February 5, 2016 Newsletter

Dear Friends,

Tangents:

DRIVE-THROUGH COMEDY

British funnyman James Corden’s “The Late Late Show (CBS) may come on past your bedtime, but thanks to YouTube, you can get caught up on his hilarious and wildly entertaining Carpool Karaoke skits, in which he invites the likes of Rod Stewart, boy bank One Direction, Stevie Wonder to ride with him to work and sing along with the radio.  The latest passenger is Chris Martin  – too funny. 

Check it out at www.youtube.com/user/TheLateLateShow.

PHOTOS OF THE DAY

Lightning flashes above flowing lava as Sakurajima, a well-known volcano, erupts Friday evening in southern Japan. Kyodo News/AP

Strollers and a cyclist enjoy the sunset on the shore of Lake Zug Friday in Zug, Switzerland. Alexandra Wey/Keystone/AP

Market Closes for February 5^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks were little changed on Friday, as gold and silver producers pared earlier losses triggered by data showing the economy lost jobs last month.

     The Standard & Poor’s/TSX Composite Index fell 10.51 points, or 0.1 percent, to 12,763.99 at 4 p.m. in Toronto, paring declines in the final hour of trading as raw-material shares advanced. The benchmark gauge capped a weekly drop of 0.5 percent, after posting wild swings of more than 140 index points for six straight days prior to Friday.

     Canada’s equity benchmark is the best-performing developed market in the world in 2016, after being among the worst in the past year. While the S&P/TSX entered a bear market last month, the gauge rallied from a two-and-a-half year low in January to trim declines for the year. It is currently down 1.9 percent for 2016.

     A report today showed Canada’s unemployment rate unexpectedly climbed to 7.2 percent from 7.1 percent in January while the number of jobs fell by 5,700. Economists surveyed by Bloomberg had projected a 6,000 increase. Alberta’s jobless rate rose to the highest since February 1996 at 7.4 percent.

     “The weaker than expected decline in employment in January was a poor start to the year and provides more evidence that the economy is struggling to cope with the collapse in oil prices,” said David Madani, senior Canada economist at Capital Economics in a note to clients. “The Bank of Canada will likely have no other choice but to cut interest rates further.”

     While the recently elected federal government led by Prime Minister Justin Trudeau is expected to introduce fiscal stimulus to help buffer the economy, that is not likely to have an effect until the second half of the year, and the jobless rate will increase to as high as 7.8 percent a year from now, Madani said.

     Separately, data showed the U.S. economy added 151,000 jobs in January, as hourly earnings improved from year-ago figures. A further tightening of labor conditions that sparks wage gains would help assure Federal Reserve policy makers inflation will reach its goal.

     Raw-materials producers jumped 2.7 percent, the most in the S&P/TSX. Goldcorp Inc. and Barrick Gold Corp. rose more than 5.1 percent as all 10 of the biggest gainers today were gold and silver producers. Spot gold climbed for a sixth day on Friday, while silver prices increased for a third day.

     Industrial and technology companies contributed the biggest declines to the S&P/TSX. Bombardier Inc. dropped 8.1 percent to the lowest since 1989. The Canadian government is pushing for changes to the embattled planemaker’s dual-class share structure in exchange for financial aid, officials familiar with the plans said.

     BlackBerry Ltd. dropped 3 percent, the most in three weeks, after the smartphone maker fired about 200 employees in Florida and Ontario in an effort to trim costs. Sierra Wireless Inc. sank 24 percent to a two-year low after forecasting 2016 earnings and revenue that fell short of analysts’ estimates.

     Genworth MI Canada Inc., a mortgage insurer, jumped 4.5 percent to a month high after reporting fourth-quarter earnings ahead of analysts’ estimates. About half of the 240 companies listed in the S&P/TSX are scheduled to report earnings over the next two weeks.

US

By Joseph Ciolli and Anna-Louise Jackson

     (Bloomberg) — The willingness of U.S. stock investors to abide price-earnings ratios stretching into three and four digits came under pressure Friday as the Nasdaq Composite Index fell to its lowest since October 2014.

     The jobs-day tumble in American equities turned into a full-blown selloff in stocks with the highest valuation. The Nasdaq Internet Index sank 5.2 percent, as Facebook Inc. lost 5.8 percent. Tableau Software Inc. tumbled more than 49 percent after a miss on licensing revenue, setting off a rout in data- analytics firms including Salesforce.com Inc. LinkedIn Corp. fell 44 percent after forecasting a year of slower revenue growth.

     The Nasdaq 100 Index lost 3.4 percent to 4,024.47 at 4 p.m. in New York, to the lowest since August. The Standard & Poor’s 500 Index fell 1.9 percent to 1,880.02, capping the second-worst week this year, down 3.1 percent. It was the gauge’s worst performance on the day of a U.S. jobs report since June 2012, when it plunged 2.5 percent. The Dow Jones Industrial Average dropped 211.75 points, or 1.3 percent, to 16,204.83.

     Stocks declined in inverse proportion to valuation, with a group of about 100 companies with the highest price-earnings ratios in the Russell 1000 Index declining more than 4.5 percent while the lowest gained 1.9 percent.

     “Investors are selling the big tech and large-cap names to stem any further losses — that’s what’s leading us down today,” said Stephen Carl, principal and head equity trader at Williams Capital Group LP. “Economic numbers were mixed, and the market started off modestly down before starting to make new lows as it went along. You’ve seen profit-taking going into the weekend as well.”

