April 4, 2016 Newsletter

Dear Friends,

Tangents:

1928: Maya Angelou was born.

On April 4, 1968, civil rights leader Martin Luther King Jr., 39, was shot to death in Memphis, Tenn.

…and I’m off to Vancouver in a few minutes to attend an evening dinner and presentation with Peter Tertzakian, author of A Thousand Barrels a Second and, more recently The End of Energy Obesity – Breakingtoday’s energy addiction for a prosperous and secure tomorrow.  Tell you about it tomorrow.

PHOTOS OF THE DAY

A red flower sticks out surrounded by yellow flowers in a park in London, Monday. Frank Augstein/AP

People enjoy cherry-blossom viewing at Ueno Park in Tokyo, Sunday. Cherry blossoms, the country’s iconic flower, are in full bloom this weekend. Shizuo Kambayashi/AP

Market Closes for April 4^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks fell a third day, to the lowest level in almost a month, as a rally led by raw-material producers in the first quarter has faltered in April.

     The Standard & Poor’s/TSX Composite Index fell 0.8 percent to 13,336.15 at 4 p.m. in Toronto. While the Canadian benchmark equity gauge has lost 1.2 percent in a three-day slide, it’s still up 2.5 percent this year and remains one of the best- performing developed markets in the world.

     The resource-fueled rally through February and March that propelled the S&P/TSX in the first quarter of the year has not continued, as commodities from gold to copper and crude have retreated. The broader S&P/TSX’s valuation has slipped from last month’s high of 21.9 times reported earnings to 21.2 times. That’s 13 percent more expensive than the 18.8 times multiple of the S&P 500 Index, data compiled by Bloomberg show. 

     “Are global portfolio managers ready to underweight Canada again? The answer to this question is yes,” Javed Mirza, a technical analyst with RBC Capital Markets, said in a research note. “Given the larger weighting of energy in the TSX, deterioration in energy will be an additional headwind for the S&P/TSX Composite relative to other resource-light equity indexes.”

     Mirza says the potential that energy stocks have peaked and will now decline provides an opportunity to buy into the industry at a more attractive level in the summer. The S&P/TSX Energy Index is up 4.1 percent this year.

     Crude fell to a one-month low on Monday, dropping 3 percent in New York amid speculation whether major OPEC producers will be able to come to an output freeze agreement. Gold sank for a second day while copper is down seven days in a row, its worst run since February 2014. 

     Canadian raw-materials producers dropped 2 percent Monday, for the biggest drag on the S&P/TSX, while financials and energy producers also retreated. Trading volume was 37 percent lower than the 30-day average.

     BlackBerry Ltd. lost 2.4 percent for a second day of losses, slipping to a seven-week low. The smartphone maker reported fourth-quarter sales short of analysts’ estimates on April 1, as it works to shift its business towards software and services.

     Valeant Pharmaceuticals International Inc. dropped 6.1 percent, trading near a 2011 low. The drugmaker is facing push back from some of its lenders as it seeks to waive a default and loosen restrictions on its debt, according to people with knowledge of the matter. Valeant has been seeking relief from a technical default that arose when it didn’t file its 10-K before March 15.

US

By Oliver Renick

     (Bloomberg) — U.S. stocks slipped from their highest levels this year, with declines in consumer and industrial shares overshadowing gains in health-care companies, as investors looked for fresh reasons to continue a rally.

     Equities lost momentum after after capping a sixth weekly gain in seven. Ford Motor Co. and General Motors Co. fell more than 1.8 percent to the lowest in more than a month, sliding for a second day after disappointing March sales. Miner Freeport- McMoRan Inc. lost 4.8 percent as copper capped its longest losing streak in two years. Virgin America Inc. jumped 42 percent after Alaska Air Group Inc. agreed to buy the carrier for $2.6 billion.

     The Standard & Poor’s 500 Index dropped 0.3 percent to 2,066.13 at 4 p.m. in New York, the biggest slide in more than a week. The Dow Jones Industrial Average lost 55.75 points, or 0.3 percent, to 17,737. The Nasdaq Composite Index declined 0.5 percent. About 6.4 billion shares traded hands on U.S. exchanges, 25 percent below the 2016 average.

     “There’s a big divergence in opinion right now over whether this rally is a head fake or not,” said Craig Sterling, head of U.S. equity research at Pioneer Investments in Boston. “Stocks have gone up on not a lot of volume and we’re kind of at an inflection point right now. If we see a leg down in oil or bad macro data, or the rate trade doesn’t go the right way for equities, then we’re back to where we started the year.”

     The main U.S. equity benchmark retreated after extending 2016 gains on Friday, an advance that came amid reports showing the pace of job creation remained robust and manufacturing activity improved. That bolstered confidence in the economy, while central banks have signaled they will continue their efforts to support growth.

