The price of oil has continued to advance to around $59, although it has come off the recent high. Although stock prices appear relatively high, they still seem to present a better opportunity for investment than bonds. Interestingly, small caps have done better in Canada than large caps, but the opposite is true in the US. Although the US stock market far outpaced Canadian stocks over the past couple years, Canada, US and the World all present a similar likelihood of success going forward.

Interest Rates

The 3 month T-bill rate is 0.85%, the 1 year T-bill rate is 1.04%, the 3 year government bond yield is 1.49%, the 10 year government bond yield is 1.89% and the long government bond yield is 2.23%. 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%.

Credit Environment

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

Currency

The Euro (FXE), British Pound (FXB), Japanese Yen (FXY), Chinese Renminbi (FXCH), Canadian Dollar (FXC), Singapore Dollar (FXSG), and Swiss Franc (FXF) 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? Short answer: in stocks.
US bonds vs. US stocks:

Canadian bonds vs. Canadian stocks:

Global Markets

 No update today.

US Stocks

 No update today.

Canadian Stocks

 Last week’s closing price was 16,043.55. This is -0.40% lower than the prior week’s price (16,108.10), and 0.15% higher than last month’s price (16,020.20), and 5.61% higher than the price three months ago (15,191.60), and 3.89% higher than the price six months ago (15,442.80), and 6.58% higher than the price one year ago (15,052.50).The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Valeant Pharmaceuticals International Inc (VRX.to)
  • Dollarama Inc (DOL.to)
  • Bombardier Inc (BBD-B.to)
  • Manulife Financial Corp (MFC.to)
  • Franco-Nevada Corp (FNV.to)
  • Cameco Corp (CCO.to)
  • First Quantum Minerals Ltd (FM.to)

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), real estate (XRE), Canadian stocks (ZCN), international stocks (VDU), base metals (ZMT), global stocks (XIN), 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
  • One unit (20%) bonds
Market Outlook, November 27, 2017

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