February 2, 2016 Newsletter

Dear Friends,

Tangents:

Groundhog’s Day:

On February 2, feisty Punxsutawney Phil gets hauled out of his Pennsylvania home to see if he can see his shadow.  If he does, then we’ll have six more weeks of winter; if he doesn’t spring is on the way  (in about six weeks).  The prognosticating tradition makes perfect sense, because anyone who’s lived in the north knows that the clear, bright days of winter tend to be the coldest – and their brilliant sun casts the best shadows.

  Groundhog’s Day comes halfway between winter solstice, December 21^st,  and the spring equinox, March 20^th, and like many traditions, its origin rests with life’s basic needs – in this case, when will spring come so we can put seeds in the ground?  In Europe, people long looked for signs of hibernating mammals coming out into the light to tell them warm weather was ahead.  Immigrants brought that practice to North America, and in the 1880’s a group of friends in Punxsutawney, Pennsylvania, started going into the woods every February 2^nd to look for groundhogs – also known as woodchucks – to show them if winter was on its way out.  By 1887, it was a full-fledged event.

  The first days of February also mark several other ancient festivals and feast days, such as Candlemas and Imbole, all having to do with light, fire, and the coming of spring.

 See www.groundhog.org.

SPRINGTIME SPLENDOR

Springtime splendor, springtime sweet,
how soon will it be?
If there’s no shadow at your feet,
it may come suddenly
Springtime splendor, springtime true,
may be on its way
But if all the sky is blue,
winter’s here to stay.

                      -Don Halley

PHOTOS OF THE DAY

In this image released by the Dutch Police Tuesday, a trained eagle puts its claws into a flying drone. Police are working with a Hague-based company that trains eagles and other birds to swoop down on small drones and grasp them in their talons in restricted areas or where they are banned, such as at large outdoor events. Dutch Police/AP

Groundhog co-handler John Griffiths holds up Punxsutawney Phil after Phil’s annual weather prediction of an early spring on the 130th Groundhog Day in Punxsutawney, Pa., Tuesday. Alan Freed/Reuters

Market Closes for February 2nd, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks retreated a second day as crude prices dropped below $30 a barrel before weekly U.S. government stockpile data and the first of the nation’s energy producers reported a slump in quarterly earnings, hinting at more carnage for the beleaguered industry.

     Imperial Oil Ltd. lost 1.8 percent for a third straight decline after saying fourth-quarter profit sank 85 percent. WestJet Airlines Ltd. plunged 11 percent for the biggest one-day drop in 13 years after quarterly earnings missed estimates.

     The Standard & Poor’s/TSX Composite Index fell 1.8 percent to 12,442.26 at 4 p.m. to join a global selloff in equities, as crude’s renewed plunge in February erased memories of its brief rally at the end of last month.

     Even with a 4.4 percent drop so far in 2016, Canada’s equity benchmark remains the second-best performing developed market in the world after rallying from a 2 1/2-year low to close a see-saw January. The S&P/TSX also entered a bear market earlier in the month.

     The resource-rich S&P/TSX is closely linked to commodity prices with raw-materials and energy producers making up about 28 percent of the overall gauge. Crude in New York has tumbled 11 percent this week, capping the biggest two-day drop since 2009. U.S. government stockpile data is forecast to show an increase in supplies, exacerbating a global glut.

     Calgary-based Imperial Oil is the first of 55 Canadian energy companies in the S&P/TSX to report quarterly earnings. About half of the 240 companies in the benchmark Canadian equity gauge are scheduled to report over the next two weeks.

     Imperial Oil, the Canadian affiliate of Exxon Mobil Corp., reported net income in the quarter fell to 12 cents a share from 79 cents a year earlier. Output for the company in the quarter averaged 400,000 barrels per day, compared with 315,000 barrels a year earlier, the company said. Irving, Texas-based Exxon Mobil meanwhile posted its steepest annual profit decline in more than a decade.

     Energy stocks sank 2.7 percent as nine of 10 industries in the S&P/TSX fell. Utilities stocks were the only group to advance. Royal Bank of Canada and Manulife Financial Corp. retreated at least 1.7 percent to lead the nation’s largest financial services companies lower.

     Sliding share prices among the nation’s largest lenders amid investor concerns about earnings growth and rising loan losses has resulted in bank dividend payouts four times greater than Canada’s benchmark government bond yield, the most in more than a decade, according to data compiled by Bloomberg.

US

By Oliver Renick

     (Bloomberg) — U.S. stocks retreated, with the Dow Jones Industrial Average losing more than 290 points, as investors shunned risk assets across the world while oil extended a selloff amid deepening concern that global growth is weakening.

     Energy producers and banks were hit hard, with Chevron Corp. and JPMorgan Chase & Co. falling more than 3.1 percent. Exxon Mobil Corp. dropped 2.2 percent after posting its fifth- straight quarterly profit decline. Class A shares in Google parent Alphabet Inc. rose 1.3 percent to surpass Apple Inc. as the world’s most valuable company after results at its main business topped estimates.

     The Standard & Poor’s 500 Index fell 1.9 percent to 1,903.03 at 4 p.m. in New York, the steepest decline in more than two weeks. The Dow lost 295.64 points, or 1.8 percent, to 16,153.54. The Nasdaq Composite Index declined 2.2 percent. About 8.5 billion shares traded hands on U.S. exchanges, 11 percent above the three-month average.

     “We’re going back to what we saw in the beginning of the year with energy, materials, financials continuing to be under pressure,” said Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management in San Francisco. “The level of risk aversion in January went through the roof. Friday was an end-of-month relief rally — nothing serious has suggested sentiment has changed direction.”

