August 2, 2016 Newsletter

Dear Friends,

Tangents:

Just back from a terrific summer week in Newport, Rhode Island.  It is such a beautiful place – especially if you like history and sailing as much as Gary and I do!  There are so, so many sail boats that call Newport home.  You can see them anchored offshore for as far as they eye can see.  We were invited to sail on a 62-foot Oyster (owned by someone who lives in Texas, but keeps his boat in Newport!) and went with them to see the start of the start of the 10-metre racing regatta, which was quite a sight – such magnificent yachts, some decades old that had been fully restored.  You can also book sailing trips on former America’s Cup contenders, which we did as well – lots of fun – interesting people to meet.

The Preservation Society of Newport County does the best job possible of preserving the mansions and old historic buildings that have stood there – some  since the seventeenth century.   It is possible to tour many of the mansions – a totally gilded age in America.  Perhaps the most impressive is Breakers, the Vanderbilt summer home….er  – mansion.  The childhood home of Jacqueline Bouvier, Hammersmith Farm, where she and John F. Kennedy had their wedding reception, is  unfortunately, not open to the public, but St. Mary’s Roman Catholic Church, where they married is , of course.

There are also lots of festivals in Newport – this past weekend was the famed Newport Jazz Festival.

Stopped in NYC for a couple of days on the way to Newport and saw the other mega-Tony award winner this year – Humans.  It is amazing – worth a trip just to see it!

Oh summer!  How I love summer…

PHOTOS OF THE DAY

On Tuesday, British Airways Global Ambassador Tina Burton looks out of the new British Airways i360 tower in Brighton, southeast England, as the “vertical pier in the sky” is set to give tourists a new view of Brighton’s historic seafront. Standing at 531ft (156 metres) tall, the viewing tower affords panoramic views of up to 26 miles of the surrounding south coast and will open its doors to visitors this week. Steve Parsons/AP

Members of the German men’s track cycling team round the track during a training session inside the Rio Olympic Velodrome in advance of the 2016 Olympic Games in Rio de Janeiro, Brazil on Tuesday. Patrick Semansky/AP

Market Closes for August 2^nd, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Number of the Day

¥28 trillion

The size of a government stimulus package approved by Japanese Prime Minister Shinzo Abe’s cabinet Tuesday. Equivalent to $274.4 billion, it’s the latest effort to jolt the nation’s sluggish economy.

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks fell in their first day of trading in August, sliding the most since the aftermath of the U.K. secession vote, as energy producers tumbled after crude prices dropped Monday into a bear market.

     The S&P/TSX Composite Index fell 0.7 percent to 14,477.01 at 4 p.m. in Toronto, to the lowest level in three weeks after capping its best month since July. Trading volume Tuesday was 9.3 percent higher than the 30-day average. Equity markets were closed on Monday for a holiday.

     Energy companies sank 1.7 percent as a group as eight of 10 industries in the S&P/TSX retreated. Suncor Energy Inc. and Cenovus Energy Inc. fell more than 3.1 percent to lead producers lower. Crude futures settled at the lowest level in almost four months, falling below $40 a barrel to cap a decline of more than 20 percent from a June high.

     Royal Bank of Canada and Bank of Nova Scotia retreated at least 1 percent to lead the nation’s largest lenders lower. Canada is in the midst of one of its weakest expansions ever, with growth almost entirely dependent on bank lending and the hot Toronto and Vancouver housing markets, according to Statistics Canada data. Canada’s gross domestic product contracted at the fastest pace in more than seven years, data showed Friday.

     Valeant Pharmaceuticals International Inc. fell 4.6 percent for a third day of losses, dropping to the lowest level in almost a month. The drugmaker is expected to lower earnings forecasts, according to analysts at Morgan Stanley. Smaller peer Concordia International Corp. sank 17 percent, to the lowest close since April 2014, with CIBC World Markets analyst Prakash Gowd ’skeptical’ Concordia will be able to seal the deal on its exploration of strategic options.

     The Canadian benchmark is hanging onto an 11 percent gain 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 22.9 for the S&P/TSX, about 13 percent higher than the S&P 500 Index.

     Mining and energy stocks have propelled Canada to the second-best performance among developed markets this year, trailing only New Zealand fueled by a rally in commodities prices from gold and crude to base metals.

     Silver Wheaton Corp. climbed 5.1 percent to the highest level since November 2012 after agreeing to spend $800 million to increase its share of gold production from a Vale SA copper and gold mine in Brazil. The company will get 25 percent of the mine’s gold production, adding to the 50 percent it already gets. Silver Wheaton estimates the mine to have a 50-year life.

US

By Anna-Louise Jackson and Bailey Lipschultz

     (Bloomberg) — U.S. stocks declined the most in four weeks, as sliding crude prices and lackluster consumer spending data revived anxiety that global growth will falter.

     Equities narrowly avoided their worst day since the selloff following Britain’s vote to leave the European Union, with automakers pummeled as sales disappointed while retailers had the steepest drop in five weeks. Pfizer Inc. fell 2.5 percent after leaving its full-year forecast unchanged, even as quarterly profit and sales exceeded predictions, and Apple Inc. lost 1.5 percent to weigh on the technology group.

