October 4th, 2016 Newsletter

Dear Friends,

Tangents:

On Oct. 4, 1957, the Space Age began as the Soviet Union launched Sputnik, the first man-made satellite, into orbit.

Number of the Day
22%
The percentage below book value that Deutsche Bank’s shares traded last week, the lowest since Thomson Reuters Datastream calculations started in 1980.

OCTOBER
The western wind has blown but a few days
Yet the first leaf already flies from the bough.
On the drying paths I walk in my thin shoes;
In the first cold I have donned my quilted coat.

This is Arthur Waley’s translation of a Chinese poem.  The western wind has blown here for several days bringing the leaves tumbling, but it is the wind from the east and north that sends me indoors to don my quilted jacket.  The temperature is so changeable that one must be equipped for anything.  At one moment the day is thunderous;  a few moments later there is hardly a cloud to be seen, the sun is warm on my back and just as quickly my mood can change.  But as for thin shoes, wellingtons are surely more useful.  If I need to wear my quilted coat then it is time for some tender plants to be given a layer of bracken or an extra mulch, or to be taken indoors for the winter.  We know what time the sun will set and when the clocks are put back but what is always unknown is when the first frost will assail us.  We must be prepared. –Rosemary Varey, A Countrywoman’s Notes.

PHOTOS OF THE DAY

People walk through an installation by artist Zak Ove of a Nubian army of masked men in the courtyard of Somerset House in London on Tuesday. The unveiling of Ove’s resin and Jesmonite statues marks the launch of the 1:54 Art Fair. Kirsty Wigglesworth/AP

A stag stands in an inversion fog during rutting season, when they breed, in Richmond Park, southwest London, on Tuesday. Matt Dunham/AP

Actors dressed as ‘Yetis’ ride a tour bus during a promotional event for the Travel Channel’s ‘Expedition Unknown: Hunt for the Yeti’ in Manhattan, New York, on Tuesday. Brendan McDermid/Reuters
Market Closes for October 4^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By Eric Lam
     (Bloomberg) — Canadian stocks fell the most in three weeks, as plunging gold prices dragged raw-materials producers lower, while the Bank of Montreal was forced to restate some financial data.
     The S&P/TSX Composite Index sank 1.1 percent to 14,520.92 at 4 p.m. in Toronto, declining for a third session. The S&P/TSX is still up almost 12 percent this year, making it the third- best performing developed market equity index in the world behind New Zealand and the U.K.
     Canadian stock valuations touched the highest level in 14 years Friday and remain more expensive than their U.S. peers, with the S&P/TSX carrying a price-to-earnings ratio of 23.2 compared with 20.2 for the the S&P 500 Index, according to data compiled by Bloomberg.
     Barrick Gold Corp., the world’s largest gold producer, slumped 10 percent as raw-materials producers tumbled 6.7 percent, the worst one-day slide in three years. The gauge has retreated 9.8 percent amid a four-day drop. Gold fell below $1,300 an ounce for the first time in more than three months as the Federal Reserve appears on track to raise interest rates in December. Silver Standard Resources Inc. of Vancouver sank 8.7 percent as silver prices also plunged.
     Goldcorp Inc. lost 8.1 percent to the lowest level since March, capping a third day of losses. The shares have erased 13 percent of their value during this stretch after the Vancouver company shut down one of its biggest mines amid a labor protest.
     Raw-materials and energy remain the top-performing industries in Canada this year, fueling a rebound in the wider gauge. The S&P/TSX Materials Index is still up 36 percent and set to halt its longest yearly losing streak since 1988. Energy producers are second with a 23 percent gain.
     Meanwhile, Bank of Montreal tumbled 1.8 percent, its biggest drop in three months. The nation’s fourth-largest lender restated its regulatory capital ratios for the first three quarters of the year, a move akin to wiping out C$1.3 billion ($1 billion) in excess capital, according to a research note from Canaccord Genuity Group Inc.
     Genworth MI Canada Inc., a residential mortgage insurer, sank a record 8.7 percent to lead declines among mortgage- related companies in Canada amid concern new measures by the federal government to cool the housing market will hurt their businesses. Genworth said more than a third of insured mortgage borrowers would struggle to meet new standards introduced Monday. Real-estate stocks lost 1.5 percent as a group.
     Intact Financial Corp. lost 1 percent, the biggest slide in almost three weeks, after the insurer reported a third-quarter catastrophe pretax loss estimate of C$170 million. Intact blamed the loss on severe weather conditions during the summer months including hail, wind and rain that affected communities across Canada.

