November 9, 2016 Newsletter

Dear Friends,

Tangents:

On this day in…

1938, “Kristallnacht”, Germany.

1942, James Agate wrote in his diary [Ego] (The Torch landings at Casablanca, Algiers and Oran had taken place the day before):
A glorious day, in every sense of the word.  Alexander’s great victory [Alamein] and the invasion by Americans of French North Africa have put the people of this country into better fettle than they have known since 1925, when, at Melbourne on the third day of the second Test Match, Hobbs and Sutcliffe put on 283 runs for England’s first wicket and sent the Stock Exchange up two points.

1989, the fall of the Berlin Wall begins as citizens begin demolishing the wall and East German government opens 10 new border crossings.
PHOTOS OF THE DAY

A street performer dressed as the Statue of Liberty holds photos of US presidential candidates Donald Trump and Hillary Clinton at the financial Central district in Hong Kong on Wednesday after Trump won the presidency. Bobby Yip/Reuters

Water droplets cover a fallen leaf in Tiergarten central park in Berlin on Wednesday. Fabrizio Bensch/Reuters
Market Closes for November 9^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Numbers of the Day
9.4%

The percentage decline in the Mexican peso against the U.S. dollar.
29% 

The percentage of both Hispanic and Asian voters that Mr. Trump was on track in exit polls to draw, defying expectations that his support among minority groups would collapse because of his disparaging remarks about illegal immigrants from Mexico and proposal to ban the entry of Muslims to the U.S. 

