October 22, 2015 Newsletter

Dear Friends,

Tangents:

During the Cuban Missile Crisis on this day in 1962, President John F. Kennedy announced, in a televised speech, that U.S. spy planes had discovered Soviet missile bases in Cuba that housed medium-range missiles capable of striking a number of major U.S. cities, including Washington.

From A Countrywoman’s Notes, October:

Some people thrive best living in a community in  close association with others, playing, as it were, a part in an orchestra or as a member of a team.  Others are soloists and shine that way, though most of us live a family life.  The pattern is followed through in nature, too, with birds and animals.  Many species change their habits according to the season; often solitary or living in pairs in spring and summer, they form flocks before setting out on their migratory journeys.  Our swallows have gone but the red-wings and fieldfares, both related to the thrushes, are common winter visitors.  They are easy to recognize as they swirl in loose flocks across country lanes, often landing on the hedgerows to eat the hawthorn and other berries.  Watch them an you will see them take off into the fields to find grubs and worms.  They will stay in their flocks until breeding time comes round and they have moved north.  Our resident starlings are always rather gregarious but at this time of the year they will gather in thousands.  I sometimes wonder how the highest branches of our lime trees can bear their weight.  I do not usually like their habits but I do appreciate them when they descend on my lawn and remove the wireworms; better still when they do this in neighboring fields, where the wireworms devour the roots of grain and do much damage.  The starlings then are welcome in large numbers, though their noise can be deafening.  The finches form flocks in autumn and a charm of goldfinches feeding on  a patch of thistles is a lovely sight… -Rosemary Verey.

PHOTOS OF THE DAY

Late autumn colors in vineyards mark a change in the season in Soultz in the Alsace region of eastern France, Thursday. Jacky Naegelen/Reuters

French Republican guards take place ahead of Malian President Ibrahim Boubacar Keita visit to the Paris City Hall as part of his two-day state visit to France, in Paris, Thursday. Etienne Laurent/AP

Market Closes for October 22^nd, 2015

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

Eric Lam

     (Bloomberg) — Canadian stocks rebounded from the biggest drop in three weeks as better-than-forecast earnings and a jump in retail sales offset a continuing slide in Valeant Pharmaceuticals International Inc.

     The nation’s equities joined a global rally in riskier assets sparked by a signal from the European Central Bank that it is prepared to support growth. U.S. shares surged 1.7 percent to bring their gain from a summer swoon toward 10 percent. Rogers Communications Inc. and Teck Resources Ltd. advanced at least 5.1 percent Thursday after posting third-quarter earnings ahead of analysts’ estimates.

     The Standard & Poor’s/TSX Composite Index rose 173.92 points, or 1.3 percent, to 13,878.11 at 4 p.m. in Toronto, rebounding from the biggest drop since Sept. 28 Wednesday. The benchmark Canadian equity gauge has risen 4.3 percent in October as it tries to recover from the worst quarter since 2011. 

     Data today showed Canadian retail sales rose faster than economists predicted in August, led by automobile and parts dealers. About 13 of 242 companies in the S&P/TSXhave reported earnings in the current period thus far, with more than 50 expected to disclose results through next week.

     Laval, Quebec-based drugmaker Valeant extended losses for a fourth day after Quebec’s Autorite des Marches Financiers said in an e-mailed statement allegations about the company are “worrisome” and it is checking to see if they ran afoul of any regulations. Valeant erased a fifth of its market value Wednesday after Citron Research published a report examining the drugmaker’s pricing practices. Smaller peer Concordia Healthcare Corp. rebounded from a May 2014 low Wednesday.

     Valeant slid 6.6 percent, recovering some losses in the final hours of trading. The stock’s decline for the week is on pace for a record 37 percent. Scrutiny of the company is intensifying after a Citron Research report Wednesday accused the company of inflating sales using the pharmacies. In the report, Citron, a stock commentary site published by short seller Andrew Left, claimed that Valeant had recorded fake sales to phony customers, using closely associated specialty pharmacies to help drive the business.

