May 18, 2016 Newsletter

Dear Friends,

Tangents:

On May 18, 1980, the Mount St. Helens volcano in Washington state exploded.

On May 18, 1819, Lord Byron wrote to John Murray:

“I write to you in haste and at past two in the morning – having besides had an accident.  In going, about an hour and a half ago, to a rendezvous with a Venetian girl (unmarried and the daughter of one of their nobles), I tumbled into the Grand Canal, and not choosing to miss my appointment by the delays of changing, I have been perched in a balcony with my wet clothes on ever since – till this minute that on my return I have slipped into my dressing-gown.  My foot slipped in getting into my gondola to set out (owing to the cursed slippery steps of their palaces) and in I flounced like a carp – and went dripping like a triton to my sea-nymph – and had to scramble up to a grated window…”  -from The Book of Days.

PHOTOS OF THE DAY

A red poppy grows in a grain field near Wildau, eastern Germany, on Wednesday. Patrick Pleul/dpa/AP

Chicks dyed to draw attention are offered for sale at a small poultry market in Jakarta, Indonesia, on Wednesday. Darren Whiteside/Reuters

Market Closes for May 18^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks fell from a two-week high after the Federal Reserve policy makers indicated that a June interest-rate increase was likely if the economy continued to improve, sparking a rout in resource prices that sank commodities producers.

     The benchmark S&P/TSX Composite Index fell 0.7 percent to 13,826.01 at 4 p.m. in Toronto, with all of the decline coming after Fed meeting minutes signaled higher rates may come sooner than traders and investors had been anticipating. Trading volume jumped 18 percent above the 30-day average.

     A gauge of gold producers sank 7.4 percent, the most since August. Barrick Gold Corp. sank 8.2 percent. First Quantum Minerals Ltd. and Teck Resources Ltd. dropped at least 5.3 percent to lead broader raw-materials producers lower. Cenovus Energy Inc. and Suncor Energy Inc. lost more than 1.8 percent as energy producers fell.

     Copper sank to a three-month low and gold retreated for the first time in four days as the dollar climbed to a seven-week high. If incoming data suggested second-quarter economic growth, labor market conditions continued to strengthen and inflation made further progress toward the central bank’s 2 percent objective, then Fed officials would consider the economic climate “appropriate” for an interest-rate increase in June, according to minutes of the April 26-27 meeting released Wednesday in Washington.

     Traders are now pricing in a 30 percent chance of a Federal Reserve interest-rate hike in June, up from 4 percent on Monday. Economic data Tuesday on housing starts and the cost of living topped forecasts, renewing speculation for higher borrowing costs.

     Energy and raw-materials industries account for about 33 percent of the broader benchmark by market capitalization and have led gains this year, with the materials group surging as much as 43 percent for its best year-to-date performance in three decades. That’s helped the S&P/TSX post one of the best performances this year among developed economies, behind only New Zealand out of 24 markets.

     Financial shares helped offset losses in resource producers, rising 0.9 percent amid higher bond yields. Royal Bank of Canada added 1.7 percent for the biggest gain in five weeks.

     Valeant Pharmaceuticals International Inc. fell 3.8 percent after a three-day gain. The embattled drugmaker is said to be exploring the sale of some of its smaller cosmetic and pharmaceutical assets to raise cash and reduce debt, according to people familiar with the matter. The stock has slumped almost 90 percent from an August peak amid scrutiny over its business practices.

US

By Anna-Louise Jackson and Oliver Renick

     (Bloomberg) — The S&P 500 closed little changed, with a rally in banks offsetting broader declines paced by consumer shares, as Federal Reserve policy makers signaled a willingness to raise borrowing costs in June if the economy continues to improve.

     Equities favored for generous dividend payouts slid as Treasury yields spiked, while banks rallied the most in a month on the potential for higher interest rates to boost profits. Commodity shares slumped as the dollar soared on the Fed’s hawkish tone. Target Corp. fell the most since 2008 on disappointing results, and Wal-Mart Stores Inc. lost 3 percent to weigh on consumer shares.

     The S&P 500 rose less than 0.1 percent to 2,047.63 at 4 p.m. in New York, after lurching between gains and losses of more than 0.6 percent. The Dow Jones Industrial Average fell 3.36 points to 17,526.62 after jumping more than 100 points just before the Fed minutes. The Nasdaq Composite Index increased 0.5 percent, boosted by gains in Apple Inc. and Qualcomm Inc. About 8 billion shares traded hands on U.S. exchanges, 8 percent above the three-month average.

     “The hawkish commentary out of the Fed has been a bit surprising this week and it does seem the spin out of the minutes is reading a little bit more hawkish than folks were anticipating,” Mark Heppenstall, the Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management, said in a telephone interview. “The unemployment picture still looks reasonably good but other readings on growth domestically and across the globe have been sluggish.”                         

     Minutes from the Fed’s April meeting showed most officials said a rate increase would be appropriate in June if the economy continued to improve, but were divided over whether those conditions were likely to be met in time. Some meeting participants expressed concern that markets were ill-prepared for a June rate hike.

