Markets are looking toppy, a lot of people are starting to watch for a correction. It’s been quite a long, uneventful climb for the US stock market, and it can’t go up forever. However, selling too soon is a great way to miss out on growth. There may not be any early warning signs, but either way, I don’t see any indications yet.

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 1.54%, the 10 year government bond yield is 1.85% and the long government bond yield is 2.16%. 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%.

Credit Environment

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

Currency

The The US dollar currently appears to be the strongest currency.
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 vs. US stocks:

Canadian bonds vs. Canadian stocks:

Global Markets

Comparing national stock markets, China (MCHI), Singapore (EWS), USA (IVV),  South Korea (EWY), Austria (EWO), Poland (EPOL), Philippines (EPHE), Canada (EWC), Russia (ERUS), Brazil (EWZ), Spain (EWP), United Kingdom (EWU), Belgium (EWK), Australia (EWA), Peru (EPU), Switzerland (EWL), and Norway (ENOR) are rising, while other regions appear to be neutral or falling.

US Stocks

Last week’s closing price was 2,651.50. This is 0.35% higher than the prior week’s price (2,642.22), and 2.68% higher than last month’s price (2,582.30), and 7.72% higher than the price three months ago (2,461.43), and 9.04% higher than the price six months ago (2,431.77), and 17.35% higher than the price one year ago (2,259.53).

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

  • BlackRock Inc (BLK)
  • Twenty-First Century Fox Inc Class B (FOX)
  • Twenty-First Century Fox Inc Class A (FOXA)
  • Caterpillar Inc (CAT)
  • PayPal Holdings Inc (PYPL)
  • Bank of America Corporation (BAC)
  • Amazon.com Inc (AMZN)

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

  • Ford Motor Co (F)
  • General Motors Co (GM)

Canadian Stocks

Last week’s closing price was 16,096.10. This is 0.36% higher than the prior week’s price (16,039.00), and 0.35% higher than last month’s price (16,039.30), and 7.41% higher than the price three months ago (14,985.30), and 4.03% higher than the price six months ago (15,473.20), and 5.12% 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):

Other Assets

Crude oil (HUC), US stocks (XSP), base metals (ZMT), global stocks (XIN), international stocks (VDU), real estate (XRE), Canadian stocks (ZCN), Canadian bonds (XBB), and global infrastructure (ZGI) 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, December 11, 2017

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