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

  • Ford Motor Co (F)

Canadian Stocks

Last week’s closing price was 15,998.60. This is -0.25% lower than the prior week’s price (16,039.30), and 0.89% higher than last month’s price (15,857.20), and 7.00% higher than the price three months ago (14,952.30), and 3.49% higher than the price six months ago (15,458.50), and 7.63% higher than the price one year ago (14,864.00).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):

  • Crescent Point Energy Corp (CPG.to)

Other Assets

Crude oil (HUC), US stocks (XSP), Canadian stocks (ZCN), global stocks (XIN), international stocks (VDU), base metals (ZMT), silver (HUZ), and Canadian bonds (XBB) are performing better than cash.
The gold price is neutral.
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%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) bonds
Market Outlook, November 20, 2017

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