     A report today showed job growth settled into a more sustainable pace in January and the unemployment rate dropped to an almost eight-year low, signs of a resilient labor market that’s causing wage growth to stir. While the increase in payrolls was less than forecast, it largely reflected payback for a seasonal hiring pickup in the final two months of 2015. Hourly earnings rose more than estimated after climbing in the year to December by the most since July 2009.

     The S&P 500 Technology Index fell 3.4 percent, its third decline in four days. Salesforce.com dropped 13 percent, while Adobe Systems Inc. and Red Hat Inc. lost at least 7.9 percent as Tableau’s tumble dragged down other software makers.

     LinkedIn reported a loss for the year ended Dec. 31. The company said income before items was $373 million for the 12 months, meaning its market value at Thursday’s close was almost 70 times earnings by that measure. Amazon trades at a price- earnings ratio of more than 400. The most expensive company in the Nasdaq Composite is Shutterfly Inc. with a multiple of more than 1,700, Bloomberg data show.

     “The market is starting to beat up a number of companies that had held up well or that were the 2015 momentum stocks,” said David Katz, who oversees about $680 million as chief investment officer at Matrix Asset Advisors Inc. in New York. “When you have a LinkedIn selloff of 45 percent, it just brings up people’s worst fears. Everybody’s trying to get out of a small exit.”

     Microsoft Corp. dropped for a fifth day, the longest losing streak in five months. Shares are down 9 percent since a 5.8 percent rally on Jan. 29 following the company’s better-than- expected earnings. A gauge of semiconductor stocks fell 3.3 percent, led lower by declines of more than 5.7 percent in Nvidia Corp., Skyworks Solutions Inc. and Broadcom Ltd.                       

     The Nasdaq Internet Index lost 5.2 percent, the most since 2011, to the lowest in more than a year. Facebook, Amazon and Priceline Group Inc. sank more than 5 percent, with Facebook posting its steepest retreat in 15 months.

     Apple Inc. ended the week as the world’s most valuable company, a title it relinquished on Tuesday to Google parent Alphabet Inc. Shares in Alphabet failed to sustain gains sparked by better-than-expected earnings and dropped 7.6 percent for the week, while the iPhone maker limited losses to 3.4 percent in the five days. Apple’s market capitalization of $521 billion surpassed Google’s by almost $50 billion.

     The Chicago Board Options Exchange Volatility Index climbed 7.1 percent Friday to 23.38. The measure of market turbulence known as the VIX rose 11 percent in January, its third straight monthly increase. About 9.4 billion shares traded hands on U.S. exchanges, 21 percent above the three-month average.

     Following the jobs data, the dollar rebounded from a slide that had helped boost commodity prices and optimism for profits at multinational companies, sending shares of raw-material and industrial companies higher in the previous two days. Whipsawing markets and global growth worries have made further rate hikes from the Federal Reserve less likely this year, putting pressure on the U.S. currency.                      

     “The market is trying to sort out what this means for the Fed,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, which oversees $110 billion. “The report, in a vacuum, would suggest a March increase is back on the table. It was nice to see some wage gains for the first time in a while. It becomes a quandary for the Fed board now. This adds to the confusion over when the next rate hike will come.”

     Fed officials in comments this week urged patience in assessing the economy amid tighter financial conditions. Policy makers in December indicated four quarter-point rate increases might be warranted this year. Amid financial market turbulence and tepid data, investors have cut the probability they see of the Fed acting, pricing in just a 10 percent chance of a March increase and 17 percent odds in April, up from 15 percent just before the jobs report.

     Investors have been on guard for any signs in economic data or corporate earnings that weakness emanating from China is spilling over. With the U.S. earnings season more than midway through, about 77 percent of firms that have reported have beat profit estimates, though less than half posted better-than- expected sales. Analysts estimate earnings at index members fell 4.5 percent in the fourth quarter, better than Jan. 15 predictions for a 7 percent slump.

     Eight of the S&P 500’s 10 main industries declined today, with technology and consumer discretionary companies falling at least 3.1 percent. Seven groups slid more than 1 percent. Phone and utility shares were the only groups to gain. For the companies that tumbled the most today — Hanesbrands Inc., Salesforce.com Inc. and Hess Corp. — it was the worst day for all three stocks since 2008.                     

     Consumer discretionary companies in the benchmark fell for a fourth straight day to the lowest level in a year. Hanesbrands led the way, dropping 15 percent after its 2016 sales outlook fell short of analyst expectations.

     News Corp., the Wall Street Journal and New York Post publisher controlled by billionaire Rupert Murdoch, slid 9.1 percent to a record low after its quarterly profit missed estimates as advertising sales declined. Nike Inc. decreased 5 percent, the most since March 2014, and Netflix Inc., the S&P 500’s strongest performer last year, sank 7.7 percent to the lowest since last May.

     Restaurants were hammered amid speculation their profits could suffer from higher wage costs. Starbucks Corp. dropped 6.5 percent, the biggest one-day loss since 2012. Darden Restaurants Inc., McDonald’s Corp. and Taco Bell parent Yum! Brands Inc. all declined more than 3.5 percent.

     “After all the dust settles, people are going to continue to watch oil and the financial stocks,” said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. “People are definitely looking at the macro issues right now more than they’re looking at earnings.”

Have a wonderful weekend everyone.

Be magnificent!

Though there is repulsion enough in Nature, she lives by attraction.

Mutual love enables Nature to persist.

Mahatma Gandhi

As ever,

Carolann

I frequently tramped eight or ten miles…to keep an appointment with a beech tree

or a  yellow birch or an old acquaintance among the pines.

                              -Henry David Thoreau, 1817-1862

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

Portfolio Manager &

Senior Vice-President