     Valeant called Citron’s accusations “erroneous” and denied the report. The company will hold an investor call Oct. 26 including Chief Executive Officer Michael Pearson and members of the board’s audit and risk committee, the company said.

     Valeant, briefly the largest stock in the S&P/TSX by market capitalization this year, along with Concordia had been the two best performers among Canadian equities after pursuing aggressive acquisition strategies in the first half of 2015.

     Valeant has since plummeted 58 percent from an Aug. 5 all- time high, amid increasing scrutiny from U.S. lawmakers over the industry’s pricing models for prescription drugs. Valeant has been the subject of subpoenas from attorneys’ offices in Manhattan and Massachusetts seeking additional information.

     The rise and rapid fall in the shares of Valeant is eerily familiar to Canadian investors still smarting from the legacy of past market stalwarts BlackBerry Ltd. and Nortel Networks Corp. Both companies had previously ascended to the global stage while dominating the Canadian market, only to crumble when problems exposed them to harsh investor scrutiny.

     BlackBerry, previously known as Research In Motion, has not recovered since losing its dominance in the smartphone market while Nortel filed for Bankruptcy protection in 2009.

     Rogers gained 5.2 percent, extending a two-year high, after Canada’s largest wireless operator added more customers than projected in the third quarter. Sales grew to C$3.38 billion, compared with projections for C$3.32 billion.

     Rogers also owns Major League Baseball’s Toronto Blue Jays, which snapped a 21-year playoff drought in October and are currently battling the Kansas City Royals in the American League Championship Series. The team’s recent success has driven the Jays’ value to about $1.5 billion, a 10-fold gain from when Rogers bought the team in 2000, according to new calculations from sports valuation experts.

US

By Anna-Louise Jackson and Joseph Ciolli

     (Bloomberg) — Back to flat. Almost.

     Two months after the first correction since 2011 broke a yearlong calm in U.S. equities, the Standard & Poor’s 500 Index is jumping again, climbing as much as 1.8 percent Thursday to bring its gain from its lowest close in August to 10 percent. The benchmark gauge for American equities now sits at a level last seen on Aug. 19 and is 7 points below its Dec. 31, 2014 closing price, making its performance year-to-date just about flat.

     Slicing it differently: U.S shares have climbed back into the trading range they tumbled out of in August during a six-day selloff that wiped out $2 trillion in market value. Half of the S&P 500’s 10 major groups now are trading above their Aug. 19 closing levels, with energy stocks and consumer staples leading. While few investors are ready to sound the all clear, some see signs the worst is behind them, citing the market’s ability to go up even as corporate earnings fall flat.

     “There’s no fear that we’re going into recession, and a huge slowdown doesn’t seem to be coming to fruition. Now we can look at a slow-growth yet positive-trending economy,” said Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania. “The question is now how much will earnings increase. The market is betting there’s a better chance of that now than in the past couple months.”

     The S&P 500 surged 1.7 percent to 2,052.51 at 4 p.m. in New York, sparked by a batch of better-than-estimated earnings from companies including McDonald’s Corp. and EBay Inc., bolstering optimism on the health of corporate America. Prospects that Europe will move to boost its economy provided a further lift as European Central Bank President Mario Draghi said policy makers will investigate fresh stimulus measures.

     In addition to McDonald’s and EBay rising more than 8.1 percent, Dow Chemical Co. advanced 5.1 percent after its earnings topped forecasts, and Texas Instruments added 12 percent after better-than-estimated results.

     After the market closed, Google parent Alphabet Inc. reported better-than-projected earnings amid stronger ad sales and while keeping expenses under control. The shares rallied 8.5 percent in late trading. Amazon.com Inc. jumped 10 percent after hours as its quarterly sales topped analysts’ estimates, thanks to its growing cloud-computing division and a boost from its July Prime Day promotion.