     The oil rout and worries about a China slowdown have continued to roil global markets, erasing as much as $2.4 trillion from the value of U.S. equities this year. While the S&P 500 recouped some losses in the past two weeks, trimming its worst start to a year since 2009, bearish sentiment has returned. The benchmark is down almost 11 percent from its all- time high set in May.

     The Chicago Board Options Exchange Volatility Index rose 10 percent Tuesday to 21.98, the most since Jan. 15 when the S&P 500 tumbled 2.2 percent to an almost five-month low. The measure of market turbulence known as the VIX rose for a third straight month in January, the longest such streak in 2 1/2 years.

     Investors are also assessing the campaign for the next U.S. president, after Senator Ted Cruz won Monday’s Republican caucuses in Iowa in an upset over Donald Trump. Democrat Hillary Clinton held on to a narrow victory over Senator Bernie Sanders.

     Among the rationales given for the selloff in U.S. equities this year, one that is rarely mentioned is the election cycle. Research from Ned Davis Research Group shows that the final year of a two-term presidency ranks last by returns, with the S&P 500 posting a median decline of 6.6 percent since 1953.

     Nine of the S&P 500’s 10 main industries fell today, with energy and financial shares dropping more than 2.6 percent. Industrial, technology and consumer discretionary companies slid at least 1.9 percent. Utilities were the best performers, rising 0.4 percent.

     Refiner Tesoro Corp. fell 8.2 percent, among the worst performers in energy after its quarterly sales and profit missed estimates. Transocean Ltd. and Marathon Oil Corp. sank at least 7.5 percent.

     Energy shares took another leg down in afternoon trading after S&P cut credit ratings on Chevron, Hess Corp. and Continental Resources Inc. West Texas Intermediate crude futures capped the biggest two-day drop in almost seven years, down 11 percent to slip below $30 a barrel.

     “A lot of people are watching the price of oil and as big as the U.S. economy is, there is now a perception that global economies are more important than regional ones,” said Ron Anari, the Jersey City, New Jersey-based senior vice president of trading at ICAP Plc. “The equity market is all about the profitability of corporations, and it’s not that bad but it definitely could be better. At this state of the game, there is just a lot of market ambiguity.”

     Banks in the benchmark index lost 3.4 percent amid speculation that persistently low interest rates will weigh on profits. The yield on the 10-Year U.S. Treasury note dropped to its lowest since last April. Bank of America Corp. lost 5.2 percent, while Citigroup Inc. declined 4.9 percent. Goldman Sachs Group Inc. slumped 5 percent, the most since 2012. The shares fell for a second day after gaining more than 5 percent in last week’s final two sessions.

     Alphabet’s two share classes were the only stocks to climb among 68 technology companies in the S&P 500. Qorvo Inc. dropped 7.1 percent, while Apple and Microsoft Corp. declined at least 2 percent.

     ADT Corp. and Pitney Bowes Inc. led declines among industrial companies, falling more than 13 percent after their results disappointed investors. Airlines also paced the retreat, with American Airlines Group Inc. and Southwest Airlines Co. decreasing more than 4.8 percent.

     Other travel-related companies weighed on the consumer discretionary group, with Royal Caribbean Cruises Ltd. Tumbling 15 percent, the most since 2009 after forecasting 2016 profit that missed analysts’ estimates. Competitor Carnival Corp. lost 7.9 percent, while TripAdvisor Inc. sank 6.2 percent. Also among discretionary shares, Amazon.com Inc. slumped 4 percent to a 3 1/2-month low.

     On the winning end of the consumer group today, Michael Kors Holding Ltd. jumped 24 percent, its largest gain in nearly four years. The company’s holiday results exceeded estimates, boosted by e-commerce sales and a new lineup of accessories. Mattel Inc. soared 14 percent, its best since 2009, also as holiday performance beat forecasts.

     DuPont Co. was the only one of 30 stocks in the Dow average to advance, rising 5.4 percent after merger partner Dow Chemical Co. reported better-than-expected earnings as its plastics business benefited from the drop in oil prices. Dow Chemical Chief Executive Andrew Liveris plans to leave the company after the merger is completed.

     More than 100 S&P 500 companies post results this week, and analysts estimate profits at index members fell 5.6 percent in the fourth quarter, better than Jan. 15 predictions for a 7 percent slump. Of those that have released financial results, 80 percent beat profit projections, while 49 percent topped sales estimates.

     Investors will be looking this week at economic releases for indications of the strength of the U.S. economy, with the government’s January jobs report coming into focus on Friday. Federal Reserve Bank of Kansas City President Esther George said today recent financial turmoil was anticipated and is no reason to delay further interest-rate increases.

     George, who has consistently been among the most hawkish Fed officials, said last December’s interest-rate hike, the first such move since 2006, was belated and cautioned it would be a mistake to wait too long to raise rates further.

     “A lot of last week’s rally was a technical, one-time thing,” said Michael O’Rourke, chief market strategist at Jonestrading Institutional Services LLC. “The Bank of Japan can’t do negative rates every day, and you had a month-end reshuffling that put a strong bid into equities so we’re seeing an unwind. Rallies right now are short, sharp and don’t last very long.”
 

Have a wonderful evening everyone.

Be magnificent!

The true source of rights is duty.

If we discharge our duties, rights will not be far to seek.

Mahatma Gandhi

As ever,
 

Carolann

Finding good players is easy.  Getting them to play as a team is another story.

                                                                       -Casey Stengel, 1890-1975

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