August 22, 2016 Newsletter

Dear Friends,

Tangents:

Wasn’t that a fantastic finale to the Olympic games last night?  Wow!  Can hardly wait four more years until Tokyo.

We went to Seattle on Saturday to see Seattle Opera’s performance of Rossini’s Count Ory.  It was superb – from the talent to the choreography.  The story had the audience chuckling throughout the performance.  The visuals achieved with the help of holography were breathtaking.  And the costumes were simply perfect.

   In Encore, Jessica Murphy Moo writes, “Oh, to have been a fly on the wall when librettist Eugène Scribe delivered the final draft of Count Ory to Rossini.  Just imagine the scene.  It is merely four months before the 1828 premiere, hardly enough time to get the music written.  The two men sit in an office at the Paris Opera where much Is riding on this collaboration between two of the leading theater artists of the day.  Rossini reads the libretto intently.
   Scribe starts talking a little nervously, giving a quick overview.  ‘…And so then it ends with all three leads in the same bed together and no one knows who is who.’
   Rossini scratches his head.  He doesn’t look up.
   ‘Great opportunity for a love trio,’  Scribe says.
   ‘Not a love duet/’
   ‘I was really thinking trio.’
   Rossini keeps reading and somewhere realizes that Count Ory has some fun not only with sex but also with religion, and his Italian-Catholic-guilt-pulse quickens.  ‘Are you sure we can do this?’  he asks.
   ‘Bien sûr!’  Scribe replies.
   Rossini thinks on it for a moment, and then smiles.

On August 22, 1902, President Theodore Roosevelt became the first United States chief executive to ride in an automobile in public.
PHOTOS OF THE DAY

Prime Minister of Japan Shinzo Abe is seen on stage dressed as Super Mario at the closing ceremony of the Rio Olympics on Sunday. Stoyan Nenov/Reuters

Uniformed soldiers of the King of Norway’s Guard parade for inspection by their mascot, king penguin Nils Olav, at Edinburgh Zoo on Monday. It was announced that the penguin who had previously been knighted has been promoted and given the new title of ‘Brigadier Sir Nils Olav.’ Jane Barlow/PA/AP
Market Closes for August 22^nd, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By Eric Lam
     (Bloomberg) — Canadian stocks rose, rebounding from early declines to halt a four-day slide, as advances in consumer and health-care companies overcame losses in natural-resource producers.
     The S&P/TSX Composite Index rose 0.4 percent to 14,748.19 at 4 p.m. in Toronto, after the benchmark fell as much as 0.5 percent. A rising U.S. dollar weighed on commodities, with the currency climbing after a Federal Reserve official signaled interest rates may rise this year. Trading volume was 10 percent lower than the 30-day average. 
     Consumer staples and health-care stocks jumped on corporate news, driving the S&P/TSX higher. Alimentation Couche-Tard Inc. climbed 7.5 percent to a record after the convenience store operator agreed to buy San Antonio-based CST Brands in a cash deal valued at almost $4 billion, its biggest-ever acquisition to expand its foothold in Texas and eastern Canada.
     In a separate transaction Couche-Tard has also agreed to sell the majority of CST’s Canadian business and assets to Parkland Fuel Corp. for C$965 million. Parkland shares jumped 16 percent to an all-time high.
     Valeant Pharmaceuticals International Inc. rallied 9.7 percent to its highest close in three months, after hiring Paul Herendeen as its new chief financial officer in the latest shakeup at the drugmaker attempting to turn around its business. It’s been a volatile August for Valeant, which has seen its wide swings in its shares amid a lawsuit from T. Rowe Price Group Inc., investigations from U.S. prosecutors and regulators, as well as an earnings outlook that cheered investors and resulted in several analyst upgrades.
     Raw-materials and energy producers were the only two of the S&P/TSX’s 10 main industries to end the day lower. Crude futures dropped 3 percent in New York to halt the longest run of gains in four years on concerns of increased supplies from Iraq and Nigeria. Gold fell a second day while copper led industrial metals lower on a growing chorus of hawkish comments from Fed officials.
     Crescent Point Energy Corp. and Cenovus Energy Inc. fell more than 1.3 percent, while Goldcorp Inc. lost 1.4 percent. Raw-materials producers remain the biggest contributors to the rally in Canadian equities in 2016, surging 57 percent as the top gainers among 10 industries in the S&P/TSX. It’s the best year-to-date performance for the category in at least 20 years, according to data compiled by Bloomberg. Energy producers have gained 22 percent in the same period.
     That’s boosted the Canadian equity benchmark to a 13 percent jump in 2016, rebounding from a slump last year that was the worst for the S&P/TSX since the 2008 financial crisis. The rally has made Canadian stocks more expensive than their U.S peers, with a price-earnings ratio of 23.5 for the S&P/TSX, opening up a 15 percent premium over the S&P 500 Index.
     U.S. stocks slipped and the dollar strengthened on rising speculation of an rate hike before the end of the year. Fed Vice Chairman Stanley Fischer said Sunday the U.S. economy is close to meeting the central bank’s goals and growth will pick up. Fischer’s remarks follow similar comments last week from policy makers Dennis Lockhart and William Dudley. Traders are now pricing in a 51 percent chance of a rate increase in December.

