September 22, 2014 Newsletter

Dear Friends,

Tangents:

On this date in 1862, President Abraham Lincoln issued a preliminary Emancipation Proclamation. He called for the freedom of more than 3 million slaves in the U.S. by the new year, recasting the Civil War as a fight against slavery.

The third season of the year begins today in the northern hemisphere.  It is figuratively a season of maturity or decay as in Percy Bysshe Shelley’s Alastor (1816):

And now his limbs were lean; his scattered hair,
Sered by the autumn of strange suffering,
Sung dirges in the wind.

PHOTOS OF THE DAY

Former Secretary of State Hillary Rodham Clinton is welcomed to the stage by her husband, former US President Bill Clinton, at the Clinton Global Initiative in New York. The session is called ‘Reimagining Impact.’ Mark Lennihan/AP

German Chancellor Angela Merkel (r.) leads Prime Minister of France Manuel Valls to the podium during a welcoming ceremony with military honors at the chancellery in Berlin. Axel Schmidt/AP

Market Closes for September 22^nd, 2014    

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     Sept. 22 (Bloomberg) — Canadian stocks fell to a six-week low as commodities tumbled to a five-year low amid speculation China will accept slowing growth.

     First Quantum Minerals Ltd. and Teck Resources Ltd. retreated at least 1.1 percent as nickel led declines in industrial metals in London. Lightstream Resources Ltd. and Painted Pony Petroleum Ltd. declined more than 7.1 percent as oil stocks retreated to a four-month low. Toronto-Dominion Bank, the nation’s largest lender by assets, rose 0.4 percent.

     The Standard & Poor’s/TSX Composite Index fell 0.9 percent to 15,129 at 4 p.m. in Toronto, the lowest since Aug. 7. The gauge sank 1.7 percent last week, the most in 15 months.

     Eight of the 10 main industries in the S&P/TSX retreated on trading volume 54 percent higher than the 30-day average.

     China’s Finance Minister Lou Jiwei said growth in Asia’s largest economy faces downward pressure and reiterated that there won’t be major changes in policy in response to individual economic indicators. China is Canada’s second-largest trading partner after the U.S.

     First Quantum Minerals tumbled 1.7 percent to C$21.25 for a sixth straight loss, the longest losing streak in two years.  Teck Resources, Canada’s largest diversified miner, dropped 1.1 percent to C$21.71, for a 14-month low.

     Copper tumbled 1.7 percent to $3.0385 a pound in New York. Raw-materials stocks slumped 1.6 percent as a group for a fourth day of losses, the worst streak since May. The Bloomberg Commodity Index dropped 0.7 percent to the lowest level since July 2009.

     Semafo Inc. fell 4.7 percent to C$3.88 and B2Gold Corp. sank 5.5 percent to C$2.25 as the S&P/TSX Gold Index dropped 1.7 percent for a fourth day of declines. Gold was little-changed in New York after earlier touching the lowest level since Jan. 2.

     BlackBerry Ltd. rose 1.3 percent to C$12.05. The company said its Passport smartphone will be sold in the U.S. for $599 without a mobile phone plan, $50 cheaper than the base iPhone 6 model from Apple Inc.

US

By Joseph Ciolli and Callie Bost

     Sept. 22 (Bloomberg) — The biggest tumble for smaller companies in seven weeks underscored weakening breadth in the American bull market two weeks after its 5 1/2-year birthday.

     Shares tracked by the Russell 2000 Index slid 1.5 percent, the largest retreat since July 31. While the Russell 3000 Index touched an intraday record at the end of last week, fewer than 55 percent of its components traded above their 200-day moving average, a combination that hasn’t happened since the peak of the dot-com bubble, according to MKM Partners LLC. The Chicago Board Options Exchange Volatility Index jumped 13 percent for its biggest rally in seven weeks.

     “Small caps are really under-performing again and I think that’s the main issue here,” JC O’Hara, the New York-based chief market technician at FBN Securities Inc, said by phone. “We’re seeing the spread between the Russell and the S&P 500 widening out again and that is worrying some people. Traders want to see small caps participate and every time they don’t they think, ‘it’s still not working.’”

     While losses today were biggest in speculative shares, equities declined throughout the U.S. market and around the world after sales of existing homes unexpectedly dropped and China’s finance minister damped stimulus hopes.

     The Standard & Poor’s 500 Index fell 0.8 percent, the most since Aug. 5, to 1,994.29 at 4 p.m. in New York, after closing at a record Sept. 18. The benchmark gauge hasn’t had a four-day slide this year and hasn’t fallen 10 percent in three years. The Dow Jones Industrial Average slid 107.06 points, or 0.6 percent, to 17,172.68, after ending last week at an all-time high. About 6.3 billion shares changed hands on U.S. exchanges today, 11 percent above the three-month average.                        

