August 5, 2016 Newsletter

Dear Friends,

Tangents:

LOW TIDE, LATE AUGUST

That last summer when everything was almost always terrible
we waded into the bay one late afternoon as the tide had almost finished
pulling all the way out

and sat down in the waste-deep water,
I floating on his lap facing him, my legs floating around him,
and we quietly coupled,

and stayed, loosely joined like that, not moving,
but being moved by the softly sucking and lapping water,
as the pulling out reached its limit and the tide began to flow slowly back
     again.

Some children ran after each other, squealing in the shallows, near but not
     too near.

I rested my chin on his shoulder looking toward the shore.
As he must have been looking over my shoulder, to where the water
     deepened
and the small boats tugged on their anchors.
                                                          –Marie Howe

PHOTOS OF THE DAY

Former Brazilian volleyball player Isabel Barroso and archbishop Orani Joao Tempesta (l.) hold the Olympic torch next to the Christ the Redeemer statue in Rio de Janeiro on Friday. Pilar Olivares/Reuters

Christopher Burton of Australia stands with his horse Santano II during a Preliminary Equestrian inspection at the Olympic Equestrian Center on Friday. Tony Gentile/Reuters

Rafael Nadal of Spain, front, and Jo-Wilfried Tsonga of France practice together on center court prior to the 2016 Summer Olympics in Rio de Janeiro, Brazil on Friday. Charles Krupa/AP

Market Closes for August 5^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks rose to the highest close in a year, amid earnings from Magna International Inc. and Telus Corp., and as the nation’s largest trading partner added more jobs than forecast in a sign of continued strength in the economy.

     The S&P/TSX Composite Index rose 0.8 percent to 14,648.77 at 4 p.m. in Toronto, for a fifth weekly gain in six. Trading volume today was 6 percent lower than the 30-day average at the close. 

     U.S. payrolls jumped in July for a second month, adding 255,000 jobs to exceed all forecasts in a Bloomberg survey of 89 economists, following a 292,000 gain in June that was revised higher. The unemployment rate held at 4.9 percent. Traders are now pricing in 46 percent odds the Federal Reserve will hike interest rates in December, compared with 37 percent a day ago, according to data compiled by Bloomberg.

     By contrast, Canada’s economy lost 31,200 jobs in July, compared with consensus expectations of a 10,000 gain, while the jobless rate rose to 6.9 percent. In a separate report, Canada’s trade deficit also hit records in the second quarter, including a greater-than-estimated C$3.6 billion gap in June.

     “We didn’t think we would see a quick rebound in the second half for Canada,” said Frank Maeba, managing partner at Breton Hill Capital in Toronto. His firm manages about C$1.4 billion. “These jobs numbers don’t help accelerate the rebound. Energy has been a drag and we’ve also seen volatility in housing prices.” The U.S. remains a bright spot in global markets, and Maeba expects a “general grind higher” for U.S. equities barring any significant macro shocks.

     Magna International Inc. increased 5.5 percent, the most since February, to lead consumer discretionary stocks higher as the group jumped 1.8 percent. Magna reported second-quarter sales of $9.44 billion, ahead of estimates, while also raising its forecast for 2016 European light vehicle units. Nine of 10 industries in the S&P/TSX advanced. Gold tumbled the most in 10 weeks to lead a 1.1 percent decline in raw-materials producers.

     Telus Corp. increased 2 percent, the biggest gain since February, after boosting the lower end of its 2016 revenue outlook. The telecommunications company topped earnings estimates as it added more customers in the quarter. Bombardier Inc., meanwhile, lost 0.5 percent after reporting wider-than- expected losses in the quarter amid rising costs for increased production of its new C Series jetliner.

     The Canadian equity benchmark is up 13 percent 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 23.1 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.

US

By Oliver Renick and Joseph Ciolli

     (Bloomberg) — Signs U.S. hiring remains robust and one of the best earnings seasons for technology stocks since 2008 pushed the Nasdaq Composite Index to a record close for the first time in a year, joining the S&P 500 Index at an all-time high.

     The gauge rallied for the eighth time in nine days and capped a sixth straight weekly advance, the longest since November. Since firms started reporting earnings a month ago, companies from EBay Inc. to Seagate Technology Plc and Biogen Inc. have jumped more than 20 percent.

     With Friday’s advance, the Nasdaq is the last major U.S. index to come full circle since the selloff that ripped global equities starting last summer. From its high on July 20, 2015, the gauge slid as much as 18 percent over the next seven months, narrowly avoiding a bear market.

     The Nasdaq Composite climbed 1.1 percent to 5,221.12 at 4 p.m. in New York, surpassing its previous record by about two points. The S&P 500increased 0.9 percent to 2,182.87, for a third consecutive advance. The benchmark rose 0.4 percent for the week. The Dow Jones Industrial Average added 191.48 points, or 1 percent, to 18,543.53, for just its second gain in nine sessions. About 6.9 billion shares traded hands on U.S. exchanges, in line with the three-month average.