Canada
By Eric Lam
     (Bloomberg) — Canadian stocks joined surging markets around the world as investors bet U.S. President-Elect Donald Trump would move ahead with pro-growth policies, buoying the country’s natural-resource producers.
     The S&P/TSX Composite Index added 0.7 percent to 14,759.91 at 4 p.m. in Toronto, joining U.S. stocks in rising after the Republican’s election upset on Tuesday night. Surge Energy Inc. and Canadian Energy Services & Technology Co. jumped at least 6.5 percent as energy companies led gains in the equity benchmark.
     “I don’t think this is the end of the world, or even the beginning of the end of the world,” said Tom Caldwell, chief executive officer at Caldwell securities Ltd., which manages about C$1.5 billion ($1.1 billion). “The best way to undercut a revolution is to give the revolutionaries power, because they have to confront what is doable. That will moderate Trump along with his advisers.”
     Just what exactly Trump intends to do with the power he’s won — and how closely that lines up with his campaign rhetoric — will be revealed over the coming months, leaving no shortage of uncertainty for equity investors to navigate. Canada’s manufacturing base, for instance, is vulnerable as Trump may push to change the long-standing North American Free Trade Agreement, Caldwell said.
     Trump campaigned on a pledge to renegotiate or potentially end NAFTA, a pact that has existed between Canada, the U.S. and Mexico since 1994 and has been a boon to the Canadian economy.                         
     The U.S. is Canada’s largest trading partner, purchasing about three quarters of all Canadian exports worth almost C$400 billion in 2015 according to Statistics Canada data. The U.S. is also the biggest foreign investor in Canada, with C$388 billion in investment, or about half of all foreign direct investment. Canada invested about C$449 billion in the U.S. in 2015, the main destination for funds.
     Companies that derive significant revenue from south of the border declined, as auto-parts supplier Magna International Inc., which lost 3.9 percent for its biggest drop since July. West Fraser Timber Co., which got 55 percent of its revenue from the U.S. in 2015, fell 6.6 percent.
     Canada’s big banks and energy producers will be fine, especially if TransCanada Corp. wins approval for Keystone XL under a Trump presidency, Caldwell said. TransCanada jumped 3 percent, its biggest gain since January, on hopes Trump would move to approve the company’s pipeline from the oil sands to the U.S. Gulf Coast.
     “Keystone looks like a key positive,” said Stephen Lingard, portfolio manager with Franklin Templeton Solutions, a unit of Franklin Templeton Investments. Lingard and his team oversee C$9.5 billion in Canada, and the firm manages $733 billion globally. “If that gets re-opened, that’s a benefit for the oil and gas sector, which frankly needs a lifeline given how tough the fundamentals have been.”
     Lingard said he was surprised volatility isn’t higher, and that may have to do with Trump’s conciliatory tone after his victory.
     “I do think a lot of his initial message on being very conciliatory, more statesman-like than populous has played a role in this fairly muted market reaction,” he said. “You didn’t know which Trump would show up.”
     Raw-materials producers added 1.7 percent as a group as gold surged overnight the most since Britain’s Brexit vote in June, before paring gains. Canadian producer Barrick Gold Corp. advanced 1 percent. HudBay Minerals Inc., which produces zinc and copper, rose 4.2 percent as industrial metals also advanced.
     “The gold guys will love this,” Paul Conibear, chief executive officer, Lundin Mining Corp., said in a phone interview. Lundin surged 6.8 percent. “Gold historically has already worked best as a safe haven when there’s uncertainty on the U.S. dollar, uncertainty on world economies.”
     Kash Pashootan, fund manager at First Avenue Advisory in Toronto, planned to deploy at least 5 percentage points of the 20 percent cash position he had built up in his portfolios today depending on how the markets reacted. 
     “Certainly we view this as a buying opportunity,” he said. “Be selective, as volatility isn’t a one-day event.”
     Pashootan is targeting some of his own dividend-paying holdings that have recently pulled back, including Aecon Group Inc. as well as interest-rate plays Enbridge Inc., BCE Inc. and Emera Inc. as the Federal Reserve may now hold off on raising interest rates in December after the surprise election results, he said.
US
By Anna-Louise Jackson
     (Bloomberg) — U.S. stocks rose in heavy trading, with the Dow Jones Industrial Average briefly eclipsing its all-time closing high, as shares of banks to heavy equipment manufacturers rallied amid speculation Donald Trump will pursue business-friendly policies.
     Health-care shares and lenders surged as investors unwound bets that a win by Hillary Clinton would bring stronger regulatory scrutiny. The SPDR S&P Biotech exchange-traded fund rose the most since 2008, while Pfizer Inc. and Merck & Co. jumped at least 6 percent. JPMorgan Chase & Co. rose 4.6 percent to a record, and Goldman Sachs Group Inc. had its best one-day gain in 4 1/2 years.
     The S&P 500 Index rose 1.1 percent to 2,163.26 at 4 p.m. in New York, extending its advance after rising above its average prices during the past 50 and 100 days. The Dow climbed 256.95 points, or 1.4 percent, to 18,589.69, a two-month high. The Nasdaq Composite Index added 1.1 percent, and the Russell 2000 Index increased 3.1 percent, its best since January. About 12 billion shares traded on U.S. exchanges, 80 percent more than the three-month average and the most since the Brexit selloff in June.
     “Our base case is we’re more likely to see a more moderate president than we saw as a candidate and the market’s agreeing with that,” said Lowell Yura, head of multi-asset solutions for BMO Global Asset Management in Chicago, which oversees $238 billion. “We don’t see a huge impact to short-term earnings and short-term economic growth.”
