March 8, 2016 Newsletter

Dear Friends,

Tangents:

On March 8^th, 1950, the Volkswagen microbus, an icon of the counterculture movement, went into production.  The vehicle, officially known as the Volkwagen Type 2 (the Beetle was the Type 1) or the Transporter, was a popular mode of transportation among hippies in the U.S. during the 1960s.

1913: US income tax begins.

1917: Russian Revolution begins

1983: President Reagan calls USSR an “evil empire.”

PHOTOS OF THE DAY

Dajana Djuric, who has worked as a chimney sweep since the age of six, cleans a chimney in Brcko, Bosnia and Herzegovina. Dado Ruvic/Reuters

Australian Shepherd Hank tries to catch a frisbee in Frankfurt, central Germany, Tuesday. Frank Rumpenhorst/dpa/AP 

Market Closes for March 8^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks fell for the first time in nine days, halting the longest rally in almost two years, as commodities producers dropped amid renewed concern that resources demand from China will slump.

     The Standard & Poor’s/TSX Composite Index lost 0.5 percent to 13,311.05 at 4 p.m. in Toronto. The benchmark equity index had surged 5.1 percent during the longest winning streak since 2014. Canada’s benchmark equity gauge is the best-performing developed market in the world this year, joining New Zealand as the only two nations in positive territory.

     The resurgent S&P/TSX has gone from zero to hero this year, benefiting from a rebound in commodities prices from crude to copper and precious metals. The index has clawed back gains rapidly after entering a bear market in January, after a slide in 2015 that resulted in the worst annual performance since the financial crisis.

     Shares in the Canadian gauge now trade at about 21 times earnings, roughly 18 percent more expensive than the valuation of the benchmark U.S. equity index, the S&P 500 Index, data compiled by Bloomberg show. 

     Global stocks halted a five-day rally after a report showed China’s export slump deepened in February, plunging 25.4 percent for the biggest decline since May 2009. Imports meanwhile extended a streak of declines to 16 months, highlighting the difficulties Canada’s second-largest trading partner faces in maintaining steady economic growth.

     Raw-materials and energy producers declined the most in the S&P/TSX, as six of 10 industries retreated. Trading volume was 14 percent higher than the 30-day average. The two groups have led the rebound in Canadian equities, surging at least 23 percent from January lows to return to bull markets.

     Base metals producers Teck Resources Ltd. and First Quantum Minerals Ltd. lost at least 7.5 percent to lead raw-materials producers lower. The industry is the best-performing in Canada this year with a 20 percent advance. 

     The rally in iron ore stalled after soaring a record 19 percent yesterday. Encana Corp. retreated 15 percent as crude futures reversed gains to fall from the highest price this year. Encana extended losses in the final minutes after a Reuters report it was looking at a sale of about $1 billion more assets.

     Performance Sports Group Ltd., which makes athletic equipment for hockey and lacrosse, plunged a record 66 percent after the company slashed its 2016 earnings forecast to a range of 12 to 14 cents from 66 to 69 cents. One of the company’s national retailer clients has filed for Chapter 11, resulting in write downs, Performance Sports said.

US

By Oliver Renick

     (Bloomberg) — The Standard & Poor’s 500 Index fell the most in two weeks, led by a selloff in energy shares, after worsening economic data from Asia reignited concern over the outlook for global growth.

     Commodity companies and banks, pillars of the market’s recent gains, paced declines. Energy producers in the S&P 500 fell the most in six weeks as oil retreated, while the Russell 2000 Energy Index posted the biggest drop since November 2014. JetBlue Airways Corp. tumbled 9 percent to lead airlines lower after a revenue forecast disappointed. Urban Outfitters Inc. jumped the most in more than three years after its quarterly profit topped estimates.

     The S&P 500 slid 1.1 percent to 1,979.26 at 4 p.m. in New York, its first decline in March to end its longest winning streak in five months. The Dow Jones Industrial Average fell 109.85 points, or 0.6 percent, to 16,964.10 after nearly erasing a 152-point drop. The Nasdaq Composite Index slipped 1.3 percent, while the Russell 2000 Index declined 2.4 percent, the most in a month.

     “You have to consider China data coming in the way it did because then you have a potential for the global slowdown, but that’s a story that’s pretty well understood,” said Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York. “We’re digesting this steady move up we’ve had that hasn’t really had a bout of risk-off considering it was a huge bounce off the bottom. A lot of people are looking out to the ECB and one comment from Draghi could bring us into risk-off.”

     Equities fell Tuesday as data showed Japan’s economy and Chinese exports are shrinking, reviving anxiety that monetary policy won’t be enough to support global economy. The declines also come after the S&P 500’s best three-week stretch since 2014, as investors reined in risk-taking before gatherings of central bankers in Europe and the U.S.