     “These are good numbers across the board,” Darrell Cronk, president of Wells Fargo Investment Institute in New York, said by phone. “I don’t think it brings the Fed back to the table for September, but there are more people entering the workforce which is healthy. The story with these numbers is higher equity prices, higher yield and higher dollar.”

     A report today showed payrolls climbed by 255,000 in July, exceeding all forecasts in a Bloomberg survey of economists, following a 292,000 gain in June that was a bit larger than previously estimated. The jobless rate held at 4.9 percent, and wage growth offered more promising signs of acceleration, with average hourly earnings rising the most since April.

     Traders had pushed out their expectations on the timing for higher borrowing costs following a weaker-than-forecast reading last week on U.S. growth and yesterday’s Bank of England interest-rate cut. Following the jobs data, the first month with at least even odds for a Federal Reserve rate hike is now March 2017, versus November of next year before the report. Chances for a move next month rose to 28 percent from 18 percent yesterday.

     “This number confirms the broader economy is on firm footing, and the market reaction higher is predictable,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion. “It’s still likely that the Fed will raise interest rates, but not until after the election. Monetary policy from the BOJ and BOE is doing the Fed’s job right now, giving the Fed a little more runway.”

     Speculation that central banks will remain supportive of markets and better-than-estimated corporate earnings have boosted equities to all-time highs, after brief but sharp losses spurred by the U.K.’s vote to leave the European Union. A period of relative calm has also since permeated the equity market, with the CBOE Volatility Index marking a two-year low, 34 percent below its five-year average. The measure of market turbulence known as the VIX sank 8.3 percent Friday to 11.39.

     The S&P 500 had hovered in a narrow range since a succession of all-time highs in mid-July, with declines in crude and lackluster consumer spending data stoking investor anxiety earlier this week. The stronger-than-forecast jobs report alleviated those concerns, lifting the gauge back to a fresh record. The index has rallied 19 percent since hitting a 22- month low back in February.

     With the earnings season more than three-quarters of the way through, about 77 percent of S&P 500 firms that have reported so far beat profit projections and 56 percent exceeded sales forecasts. Analysts have tempered their estimates for a decline in second-quarter net income at the index’s members to 2.7 percent, from 5.8 percent less than a month ago.

     Boosting the Nasdaq today, Priceline Group Inc. advanced 4 percent after its quarterly profit topped estimates as the number of hotel rooms booked through its websites increased and the impact of terrorism on tourism to Europe was muted. Kraft Heinz Co. rose 3.8 percent after its earnings also exceeded forecasts, as cost cuts helped bolster margins. Technology heavyweights Apple Inc., Intel Corp. and Microsoft Corp. increased at least 1 percent.

     Microsoft and Intel are among the biggest pillars of the Nasdaq’s advance since its last record in July 2015, with the two up at least 20 percent. The strongest contributor to hoisting the index was Amazon.com Inc., with a 57 percent increase. Another big benefactor, Facebook Inc. has risen 28 percent, to its own all-time high today.

     Banks rallied Friday to lead financial shares in the S&P 500 to their biggest gain in nearly a month, up 1.9 percent. Among the index’s 10 main industries, consumer discretionary, technology and industrial stocks increased at least 1 percent. Utilities and phone companies slipped.

     Lenders posted their strongest advance since June 28, as the employment report helped send Treasury yields to their steepest climb in three weeks, brightening prospects for a boost to earnings from higher rates. Bank of America Corp. and Citigroup Inc. rose at least 3.9 percent. Regional banks Zions Bancorporation and KeyCorp. surged more than 4.1 percent.

     Insurers also jumped on speculation higher rates will benefit earnings, particularly after MetLife Inc. tumbled yesterday following weaker-than-forecast results. Its shares rebounded 4.1 percent Friday, while Lincoln National Corp. and Prudential Financial Inc. added more than 4.3 percent.

     Auto-related stocks trimmed weekly losses after the jobs data, led by parts suppliers Delphi Automotive Plc and BorgWarner Inc. which gained more than 2 percent. General Motors Co. and Ford Motor Co. climbed at least 0.9 percent. The carmakers were hammered on Tuesday, falling more than 4 percent, after their July sales disappointed.

     Bristol-Meyers Squibb Co. weighed on health-care, with its 16 percent plunge the biggest in 16 years. The company said the use of its drug Opdivo as a single agent for lung cancer failed in a trial that would have been the basis for widely expanding use of the treatment. Merck & Co., maker of Opdivo’s main competitor Keytruda, gained 10 percent, the most since 2009.

Have a wonderful weekend everyone.

Be magnificent!

The fact that there are so many men still alive in the world

shows that it is based not on the force of arms but on the force of truth or love.

Therefore, the greatest and most impeachable evidence of the success of this force

is to be found in the fact that, in spite of all the wars of the world,

it still lives on.

Mahatma Gandhi

As ever,

Carolann

Death is a challenge.  It tells us not to waste time…

It tells us to tell each other right now that we love each other.

                                               -Leo Buscaglia, 1924-1998

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