Over the past week, the oil price trended downward slightly from its high the former week. Stocks look more attractive than bonds, and US stocks appear likely to lead other regions. Having said all of that, markets appear toppy and my outlook has turned unfavourable.

Interest Rates

The 3 month T-bill rate is 0.84%, the 1 year T-bill rate is 1.06%, the 3 year government bond yield is 1.56%, the 10 year government bond yield is 1.90% and the long government bond yield is 2.20%. 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 1.66%. 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 Canadian Dollar (FXC), Euro (FXE), and British Pound (FXB) 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

Comparing national stock markets, South Korea (EWY), Brazil (EWZ), Canada (EWC), Australia (EWA), United Kingdom (EWU), and Spain (EWP) are rising. I’m missing data on many other regions.

US Stocks

I have no data for this.

Canadian Stocks

Last week’s closing price was 16,029.53. This is -0.06% lower than the prior week’s price (16,039.00), and -0.06% lower than last month’s price (16,039.30), and 6.97% higher than the price three months ago (14,985.30), and 3.60% higher than the price six months ago (15,473.20), and 4.68% higher than the price one year ago (15,312.20).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), global stocks (XIN), real estate (XRE), Canadian stocks (ZCN), international stocks (VDU), and Canadian bonds (XBB) 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%) real estate
  • One unit (20%) Canadian stocks
  • One unit (20%) US stocks
  • One unit (20%) international stocks
  • 1 unit (20%) bonds
Market Outlook, December 4, 2017

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