US
By Lu Wang
     (Bloomberg) — A rally in chip stocks is one of the only things to get excited about in a market that is indifferent to just about everything.
     Gains in the Philadelphia Stock Exchange Semiconductor Index are starting to take on historic dimensions. The gauge is up 20 percent this year after capping an eighth-straight weekly gain, the longest in two years; a ninth would be the most since 1995. Its 4 percent jump this month has occurred even as the broader market was flat, and the S&P 500 Index continued to drift Monday, slipping less than 0.1 percent to 2,182.64 at 4 p.m. in New York.
     Amid the calmest August since 1994, Strategas Research Partners LLC sees reason for optimism, going so far as to frame the rally in semiconductors as part of a “Dow Theory” for the electronic age. According to the New York-based firm, an argument can be made that the pervasiveness of microchips makes them the same kind of bellwether for growth that railroad stocks were when Dow Theory was formulated a century ago.
     One of the philosophy’s tenets was that gains in the Dow Jones Industrial Average were unlikely to last unless matched by strength in the Dow Jones Transportation Average.
      “We know this may vex traditionalists and we are not advocating a complete replacement of the traditional heuristic,” Jason Trennert, the firm’s chief investment strategist, wrote in a note to clients Monday. “But we wonder whether a better measure of market health in an economy increasingly based on the storage and transport of information technology might not be better based on the Nasdaq and the Philly Semiconductor Index.”
     Strength in chip stocks has boded well for future performance in the stock market. Based on a study by Sundial Capital Research on data going back to 1928 through June this year, there have been 11 times semiconductor shares broke higher when the S&P 500 was within 1 percent of its one-year high. All but one saw the market going up in the following three months, with the broad benchmark measure rising 2.5 percent on average.
     Semiconductors aren’t the only tech companies whose potency is on display. Fueled by three-year rallies in which Microsoft Corp. and Alphabet Inc. doubled, Amazon.com Inc. tripled and Facebook Inc. surged fivefold, computer and software stocks have increased to almost 21 percent of the S&P 500 Index’s value, near a 15-year high.
     The rally comes amid warnings from bears such as billionaire investor George Soros that stocks are at risk for a repeat of the 2008 crisis and turbulence have plunged. At an average of 12.03, the CBOE Volatility Index is trading lower than any August except for 1993 and 1994.
     In a year where widening valuations and demand for safety trades such as utilities and low-volatility shares have stirred anxiety, the resurgence in tech shows one cornerstone of the seven-year bull market is behaving as it normally does. The industry just delivered the biggest earnings beat among 10 S&P 500 groups and while third-quarter growth estimates just turned negative for the broad measure, tech companies are expected to expand profit by 2.8 percent.
     S&P 500 tech shares edged lower Monday, weighed by Apple Inc.’s 0.8 percent slide. The Dow slipped 23.15 points, or 0.1 percent, to 18,529.42, while the Nasdaq Composite Index rose 0.1 percent. Energy producers sank on crude’s biggest drop in three weeks, and biotechnology stocks rallied on Pfizer Inc.’s $14 billion buyout of Medivation Inc. While major indexes were little changed, they saw a series of whipsaw moves in light volume.
     “If tech gets to the point where they’re not growing at all, then it would be really a red flag — that would signal one of the strongest and fastest growing area of the economy is stalled out,” said Curtis Holden, a senior investment officer in Houston at Tanglewood Wealth Management, which oversees $870 million. “There is probably some realization in the market that ultimately for stock values to go up, there’s got to be some growth and tech has a little bit of edge.”
     A rally that brought equities to a series of all-time highs since early July has lost some momentum as investors mull extended valuations, skepticism over a recovery in corporate profits and mixed signals from policy makers over the timing for higher rates. The S&P 500’s price relative to future earnings has climbed to 18.6, the highest since 2002. In Monday’s trading, about 5.3 billion shares changed hands on U.S. exchanges, the lowest since March, and 22 percent below the three-month average.
     Attention will now turn to Fed Chair Janet Yellen’s Aug. 26 address in Jackson Hole, Wyoming. Focus is shifting back to the Fed as the earnings season ends. While most companies in the S&P 500 beat profit and sales forecasts last quarter, analysts project income for the September-ending period will fall 0.9 percent. That would mark a sixth consecutive drop, the longest since the financial crisis.
      “Clearly there is a battle going on between what seems to be a perfectly reasonable macro environment on the one hand, against the lack of positive earnings growth,” said Daniel Murray, head of research at EFG Asset Management in London. “Although earnings growth is beating expectations, in absolute terms, earnings growth has been quiet muted.”

Have a wonderful evening everyone.

Be magnificent!

Oh, if you only knew yourselves!  You are souls; you are gods.
Swami Vivekananda

As ever,

Carolann

If you want to live a happy life, tie it to a goal,
not to people or objects.
             -Albert Einstein, 1879-1955       

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