     The rally is also an affirmation of sorts for Wall Street stock forecasters who clung to optimistic outlooks even as the S&P 500 slid more than 11 percent to 1,867.61 between Aug. 17 and Aug. 25. Getting to the median estimate of 21 strategists tracked by Bloomberg of 2,150 would’ve taken a 15 percent rally from August’s lows. Today it requires less than 5 percent.

     John Stoltzfus of Oppenheimer & Co. remained unchanged on his year-end price target of 2,311 during the selloff. He’s now the most bullish out of 21 people surveyed. RBC Capital Markets’ Jonathan Golub, whose forecast is 2,100, said in an interview today that his target now has some “upside” again.

     “It’s frankly happening more than I’d expected or hoped for and I may have not been bullish enough about the resiliency of this market,” Golub said by phone.

     The S&P 500 is on track for its fourth consecutive week of gains, the first time its done so since December 2014. Meanwhile, this month is setting up to be the market’s best October since 2011’s nearly 11 percent increase.

     Energy, technology and industrial stocks have led the post- selloff rally, with each group rising more than 12 percent since Aug. 25. Health-care is the only group of 10 that is lower now. The market has undergone a change in leadership, as the first seven months saw health-care and consumer discretionary stocks leading the charge with gains exceeding 11 percent, while energy sank 13 percent.

     The S&P 500 is rebounding from its worst quarter in four years after the index entered its a correction, with the rout sparked by China’s unexpected devaluation of the yuan on Aug. 11. At the time, concern mounted that the slowdown in the world’s second-largest economy was worse than anticipated and would drag down global growth.

     Comments from the ECB’s Draghi are “definitely” supporting today’s gains, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC, which manages about $1 trillion in assets. “That’s what’s really driving this rally and today’s risk-on environment. Earnings expectations were very, very low and it’s been easy to beat those expectations and that’s also been contributing to this rally.”

     So powerful was the advance that stocks that fell on earnings news in early trading were surging by midday. Caterpillar Inc. lost as much as 2.7 percent after a premarket report showed sales fell the most in five years, only to erase the loss within the first 30 minutes of trading. The same was true for copper producer Freeport-McMoRan Inc., which also saw its earnings miss spur a 3.5 percent decline that was reversed within minutes of the market open.

     Meanwhile, volatility across global markets is dissipating after whipsawing stocks, bonds and commodities for two months. The Bank of America Merrill Lynch Market Risk Index is at its lowest level since August, while the Chicago Board Options Exchange Volatility Index of U.S. equity turbulence recently posted the longest streak of daily declines since 2009. The gauge known as the VIX fell 13 percent Thursday to 14.45, the lowest since Aug. 18 and on track for the biggest monthly drop ever.                          

     Investors are looking to corporate America for clues on the strength of the economy. Of those companies that have reported earnings so far, 45 percent have topped sales estimates and 72 percent have beaten profit projections. Third-quarter earnings are projected to fall 6.7 percent, data compiled by Bloomberg show.

     Mixed data in the U.S. and volatile financial markets kept the Federal Reserve from tightening last month and reduced expectations for an interest-rate increase this year. March is the first month for which traders are pricing in at least even odds of a liftoff. The probability of a boost before January is about 32 percent.

     A report today showed sales of previously owned homes rose in September to the second-highest level since February 2007, while separate data showed the number of Americans filing for unemployment benefits hovers near the lowest in four decades.

Have  a wonderful evening everyone.

Be magnificent!

What is the world?  It is the earth below and the sky above and the air in space that connects them.

What is light?  It is fire below and the sun above – and the lightning that connects them.

What is education?  It is the teacher above and the disciple below – and the wisdom that connects them.

Taittiriya Upanishad

As ever,

Carolann

I dream my painting, and then I paint my dream.

                       -Vincent Van Gogh,  1853-1890

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

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7