     An early knee-jerk selloff in global stocks and a rally in haven assets reversed on wagers that Trump would increase fiscal spending to spur economic growth, and as he struck a more conciliatory tone in his first speech as president-elect. The CBOE Volatility Index tumbled 23 percent Wednesday, the most in five years, as the measure of market turbulence retreated from a four-month high reached on Friday.
     A Trump victory had been portrayed by analysts as having the potential to unhinge markets banking on a continuation of policies that coincided with the second-longest bull market in S&P 500 history. While Republican control of both houses of Congress may enable the party to enact sweeping legislation that would be considered pro-business, concern persists over the impact from Trump’s pledges to clamp down on immigration to the U.S. and renegotiate free-trade agreements with countries including Mexico.
     “People focus on the fact that his acceptance speech kind of changed the direction of the market,” said Krishna Memani, New York-based chief investment officer at Oppenheimer Funds Inc., which oversees $223 billion. “It was far more conciliatory and far more fiscal-focused than these acceptances typically are — that made a world of difference.”
     A basket of stocks identified by Morgan Stanley as most likely to benefit from a Trump win surged 6.4 percent. The group includes 53 companies ranging from drugmaker Alexion Pharmaceuticals Inc. to construction-materials producer Martin Marietta Materials Inc. Among the S&P 500’s 11 main groups, financials rose 4.1 percent, while utilities sank 3.7 percent, the first time since 2009 that the biggest industry winner and loser moved more than 3 percent during a single day.
     Among other shares boosted by the Republican’s win, prison operators soared on speculation the new administration will rescind a government contract phase-out. Corrections Corp. and Geo Group Inc. jumped more than 21 percent.
     Companies gaining on Trump’s plans to boost infrastructure spending included equipment provider United Rentals Inc., which capped its steepest advance in almost eight years, while Caterpillar Inc. added 7.7 percent, the most since 2011. Vulcan Materials Co. climbed 10 percent to an all-time high.
     Along with the potential for a lighter regulatory burden, banks were also boosted by soaring bond yields as investors’ inflation expectations climbed on speculation a Trump administration and Republican Congress will ramp up spending to lift growth. Investors wagered higher rates will bolster financials’ earnings, sending Wells Fargo & Co. and Bank of America Corp. up more than 5.3 percent, with the former jumping the most since 2012.
     Click here for more on the winners and losers after the Trump victory.
     Wednesday’s action was a far cry from the dour sentiment overnight as investors sent equity futures tumbling when it became clear Trump would pull off a historic upset. S&P 500 futures plunged by the maximum 5 percent loss permitted on the Chicago Mercantile Exchange before trading curbs were triggered, then pared their decline to less than 1 percent by today’s open.
     When things last night looked most grim, at least one billionaire investor was willing to step in to buy. Carl Icahn left President-elect Trump’s victory party in the early hours of the morning to bet about $1 billion on U.S. equities, he said today in an interview on Bloomberg TV. “I thought it was absurd that the market, the S&P was down 100 points on Trump getting elected,” Icahn said in a phone interview.
     Companies potentially sensitive to Trump’s trade plans retreated Wednesday. Coca-Cola Co. and Procter & Gamble Co. decreased at least 1.4 percent to weigh on consumer staples. Hospital operators Tenet Healthcare Corp. and HCA Holdings Inc. tumbled more than 10 percent on speculation the new president will move to repeal Obamacare.
     The S&P 500 rose for a third session for the first time since September, with the gains putting it on track for the best week in two years. A rally was sparked Sunday night by news the FBI had resolved its investigation of Clinton’s e-mails. Heading into yesterday’s vote, most polls had the Democratic candidate ahead by several points. The benchmark increased 2.6 percent on Monday and Tuesday, its third-biggest ever in the two days before a presidential election, following its longest selloff in 36 years.
     As the initial turbulence eased, odds for a Federal Reserve interest-rate hike in December climbed back to levels seen before Trump’s victory, after plunging below 50 percent while the outcome unfolded. The market-implied chance of a move next month is 86 percent, the same as the probability on Tuesday afternoon.
     “The U.S. that Trump inherits is doing pretty well economically,” said Nandini Ramakrishnan, a strategist at JPMorgan Asset Management in London. “From an investment perspective, this is not something that we would say is entirely negative as the market may see just this morning. There may be potential opportunities with some of these selloffs.”
     Regardless of Wednesday’s rally, next-day moves in the S&P 500 are useless in telling what comes after, as gains or losses over the first 24 hours predict the market’s direction 12 months later less than half the time. In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 percent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.

Have a wonderful evening everyone.

Be magnificent!

Free yourself from anger and desire, which are the causes of sin and conflict,
and thereby make yourself whole.  This is the essence of yoga;
this is the means by which you come to know the soul, and thereby attain the highest spiritual state.
Learn to meditate.  Close your eyes; clam your breathing; and focus your attention
on the center of consciousness.  Thus you will master the senses, the emotions, and the intellect –
and thereby free yourself from desire and anger.
The Bhagavad Gita

As ever,

Carolann

In democracy it’s your vote that counts.  In feudalism it’s your count that votes.
                                                                                  -Mogens Jallberg

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

 
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