     The S&P 500 staged a rebound in the second half of the last quarter, erasing losses of as much as 11 percent, helped by a rally in crude oil and easing concerns that a global slowdown will deepen. Still, recent gains have come in light trading, with the benchmark going its longest without a daily move of 1 percent in more than a year. The index was about 3 percent from a record reached last May, and is one of three developed-market indexes that has erased losses for the year.

     Meanwhile, the Chicago Board Options Exchange Volatility Index rose 7.8 percent Monday to 14.12, the most in five weeks. The measure of market turbulence known as the VIX closed Friday at the lowest since August, 26 percent below its average over the past year.

     Following Fed Chair Janet Yellen’s reassurance last week that the pace of future rate increases will be gradual, traders are pricing in zero possibility of a hike at the end of April, with December now the first month with at least even odds of higher borrowing costs. A report today showed a measure of factory orders declined in February, suggesting business investment will be a drag on growth again in the first quarter. Minutes from the Fed’s meeting last month are due for release on Wednesday.                       

     Attention will begin shift more toward corporate earnings, with Alcoa Inc. unofficially kicking off the reporting season when it releases first-quarter results on April 11. Analysts estimate profit at S&P 500 firms fell 9.5 percent during the period, compared with forecasts for flat earnings growth at the beginning of the year. The S&P 500 now trades at its highest valuation since July, based on 12-month projected earnings.

     Strategists at Jefferies Group LLC see more room for stocks to rise, citing in part the low expectations for earnings which should make it easier for companies to produce surprises. “The bottom line is that with the Fed dovish, stock market investors skeptical and earnings set to be revised up, investors should guard against the risk of an upside breakout in stocks,” wrote the team led by Sean Darby, chief global equity strategist, in a note today. “The question then will be whether last May’s top remains intact.”

     Eight of the S&P 500’s 10 main industries fell Monday, with industrial, raw-materials and consumer discretionary companies losing at least 0.8 percent. Health-care shares gained 1 percent to the highest in almost three months, boosted by drug developers.                          

     General Electric Co. sank 2.2 percent, the most in seven weeks, after Sanford C. Bernstein & Co. Inc. downgraded the shares to the equivalent of neutral from buy, citing valuation. The stock had rallied more than 16 percent from a February low and was up 28 percent compared to a year ago. Caterpillar Inc. fell 1.4 percent to snap a six-day winning streak.

     Among consumer companies, PulteGroup Inc. lost 6.6 percent, the most since October, as the company’s chief executive officer plans to step down after pressure from the homebuilder’s founder. Richard Dugas will retire next year after more than a decade as CEO, according to a statement.

     Parts makers BorgWarner Inc. and Delphi Automotive Plc slid at least 3.8 percent. Wells Fargo Securities LLC analyst Richard Kwas wrote in a note that a report the stocks may be weighed by concerns about long-term European Union pollution targets expected next year. Nike Inc. dropped 2.6 percent to a three- week low, with the shares falling below their average prices during the past 50 and 200 days.

     Consumer staples in the benchmark retreated from an all- time high. J.M. Smucker Co. fell 3.7 percent, the most in 10 months, after Goldman Sachs Group Inc. downgraded the shares to sell. Hershey Co. and Archer-Daniels-Midland Co. decreased more than 1.1 percent.                       

     Facebook Inc. slid 3 percent, the most in almost two months. The company is in an “unfavorable set up” going into earnings, according to Deutsche Bank AG analyst Ross Sandler. Quarterly revenue expectations are high and may lead to temporary weakness, though investors should view a decline in the stock as a buying opportunity, the analyst wrote.

     Apple Inc. rose for the fourth time in five sessions, climbing 1 percent, while Yahoo! Inc. advanced 1.5 percent to the highest since August. Reuters reported late Friday that Time Inc. is said to consider partnering with a private-equity firm on a bid for Yahoo’s core Internet assets.

     Edwards Lifesciences Corp. surged 17 percent to an all-time high, pacing the climb in health-care after a study offered evidence on the benefits of its newest aortic valve. Allergan Plc and Vertex Pharmaceuticals Inc. rallied more than 3.5 percent as drug developers climbed for a third day. The Nasdaq Biotechnology Index rose 0.9 percent, after climbing as much as 2.4 percent.

     Pfizer Inc. and Merck & Co. Inc. increased at least 1.3 percent. Health-care companies had the smallest March increase of the S&P 500’s main groups, and are one of two — along with financials — to still hold losses for the year.

Have a wonderful evening everyone.

Be magnificent!

Society cannot be changed unless man changes.

Man, you and others, have created these societies

for generations upon generations.

Krishnamurti

As ever,

Carolann

One isn’t necessarily born with courage, but one is born with potential.  Without courage,

we cannot practice any other virtue with consistency.  We can’t be kind, true, merciful,

generous, or honest.

                               -Maya Angelou, 1928-2014

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