     In its statement last month, the Fed omitted previous language that “global economic and financial developments continue to pose risks,” tacitly nodding to improvement in financial markets. Policy makers also reiterated in April that they will probably raise rates at a gradual pace. Since the conclusion of the Fed’s meeting on April 27, the S&P 500 is down about 2.3 percent.

     Traders are pricing in a 30 percent chance of higher borrowing costs in June, up from 4 percent on Monday and 14 percent just before the Fed minutes. Wagers for a July move jumped to nearly 50 percent from 16 percent last week. September is now the first month with at least even odds of higher rates after such bets had been pushed out to February as recently as a week ago.

     “We’ve got to hear from Janet Yellen and she’s scheduled to speak two times before the next meeting,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.2 trillion. “The market needs to hear decisively whether or not the table will be set for rate hike in June.”

     Equities erased losses in the final minutes of trading Wednesday as banks extended gains. Concerns that borrowing costs could rise sooner than expected, even as global growth languishes, sent stocks lower yesterday, wiping out a rally Monday.

     Only twice since 2009 have bank shares in the S&P 500 outperformed the broader index as much as they did today. Once in February, when Jamie Dimon spent $26.6 million to buy shares of JPMorgan Chase & Co., and the other time was in November 2010, as the Fed prepared guidelines on whether lenders were strong enough to boost dividends and buy back shares after the financial crisis.

     Disappointing earnings from retailers, including Macy’s Inc. and Nordstrom Inc. have helped stoke more volatility lately. As the earnings season draws to a close, analysts have moderated forecasts for a first-quarter profit decline to 7.4 percent, from 10 percent in April. Still, Goldman Sachs Group Inc. downgraded equities to neutral, saying they don’t look attractive unless companies post sustained earnings growth.

     The S&P 500 has fallen for three straight weeks, the longest stretch since January, after a 15 percent rally from a 22-month low in February lost traction amid a tepid earnings season and lukewarm economic data. The benchmark has slipped 2.6 percent from a four-month high reached on April 20, and is less than 4 percent from a record set a year ago.

     “The market’s just a little bit on edge and there’s not a lot of conviction,” said Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth. “We’re seeing some rotation out of the more defensive areas like staples, and I think that relates to yesterday’s inflation concern coming in hotter than expected. That’s leading people to bring the Federal Reserve back on the table for the June meeting.”

     In Wednesday’s trading, the CBOE Volatility Index increased 2.4 percent to 15.95, a two-week high. Among the S&P 500’s 10 main industries, utilities, raw-materials and phone companies retreated at least 1.3 percent. Financial shares jumped 1.9 percent, and technology companies gained 0.5 percent, paring an earlier increase by more than half. AT&T Inc. dropped 1.7 percent, the biggest in four weeks. Copper producer Freeport- McMoRan Inc. sank 8.4 percent.

     Consumer staples slumped for a second day as Hormel Foods Corp. tumbled 8.6 percent, the most since 2008 after narrowing margins sparked concern about the maker of Spam and other supermarket fare. Costco Wholesale Corp. fell 1.6 percent, its fifth decline in six days, while Wal-Mart capped the biggest two-day loss since October.

     Joining Target’s decline within the consumer discretionary group, Nordstrom Inc. fell for a seventh session, the longest losing streak since December. The shares are down 26 percent during the span. Best Buy Co. sank 3.6 percent to a one-month low and Urban Outfitters Inc. lost 3.3 percent before its earnings report.

     Citizens Financial Group Inc. and Huntington Bancshares Inc. jumped at least 5.3 percent to lead gains among banks in the equity benchmark. Bank of America Corp. and JPMorgan Chase added more than 3.8 percent amid speculation higher rates will bolster profits. In the broader financial group, Lincoln National Corp. rose 4.1 percent to a four-month high, while Charles Schwab Corp. and E*Trade Financial Corp. each increased at least 4.9 percent.

     There was a bright spot amid the recent gloom of retailer earnings. Lowe’s Cos. jumped 3 percent to a record after posting a quarterly profit that topped projections. Home Depot Inc.’s results yesterday also exceeded estimates as the home- improvement industry has been largely immune from the malaise, with rising property values encouraging people to spend on their dwellings.

     Apple rose 1.1 percent, on track toward snapping its longest weekly losing streak in 11 months. Chief Executive Tim Cook began his first visit to India Wednesday as the iPhone maker and its competitors are keen to expand in a country with the prospect of a billion new device sales. Qualcomm added 1.5 percent to close at a three-week high, while Micron Technology Inc. rallied 3.9 percent.

Have a wonderful evening everyone.

Be magnificent!

Give with faith, and never without faith.

Give with dignity.  Give with humility.  Give with joy.

And give with understanding of the effects of your gift.

Taittiriya Upanishad

As ever,
 

Carolann

Life is a succession of moments, to live each one is to succeed.

                                                   -Corita Kent, 1918-1986

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