July 26, 2016 Newsletter

Dear Friends,

Tangents:

Carolann is out of the office, I will be writing the newsletter on her behalf.

PHOTOS OF THE DAY

Solar Impulse 2, a solar powered plane, arrives at an airport in Abu Dhabi, United Arab Emirates, on Tuesday. Reuters

On Monday, street performers dance along Copacabana Beach in Rio de Janeiro, less than two weeks before the start of the Rio 2016 Olympic Games. Stoyan Nenov/Reuters

Market Closes for July 26^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks rebounded from the biggest slump in a month with the biggest gain in two weeks amid corporate earnings and a rally in gold producers.

     The S&P/TSX Composite Index added 0.4 percent to 14,550 at 4 p.m. in Toronto, the biggest gain since July 12. A rout in energy shares dragged the index lower by 0.7 percent on Monday. The benchmark is now up 12 percent in 2016, making Canadian stocks more expensive than their U.S. peers, with a price- earnings ratio of 22.4 for the S&P/TSX, about 11 percent higher than the S&P 500 Index.

     Raw-materials producers climbed 2.2 percent as a group, the biggest contributor to gains in the S&P/TSX as six of 10 industries increased on trading volume 17 percent lower than the 30-day average. Gold prices pushed higher as the dollar fell ahead of the July interest rate decision at the Federal Reserve. Traders are pricing in only a 10 percent chance of a rate increase in July, according to data compiled by Bloomberg.

     The gain in mining stocks extends a rally for the group this year to 56 percent, the best year-to-date performance for the group in at least 30 years, according to data compiled by Bloomberg. Mining and energy stocks have propelled Canada to the second-best performance among developed markets, trailing only New Zealand. It’s a far cry from last year, when the S&P/TSX was one of the worst-performing markets in the world, slumping the most since the 2008 Financial Crisis.

     Canadian National Railway slipped 0.5 percent. While the nation’s largest railroad reported adjusted earnings of C$1.11 a share ahead of the C$1.06 average of estimates compiled by Bloomberg, revenue fell 9.1 percent, short of analysts’ forecasts. The company cut jobs and parked locomotives in the quarter in the face of weakening freight demand.

     Canopy Growth Corp. slipped 1.2 percent, trading near the highest level in eight months in its first day of trading on the Toronto Stock Exchange after graduating from the junior Venture exchange. The marijuana grower surged 19 percent in the past two days, reversing losses for the year.

     Element Financial Corp. lost 3.6 percent, the biggest decline in a month. The equipment finance firm agreed Monday to split into two companies.

US

 By Dani Burger

     (Bloomberg) — Earnings from McDonald’s Corp. to Caterpillar Inc. tugged U.S. stocks in opposite directions, leaving benchmark indexes little changed as investors turned attention to Wednesday’s Federal Reserve policy decision.

     Housing data that showed the biggest gain in new-home sales in eight years bolstered optimism in the economy and raised the specter that the Fed may strike a more hawkish tone on rates after its two-day meeting. Apple Inc. is slated to report results after the close of trading. Twitter Inc. sank in late trading after forecasting revenue below estimates and amid signs of a struggle to win more ads.

     The S&P 500 Index rose less than one point to 2,169.18 at 4 p.m. in New York, narrowly avoiding its first two-day losing streak since the Brexit secession vote a month ago. The index has rallied 8.4 percent in that time after a 5.3 percent rout in the two days following the U.K.’s shock decision to secede from the European Union. The gauge retreated on Monday from a record, with energy producers sliding amid a decline in oil prices. The Dow Jones Industrial Average slipped 0.1 percent to 18,473.61 on Tuesday, and the Russell 2000 Index of small caps added 0.6 percent.

     “I don’t get the sense that the stock market will rocket higher any time soon,” said Mark Heppenstall, the Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management. His firm oversees about $20 billion. “It’s hard to make case to push the numbers up from here. A lot of those way of boosting earnings are well played out. You’ll have to see earnings that will drive market from this point as opposed to financial engineering or cost cutting.”