     Energy producers in the benchmark slid with crude, down 4.1 percent for the biggest drop since Jan. 25 after a 14 percent gain during the past three weeks. Banks fell for a second session after halting a four-day advance Monday, a sign that momentum in the group was slowing following a 15 percent rebound from nearly three-year lows. Apache Corp. and Transocean Ltd. sank at least 9.5 percent, while Citigroup Inc. decreased 3.7 percent.

     West Texas Intermediate crude dropped 3.7 percent, after closing Monday at its highest since Dec. 24., on expectations that reports will show U.S. inventories rose last week to an eight-decade high.

     Investors are looking to Thursday’s European Central Bank policy update, and next week’s Federal Reserve gathering for indications of the trajectory of interest rates and potential for further stimulus. Speculation for additional moves from the ECB to boost growth, along with nascent stability in crude prices and improving U.S. data have helped global equities rebound during the past three weeks.                          

     Traders are pricing in a less than one-in-10 chance the Fed will raise borrowing costs this month. Odds for a September move have risen to about 57 percent from less than 35 percent two weeks ago, though the probability slipped from 59 percent yesterday following the data from China and Japan.

     The S&P 500 is up 8.2 percent since a low last month after slipping today from the highest since Jan. 5. The index is down 3.2 percent this year, after losing as much as 11 percent. It trades at 16.6 times this year’s projected earnings, up from a two-year low of 15.2 in February. Still, that’s about 8 percent below the 18.1 peak reached last April.

     “After three weeks of gains, we’re getting a bit of profit- taking triggered by the not-so-nice economic figures out of Asia,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “Oil has helped push markets up and we’re lacking that catalyst today. It’s also a question of pausing and waiting to hear from Draghi this week and the Fed soon after.”

     The Chicago Board Options Exchange Volatility Index rose 7.6 percent Tuesday to 18.67, the most in two weeks. The measure of market turbulence known as the VIX had lost 40 percent during the S&P 500’s three consecutive weeks of gains through Friday. About 8.6 billion shares traded hands on U.S. exchanges, 4 percent below the 2016 average.

     Some of the biggest winners since the market touched a low on Feb. 11 reversed course. Financial, materials and energy stocks, three of the top four performers in the S&P 500 since then, led the benchmark gauge lower Tuesday with declines of at least 1.6 percent. Investors instead turned to defensive shares that have been the best performers in 2016, as utilities and consumer staples added at least 0.3 percent.

     Banks that made the biggest comebacks from lows last month were among the hardest hit today. Comerica Inc. lost 4.1 percent after a 23 percent jump in the last three weeks, while Bank of America Corp. sank 3.5 percent after a 21 percent run-up.

     Ford Motor Co. and General Motors Co. retreated more than 2.8 percent. Retail auto sales in China fell 3.7 percent in February from a year ago, the Passenger Car Association said on its website. Auto and parts makers in the S&P 500 have been the strongest performers since Feb. 11 among 24 industry groups in the benchmark, rising more than 18 percent through Monday.

     Freeport-McMoRan Inc. slumped 12 percent, the biggest decline in almost two months to lead raw-materials to their worst day since Feb. 23. Shares of the copper miner surged 31 percent last week, the most in more than seven years. Alcoa Inc. lost 7.1 percent today, the largest retreat since Jan. 12.

     Declines in semiconductors, which were also strong performers during the recent rally, dragged down the technology group. Micron Technology Inc. and Skyworks Solutions Inc. dropped at least 4.1 percent. Intel Corp. decreased 1.2 percent.                       

     Consumer staples shares reversed much of Monday’s decline, boosted by drugstore chain Walgreens Boots Alliance Inc.’s 1.6 percent climb. Costco Wholesale Corp. gained 2 percent to rise for the first time in four days, and Clorox Co. added 1.6 percent.

     Among shares moving on corporate news, SunEdison Inc. rose 5.3 percent, trimming gains of more than 33 percent, after its $1.9 billion deal to acquire Vivint Solar Inc. was canceled by the target. The move is a relief to SunEdison shareholders who balked at a plan to pay a 52 percent premium for Vivint and raised concerns about the amount of debt the company had taken on.

     Shake Shack Inc. fell 12 percent, the most since August, after slowing growth raised concerns about the burger chain’s lofty valuation. The company expects same-store sales to rise 2.5 percent to 3 percent in 2016, according to a statement on Monday. That compares with an increase of 13.3 percent in 2015.

Have a wonderful evening everyone.

Be magnificent!

In your veins, and in mine, there is only one blood,

The same life that animates us all!

Since one unique mother begat us all,

Where did we learn to divide ourselves?

Kabir

As ever,
 

Carolann

A weed is but an unloved flower.

 -Ella Wheeler Wilcox, 1850-1919

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