January 20, 2016 Newsletter

Dear Friends,

Tangents:

I usually listen to CNBC’s Squawk Box on my ride in to the office in the morning to get the market futures and financial news.  Today, I switched stations in order to listen to the Symphony station on Sirius satellite radio.  It turned out to be a good move – instead of listening to talking heads squawking about their negative perceptions on the status quo, I listed to Schumann’s Symphony No. 1 in B flat major.  A beautiful piece of music that instills calm and happiness…

PHOTOS OF THE DAY

A child pulls a trolley next to the Hahnenkamm-Rennen Stadium in Kitzbuehel, Austria, Wednesday. An alpine skiing men’s World Cup downhill will be held here on Saturday. Pier Marco Tacca/AP

Horse rider Izzy Carroll tends a horse after a frosty morning ride at Lawney Hill Racing stables in Aston Rowant, southern England, Wednesday. Eddie Keogh/Reuters

Market Closes for January 20^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Anna-Louise Jackson and Dani Burger

     (Bloomberg) — Canadian stocks fell to the lowest level since 2013 even after an afternoon rally trimmed what earlier had been the biggest decline in four years, as turmoil returned to global markets rattled by a renewed rout in crude and continued concerns over China.

     The Standard & Poor’s/TSX Index slumped 1.3 percent to 11,843.11 at 4:00 p.m. in Toronto, as oil plunged below $27 a barrel. The gauge, which trimmed losses of as much as 3.9 percent on Wednesday, posted its 13th decline in the past 16 days to close at a level last seen in 2013. It entered a bear market two weeks ago and is down almost 9 percent year to date.

     “Today is no different than the last several weeks — Canadian equities are especially hard hit by energy and commodity prices,” Audrey Kaplan, senior portfolio manager and head of international equities at Federated Global Investment Management Corp, said by phone. “Until we start to see some rebound there, it seems that the Canadian markets will be in a shaky, volatile ground.”

     The S&P/TSX trades at 13.7 times the forecast earnings for its members, below the index’s 15.3 average of the past five years. It’s less expensive than the S&P 500’s 15.1 multiple, and in line with developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings.

     Bank of Canada policy makers kept their benchmark interest rate unchanged today and said stronger U.S. demand, a weaker currency and two rate cuts last year are leading the economy out of an oil slump.

     The benchmark rate on overnight loans between commercial banks remained at 0.5 percent, in a decision released Wednesday from Ottawa. Global growth will pick up in 2016, Canada’s job market remains resilient and stalling fourth-quarter growth was due to temporary factors, policy makers said.

     Eight of the Canadian benchmark’s 10 main industries declined. Shares of industrial companies fell 2 percent, led by Toromont Industries Ltd.’s 4.2 percent slump, the most in almost two years. With crude trading at a 12-year low, energy companies trimmed a decline of as much as 6.7 percent to close down 2 percent, at a level last seen in September 2004.

     “It’s not just stock prices, but the currency as well,” Kaplan said. “The Canadian dollar is cheap, but we’re still looking for a better valuation. It’s hard to tell if the level is fully pricing in the oil price trend at this point. For those who don’t have Canadian exposure, we’re not sure it’s time yet to buy.”

     The currency strengthened for the first time since Jan. 1 against its U.S. peer.

     Paramount Resources Ltd. trimmed a 21 percent selloff, falling 5.8 percent to an 18-year low on news it may sell certain midstream assets. Similarly, Husky Energy Inc. tumbled as much as 14 percent, the most ever, after it said Tuesday it’s suspending dividend payments and cutting spending. The stock ended the session down 3.3 percent.

     Raw-materials companies rose 0.8 percent after a four-day selloff, led by gains of at least 8 percent for B2Gold Corp. and Kinross Gold Corp. Iamgold Corp. advanced 9.5 percent after an analyst at Raymond James upgraded the stock to market perform from underperform. New Gold Inc. rose 8.4 percent, the most in three months, after the company said 2015 gold output exceeded it’s prior outlook.

     Health-care companies also gained for a second straight day, adding 0.1 percent.

US

By Dani Burger and Anna-Louise Jackson

     (Bloomberg) — U.S. stocks fell, with the Standard & Poor’s 500 Index reaching a 21-month low, following a renewed selloff across stocks worldwide as skepticism about the strength of the global economy intensified.

     A late-day rally paced by health-care and small-cap shares helped trim declines, with the Nasdaq Composite Index briefly erasing a drop of as much as 3.7 percent. The Dow Jones Industrial Average and S&P 500 cut their worst losses by more than half. Energy companies sank further into five-year lows as oil plunged. International Business Machines Corp. fell to the lowest since 2010 after its earnings forecast missed projections.

     The S&P 500 dropped 1.2 percent to 1,859.33 at 4 p.m. in New York, closing at its lowest level since April 2014. The gauge pared a slide of more than 3.6 percent. After falling more than 560 points, the Dow finished down 249.28 points, or 1.6 percent, to 15,766.74. The Nasdaq Composite slipped 0.1 percent, and the Russell 2000 Index wiped out a 3.7 percent selloff to close 0.5 percent higher.

     “We were oversold and we didn’t keep falling off the table,” said Walter “Bucky” Hellwig, who helps manage $17 billion as a senior vice president at BB&T Wealth Management in Birmingham, Alabama. “The last-hour strength is positive, and I think it’s due to the fact that investors are saying, ‘This thing is oversold, I’m going to put some money to work,’ and it’s worked out better than buying it on the up days and then watching it disappear.”