     The rally that pushed the S&P 500 up for four straight weeks has faltered as the Fed kicks off a two-day meeting, with economists estimating the central bank will keep borrowing costs unchanged at its conclusion on Wednesday. Traders will also focus on earnings, with 45 companies in the S&P 500 scheduled to report results on Tuesday, including Apple Inc.

     Traders are pricing in less than even odds of a rate increase until at least March 2017. While recent economic data have beaten forecasts, Chair Janet Yellen and her colleagues have emphasized a gradual pace of tightening. On Tuesday, data showed consumer confidence fell by less than forecast, while new-home sales rose in June to the highest level in more than eight years. Home prices in 20 U.S. cities rose less than projected in May from a year earlier.

     After recovering from its losses following the U.K. vote to leave the European Union, the S&P 500 went on to post seven records in 10 days. Optimism that corporate earnings would help support stock prices has pushed the gauge up 19 percent from its low in February, with analysts easing their estimates for second-quarter profit declines at S&P 500 companies to 4.5 percent. The S&P 500 is now up 6.1 percent for the year, one of the best performances among developed-market equities.

     Trading Tuesday was volatile in volume in line with the 30- day average. The S&P 500 reversed morning gains after rising to 2,173.54, coming within about a point of its record close on Friday. It slipped about 13 points in 90 minutes, leveling off around yesterday’s intraday low of 2,161.95. The tumble in the S&P 500 coincided with a period of extreme volume in futures that track the benchmark gauge. Volume in so-called e-mini contracts averaged more than 21,000 a minute between 10:55 a.m. and 10:57 a.m. New York time, compared with an average of about 1,700 in the three minutes prior. The gauge subsequently erased those losses.

     Meanwhile, the earnings season has delivered more optimistic outlooks, as the ratio of companies raising their forecasts jumped toward a 12-year high, data from Credit Suisse Group AG show. Nearly 90 percent of companies in the S&P 500 Index that have changed previously disclosed expectations for future earnings have raised the target, among those that reported results between June 1 and July 21, according to data compiled by the bank.

     “This market seem more devoid of earnings reactions than I can remember in a while,”  Brian Frank, portfolio manager at Key Biscayne, Florida-based Frank Capital Partners LLC, said by phone.“ It’s all about if central banks are going to do more QE, buying bonds or issuing perpetual zero coupon bonds in Japan. It’s all macro.”

     In Tuesday’s trading, five of the S&P 500’s 10 main industries moved lower, led by phone and utility companies, which fell as much as 1.5 percent. Verizon Communications Inc. lost 1.9 percent after it posted wireless subscriber gains that missed analysts’ estimates. 3M Co., after cutting its outlook for sales growth due to pressure from a strong U.S. dollar, dropped 1.1 percent.

     Among the biggest declines in the Dow, McDonald’s fell 4.5 percent after reporting same-store sales growth that missed analysts’ estimates. Amid concerns that the U.S. fast-food industry is heading into a recession, Darden Restaurants Inc., Chipotle Mexican Grill Inc. and Yum! Brands Inc. fell as much as 3.8 percent.

     Technology companies in the S&P 500 gained 0.4 percent, closing at a 16-year high. The group was boosted by Analog Devices Inc., which announced it will acquire Linear Technology Corp. for about $14.8 billion. Shares in Analog rose 3.9 percent, while Linear posted a 29 percent gain. Also moving on corporate news, Texas Instruments Inc. jumped after the largest maker of analog semiconductors forecast revenue and profit that may beat analysts’ estimates.

     Netflix Inc. extended gains from Monday, rallying 4.3 percent after a director, Jay Hoag, disclosed a 600,000 share purchase in the company.

Have a wonderful evening everyone.

Be magnificent!

“Good, better, best. Never let it rest. ‘Til your good is better and your better is best.” St. Jerome

As ever,

Karen

“It always seems impossible until its done.” Nelson Mandela

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