US
By Anna-Louise Jackson and John Hyland
     (Bloomberg) — The U.S. stock market may be headed for some turbulence, and possibly a fresh record.
     October’s delivered the most swings of at least 1 percent for the S&P 500 Index since 2000, giving investors reason for caution following a summer of muted volatility. If history’s any guide, though, the benchmark for American equity will post an outsize gain in a period that’s been the best over the last 25 years, with an average advance of 1.9 percent. The S&P 500 slipped 0.5 percent to 2,150.49 at 4 p.m. in New York, 1.8 percent below its all-time high from Aug. 15.
     Its reputation for delivering heightened investor anxiety is inextricably linked to the two worst single days in market history, in 1929 and 1987, and more recently the 17 percent rout during the financial crisis in October 2008 that was the most in 21 years. Those have been shown to be outliers, as investors have tended to reward companies during the third-quarter earnings season, particularly technology, health-care and consumer-discretionary stocks that have notched their best monthly gains on average during the 10th month in data going back to 1991.
     “Those stocks, if they have relatively good numbers, they tend to have a bigger pop after earnings,” said Frank Cappelleri, executive director at Instinet LLC in New York. That doesn’t mean the market will go straight up, he said, noting that the S&P 500 often tests key technical levels before rallying into the end of the month, something that’s happened almost 70 percent of the time since 1997. “We could potentially go through some more volatile activity in the market.”
     While seasonal trends can easily be broken — September’s 0.1 percent decline paled in comparison to weakness that historically has made it the worst month — they provide a useful backdrop as investors consider end-of-year positioning and the commencement of the quarterly earnings next week, Cappelleri said.
     Stocks have gotten off to a rocky start to October, with the S&P 500 slipping 0.8 percent over two days and the CBOE Volatility Index of investor anxiety rising as high as 14.57 after averaging 13.27 over the prior quarter. Confidence has been shaky in the past week amid concerns over Europe’s banking sector, and Deutsche Bank AG in particular. Seattle-based Russell Investments said in a Monday report that further declines would offer an opportunity for investors as the slowly- expanding economy puts a floor under equity prices.
     Tuesday’s decline in the S&P 500 followed hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester and Richmond Fed President Jeffrey Lacker, who argued in favor of tightening monetary policy sooner than later. Investors see a 61 percent chance of the Fed raising rates in December, up 11 percentage points from a week earlier.
     The higher odds for a rate increase sent Treasury yields rising to a two-week high, damaging the investment case for stocks with high dividend payouts. Utilities tumbled for an eighth day, sliding 2.2 percent to a five-month low, while phone and real-estate shares dropped at least 1.5 percent. The three have the highest yield relative to their dividends among 11 groups in the S&P 500.
     The best dollar rally since Sept. 16 weighed on energy and raw-materials producers, while rising bond yields lifted banks on speculation higher rates will boost their profits. The Dow Jones Industrial Average lost 85.40 points, or 0.5 percent, to 18,168.45. The Nasdaq Composite Index slipped 0.2 percent. About 7.3 billion shares traded hands on U.S. exchanges, 11 percent above the three-month average.
     The next corporate earnings season unofficially kicks off when Alcoa Inc. reports results next week. Analysts forecast a drop of 1.5 percent in S&P 500 companies’ third-quarter profits, which would mark a sixth consecutive three-month decline.
     Should that trend hold, October may have trouble living up to its statistical trend as the market’s best month. And with an uncertain outcome in the U.S. election keeping investors on the edge of their seats, October’s history as the locus for market selloffs could capture attention.
     “They affect the data and contribute to the idea that October is a spooky month,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co.

Have a wonderful evening everyone.

Be magnificent!

A man is a universe in miniature, and the universe, a giant living body;
the cosmos is similar to a large man,
and a man is similar to a small cosmos; so say the Sufis.
Kabir

As ever,

Carolann

Don’t dig up in doubt what you planted in faith.
                              -Elisabeth Elliot, 1926-2015

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