     Even with the final-hour rebound, the selling remained broad-based, with six of the S&P 500’s 10 main groups falling at least 1.3 percent. Exxon Mobil Corp. sank 4.2 percent, the most since August, and banks fell for a third day with Citigroup Inc. and Bank of America Corp. down more than 3.4 percent.

     Global equities’ worst-ever start to a year deepened as oil continued its collapse and a slowdown in China weighs on sentiment. Japanese shares joined benchmark indexes in China and Europe in tumbling into a bear market today. West Texas Intermediate crude futures slumped 6.7 percent to $26.55 a barrel.

     “What the market is focused on is Chinese hard-landing fear, oil prices and the strength in the dollar,” said Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors Inc. in New York. “We haven’t hit bottom yet. That’s when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support.”

     About $2.2 trillion has been wiped off the value of U.S. stocks this year through yesterday, with the S&P 500 down 9 percent. And any rallies are getting shakier: nerves are weakening in a market where everything from China to oil and the Federal Reserve are proving capable of knocking equities down at any time. It’s a reversal of the optimism that underpinned the last three years of the bull market, when traders viewed bad news as transitory and used declines as opportunities to buy the dip.

     The S&P 500’s plunge triggered a technical signal that indicates it’s oversold. The gauge’s relative strength index, which measures whether gains or losses have been too fast to sustain, dipped to 30, a threshold that indicates a rebound may materialize. The RSI last fell below 30 on Jan. 13. The prior time it was that low was on Aug. 25, when the S&P 500 hit a bottom and rallied 6.5 percent over the next three days.

     The main U.S. equity benchmark is nearly 13 percent below its all-time high set in May, after rallying to within 1 percent of the record as recently as Nov. 3. The S&P 500 trades at 14.9 times the forecast earnings of its members, in line with the index’s average of the past five years. It’s more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.6 times estimated earnings.

     Along with valuations, investors are keeping close watch on progress in the economy to gauge the potential pace of future interest-rate increases by the Federal Reserve. The central bank’s next policy meeting concludes a week from today.

     Data today showed the cost of living in the U.S. dropped in December, led by a slump in commodities that’s roiling global markets. Excluding food and fuel, the so-called core index rose less than forecast with the smallest gain in four months. A separate report showed new-home construction unexpectedly fell in December, indicating the industry lost some momentum entering 2016.

     Concerns about weaker growth are overshadowing the corporate earnings season, where most of the few companies that have reported so far have exceeded estimates. Verizon Communications Inc., General Electric Co. and Starbucks Corp. are among S&P companies scheduled to release financial results this week. Analysts predict profits slumped 7 percent in the final three months of 2015, while sales fell 3.1 percent.

     “A few people are calling this a good buying opportunity, but nobody seems willing to really stick their neck out,” said Ross Yarrow, director of U.S. equities at Robert W. Baird & Co. in London. “All the concerns go back to China and oil. We’re already seeing a big impact in the lack of trade across the world. There isn’t much out there that can really support a lasting rally.”

     The Chicago Board Options Exchange Volatility Index rose 5.9 percent Wednesday to 27.59, after jumping more than 23 percent. The measure of market turbulence known as the VIX has surged 51 percent so far in 2016. About 12.5 billion shares traded hands on U.S. exchanges, 67 percent above the three-month average.                       

     Nine of the S&P 500’s main groups fell today. Energy companies dropped 2.9 percent, while utilities and financial shares tumbled more than 2.1 percent to lead declines. Devon Energy Corp. fell 8.1 percent, while ConocoPhillips and Halliburton Co. declined more than 4.4 percent.

     Financial companies were the biggest drag on the benchmark index, led by banks. JPMorgan Chase & Co. dropped 2.6 percent, Bank of America fell to a more than two-year low and Citigroup sank to a three-year nadir. Among the broader group, Charles Schwab Corp. decreased 4.7 percent.

     Consumer discretionary companies, one of the few industries to finish with gains Tuesday, erased the advance today, falling 1 percent. Wynn Resorts Ltd. dropped 4.7 percent, paring an earlier 11 percent tumble. Netflix Inc. was little changed, after earlier losing 10 percent. The online video company reported stronger-than-expected subscriber additions worldwide last quarter, though growth in U.S. subscribers was less than anticipated.

     Tiffany & Co. and Target Corp. slumped more than 2.3 percent as retailers in the benchmark fell to a three-month low. Home Depot Inc. lost 2.8 percent, falling for the fourth time in five days.

     IBM paced the retreat among technology companies, down 4.9 percent, while Cisco Systems Inc. and Yahoo! Inc. decreased more than 3.2 percent. Apple Inc. erased a 3.4 percent selloff to close little changed. Twitter Inc. surged as much as 14 percent from an all-time low yesterday amid takeover speculation.

     Drug developers were outliers amid the market’s pullback, with the Nasdaq Biotechnology Index erasing an earlier 3.3 percent drop to rally 2.7 percent. Celgene Corp. and Regeneron Pharmaceuticals Inc. increased more than 3.3 percent.

Have a wonderful evening everyone.

Be magnificent!

We cross the infinite with every step, and encounter the eternal with every second.

Rabindranath Tagore

As ever,

Carolann

People may hear your words, but they feel your attitude.

                                    -John C. Maxwell, 1947-

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