     The S&P 500 Index retreated 0.6 percent to 2,157.03 at 4 p.m. in New York, marking the first back-to-back declines since the Brexit vote. The Dow Jones Industrial Average fell 90.74 points, or 0.5 percent, to 18,313.77 as the gauge dropped for a seventh day, the longest in nearly a year. The Nasdaq Composite Index sank 0.9 percent, after coming within 1 percent of a record yesterday.

     “There really isn’t reason to keep bidding the market higher right now,” said Malcolm Polley, who oversees $1.3 billion as president and chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania. “A pullback in the market is necessary just from a valuation standpoint. Our expectation for the year is we’ll be flat-to-down in the equity markets.”

     At 18.3 times this year’s projected earnings, the S&P 500 is trading near its highest multiple in more than a decade. Still, stronger-than-estimated earnings results and speculation that central banks will maintain loose monetary policies to buttress growth have helped to underpin equities as they hover near record levels.

     Better-than-forecast earnings and economic data helped support the S&P 500’s run to its first all-time high in more than 13 months, with the index rebounding as much as 8.7 percent after the Brexit vote rattled markets worldwide. The rally lost steam last week, though, as a report showed weaker-than-expected growth in the second quarter. Manufacturing also expanded at a slower pace in July, according to data released on Monday.

     Traders have pushed back their expectations for the next Federal Reserve interest-rate increase, with the first month with at least even odds for a hike now September 2017, compared with February a week ago. The Fed last week held rates unchanged as forecast but reiterated its intention to raise them gradually.

     With investors looking for signs that growth is picking up, a report today showed consumer purchases climbed a bit more than anticipated in June, exceeding a gain in incomes that prompted American households to tap into savings. Data on employment, durable-goods orders and factory activity are due later this week.

     More than two-thirds of S&P 500 companies have reported this earnings season, and about 80 percent have topped profit estimates while 57 percent beat sales projections. Analysts predict net income for index members fell 3.2 percent in the second quarter, better than estimates for a 5.8 percent contraction in mid-July.

     Among companies posting results, Mallinckrodt Plc surged 14 percent for its biggest gain in three years after raising its profit outlook. Discovery Communications Inc. posted its strongest rally in five years, and CVS Health Corp. climbed 4.9 percent after their profits beat estimates. Royal Caribbean Cruises Ltd. tumbled 6.3 percent, and Emerson Electric Co. slid 4.9 percent after the companies lowered their 2016 outlooks.

     “When you consider that U.S. equities have had quite a good run lately and they’re just so expensive right now, it seems like a sensible time to take some profits and sit the market out,” said Heinz-Gerd Sonnenschein, an equity strategist at Deutsche Postbank AG in Bonn, Germany.                         

     In Tuesday’s trading, the CBOE Volatility Index rose for a second day, up 7.5 percent to 13.37, after jumping as much as 14 percent. The measure of market turbulence known as the VIX fell 24 percent last month, the most since March. About 7.5 billion shares traded hands on U.S. exchanges, 6 percent above the three-month average.

     Nine of the S&P 500’s 10 main industries sank, led by a declines 1.5 percent decline in consumer-discretionary shares. Industrial, financial and tech companies dropped at least 0.8 percent. Energy producers rose 0.9 percent after briefly erasing a 1.4 percent climb as a rally in crude faded.

     “It really isn’t one specific thing that’s dragging the market lower,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “It’s a little bit of carryover from the weakness we’ve seen in oil — the market’s been incredibly resilient given the 20 percent correction we’ve seen in the price of oil in the last month and yet the equity markets have not pulled back much.”

     Retailers and automakers in the S&P 500 led the consumer- discretionary group to the biggest slide since June 27, which was the second of the two-day Brexit selloff. Retailers fell from an all-time high reached yesterday, paced by Amazon.com Inc.’s 0.9 percent decline, while Target Corp. and CarMax Inc. decreased more than 2.1 percent. Ford Motor Co. and General Motors Co. lost at least 4.3 percent as their July sales missed analysts’ estimates. Ford shares sank to the lowest since February.                         

     Delta Air Lines Inc. dragged down industrial stocks, declining 7.8 percent after a closely watched measure of revenue fell 7 percent in July, due in part to too many empty seats on transatlantic flights. JetBlue Airways Corp. and American Airlines Group Inc. tumbled at least 5.8 percent, as the Bloomberg U.S. Airlines Index also slumped 5.8 percent to a three-week low.

     Financial shares in the benchmark capped a third straight decline, the longest in seven weeks. Citigroup Inc. fell 1 percent as overseas risks continue to mount in the aftermath of Brexit. American Express Co. lost 1 percent, and mall operator Simon Property Group Inc. sank 1.8 percent after being downgraded to the equivalent of neutral from buy at RBC Capital Markets.

     Health-care companies pared losses in the late afternoon as Biogen Inc. jumped 9.4 percent for its strongest gain in four months. The Wall Street Journal reported that Merck & Co. and Allergan Plc have each considered a takeover of the biotechnology company.

     Energy producers rallied in the final hour of trading, despite crude oil falling for the eighth time in nine days. Williams Cos. rose 6.4 percent, its best day since May 16, after becoming the latest pipeline company to cut its quarterly dividend in the face of low energy prices and questions about its strategy as a standalone company.

Have a wonderful evening everyone.

Be magnificent!

The key to cosmic awareness, to a consciousness of God,

is in the understanding of the soul.

Rabindranath Tagore

As ever,

Carolann

Life’s a voyage that’s homeward bound.

                      -Herman Melville, 1819-1891

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