The outlook for America is pretty strong right now. The US dollar has a little more momentum than the Canadian dollar. US stocks have been outperforming Canadian and world stocks. Small caps are outperforming large caps, which implies that investors are not shying away from risk. And the price of oil seems to be holding above $57.00 US.

Interest Rates

The 3 month T-bill rate is 0.85%, the 1 year T-bill rate is 1.13%, the 3 year government bond yield is 1.61%, the 10 year government bond yield is 1.86% and the long government bond yield is 2.15%. 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 1.65%. 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 has been losing value 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

US Stocks

Canadian Stocks

Last week’s closing price was 16,041.98. This is -0.34% lower than the prior week’s price (16,096.10), and 0.27% higher than last month’s price (15,998.60), and 5.73% higher than the price three months ago (15,173.00), and 5.59% higher than the price six months ago (15,192.50), and 5.18% higher than the price one year ago (15,252.20).

Other Assets

Base metals (ZMT), US stocks (XSP), real estate (XRE), international stocks (VDU), global stocks (XIN), crude oil (HUC), Canadian stocks (ZCN), 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, December 18, 2017

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