     Among other stocks moving, Yahoo! Inc. dropped 5.6 percent to lead the Dow Jones Internet Composite Index to a one-month low. Homebuilders in the S&P 500 plunged. Alibaba Group Holding Ltd. lost 4.3 percent after surging in its trading debut Sept. 19. Sigma-Aldrich Corp. rallied 33 percent after Merck KGaA said it will acquire the company.

     There’s a good chance U.S. equities will decline over the next few weeks, based on the market’s deteriorating breadth, according to a research report from Jonathan Krinsky, a technical strategist at MKM Partners.

     The last time so few companies in the Russell 3000 helped push the gauge to an intraday high was March 24, 2000, his report said. The index dropped 1 percent today.

     “There are enough warning signs to suggest at least a modest pullback,” Krinsky said in the note. “We think some seasonal weakness into early October makes sense.”

     The VIX surged 13 percent to 13.69 today, a one-week high.  The gauge lost 29 percent last month, the biggest drop in almost three years.

     “The market is weaker because of small caps,” Matt Maley, an equity strategist at Miller Tabak & Co LLC in Newton, Massachusetts, said in a phone interview. “When you combine this move in the Russell 2000 with the pickup in volatility in other markets, that’s a big concern.”

     The S&P 500 rose 1.3 percent last week, reaching a record on Sept. 18, as economic data improved and the Federal Reserve maintained a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed in October. Central bank officials raised their median estimate for the federal funds rate at the end of 2015 to 1.375 percent, compared with 1.125 percent in June.

     Fed Bank of New York President William Dudley said today the central bank’s rate guidance is not an iron-clad commitment and that it will be driven by economic data. Dudley spoke to Matthew Winkler, editor-in-chief of Bloomberg News, at Bloomberg Markets Most Influential Summit in New York.                          

     A report today showed purchases of previously owned U.S. homes unexpectedly declined in August for the first time in five months as investors retreated from the market. Separate data showed U.S. economic activity fell in August, according to the Fed Bank of Chicago.

     “People are looking for an excuse to knock the market back down a little bit,” Donald Selkin, chief market strategist for New York-based National Securities Corp., which oversees about $3 billion, said in a phone interview. “The internals for the market are horrible today. Maybe the feeling is that we might finally be ready for a more serious down move.”

     The Fed is on the lookout for signs of asset-price bubbles, and financial stability is a necessary condition for effective monetary policy, Dudley said.

     “I think we do need to try to identify asset bubbles in real time,” Dudley said. “You can’t have an effective monetary policy if you have financial instability.”

     In addition, Group of 20 officials said low interest rates could lead to a potential increase in financial-market risk, as major economies rely on monetary stimulus to bolster uneven growth.

     Julian Robertson, the billionaire founder of Tiger Management LLC, said there’s a bubble in bonds that will end “in a very bad way.”

     “Bonds are at ridiculous levels,” Robertson said today at the Bloomberg Markets Most Influential Summit. “It’s a worldwide phenomenon that governments are buying bonds to keep their countries moving along economically.”

     China’s Finance Minister Lou Jiwei said his government won’t make any major policy adjustments in response to changes in individual economic indicators, even as he said growth faces downward pressure. His comments quelled speculation that weaker economic data will spur further stimulus in the world’s second- biggest economy.

     All of the 10 groups in the S&P 500 dropped today, with energy companies and consumer-discretionary shares losing at least 1.4 percent.

     An S&P index of homebuilders slid 2.6 percent, as all 11 members retreated on the sales data. Lennar Corp. slid 2.8 percent and D.R. Horton Inc. dropped 2.6 percent.

     Alibaba fell 4.3 percent to $89.89. The Chinese e-commerce company surged 38 percent on Sept. 19 after raising a record- breaking $21.8 billion in an initial public offering.

     “With Alibaba, people are looking at that as a top in the market,” Patrick Spencer, head of U.S. equity sales at Robert W. Baird & Co. in London, said. “I still feel we are in a ‘Goldilocks’ environment with an accommodative Fed, huge buybacks, and another strong earnings-announcement season shortly.”

     Yahoo declined 5.6 percent to $38.65. Sanford Bernstein lowered its rating on the Sunnyvale, California-based company to market perform from outperform.

     Sigma-Aldrich surged 33 percent to $136.40. Darmstadt, Germany-based Merck said it will acquire the company for $140 a share in cash, 37 percent more than Sigma-Aldrich’s closing price on Sept. 19.
 

Have a wonderful evening everyone.

Be magnificent!
 

The spirit of democracy

is not a mechanical thing

to be adjusted by abolition of forms.

It requires change of heart.

Mahatma Gandhi

As ever,

Carolann

No particular race is the enemy.  Ignorance is

the enemy.

              -George Lopez, 1961-

Carolann Steinhoff, B.Sc., CFP®, CIM, CIWM, FCSI

Senior Vice-President &

Senior Investment Advisor