January 7, 2015 Newsletter

Dear Friends,

Tangents:

Carolann is out of the office, I will be writing the newsletter on her behalf.

PHOTOS OF THE DAY

The eye of a lion is photographed at the zoo in Gelsenkirchen, Germany. Martin Meissner/AP

A man makes a horse stand on its back legs before a traditional Epiphany celebration horse race in Pietrosani, Romania. According to local traditions, following the religious service, villagers get their horses blessed with the Holy water then compete in a race. Vadim Ghirda/AP

Market Closes for January 7^th, 2015   

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Michelle F. Davis

     (Bloomberg) — Canadian stocks rebounded from the biggest two-day plunge in 19 months, as Valeant Pharmaceuticals International Inc. closed at a record and gains in consumer shares offset declines in energy producers.

     Valeant surged 1.6 percent, contributing the most to gains in the benchmark index. Penn West Petroleum Ltd. and Crew Energy Inc. each fell more than 6 percent to lead energy shares to a third straight loss. Iamgold Corp. and Detour Gold Corp. fell at least 3.9 percent as gold tumbled for the first time this year.

     The Standard & Poor’s/TSX Composite Index advanced 38.23 points, or 0.3 percent, to 14,285 at 4 p.m. in Toronto, trimming an earlier gain of as much as 1.3 percent in afternoon trading. The benchmark equity gauge fell 3.4 percent in the previous two days, the most since April 15, 2013.

     Eight of the 10 main industries in the S&P/TSX increased on trading volume 4.2 below the 30-day average.

     Consumer shares advanced at least 1.4 percent to pace gains, with Hudson’s Bay Co. rallying 4.4 percent for among the biggest increases. Financial shares, which account for about one-third of the index’s weighting, added 0.5 percent.

     Energy shares decreased for a third-straight day, erasing an earlier gain of as much as 1.9 percent. West Texas Intermediate oil futures advanced 1.9 percent, the first gain in five sessions after dropping below $50 for the first time since April 2009.

     The rout in oil prices led to a plunge in Canada’s crude shipments in November, triggering the biggest export drop in almost three years and widening the national trade deficit, Statistics Canada said today.

     The report is a setback for policy makers relying on foreign demand to lead an economic recovery. Plunging prices for Canada’s top export may curb the value of shipments abroad this year, eroding any benefit manufacturers receive from faster U.S. growth and a lower currency.

     Equities trimmed gains in afternoon trading today after most U.S. Federal Reserve officials agreed an interest rate increase is unlikely before late April, according to December meeting minutes released today.

US

By Callie Bost

     (Bloomberg) — The Standard & Poor’s 500 Index rallied the most in three weeks, halting a five-day selloff, as data stoked optimism on the economy and Federal Reserve minutes did little to change investor expectations on interest rates.

     The S&P 500 jumped 1.2 percent to 2,025.90 at 4 p.m. in New York, after plunging 4.2 percent over the previous five days. The Dow Jones Industrial Average climbed 212.88 points, or 1.2 percent, to 17,584.52. More than 7 billion shares changed hands on U.S. exchanges, 1.6 percent above the three-month average.

     “We had some good economic news and the market got tired of going down,” Randy Bateman, the chief investment officer of Huntington Asset Advisors, which manages about $2.3 billion in the funds, said by phone.

     Before today, U.S. equities were off to the worst start for any year since 2008, with the S&P 500 dropping 2.7 percent in the first three sessions of 2015. The losses trimmed the index’s return since the bull market began in March 2009 to 196 percent and followed an advance of 11.4 percent in 2014.

     Stocks rallied at the market’s open as data on the labor market and the U.S. trade deficit bolstered confidence in the strength of the economy. Equities extended gains at midday as lawmakers in Chancellor Angela Merkel’s coalition said Germany is leaving the door open to debt-relief talks with Greece’s next government, signaling a more flexible stance than her administration has taken publicly.

     Equities maintained gains after the central bank released minutes from their December meeting. Most Fed officials agreed their new policy guidance means they are unlikely to raise interest rates before late April, and a number expressed concern inflation could remain too low.

     In a statement following that meeting, the Fed pledged to be patient in its approach to raising rates, while Chair Janet Yellen said the central bank will probably hold rates near zero through at least the first quarter.

     “From the Fed’s perspective, they’re seeing more of the same,” Stephen Wood, chief market strategist at Russell Investments in New York, said by phone. “The Fed has used forward guidance more effectively and the markets are responding to a consistent message and consistent policy path. The takeaway is the Fed isn’t changing anything any time soon.”

     Central bank officials said the faltering global economy may be a threat to the U.S., while concluding that those risks were “nearly balanced” by positive developments.

     Several policy makers said consumer and business confidence and payroll gains suggest the economy “may end up showing more momentum than anticipated,” while a few others said the boost to spending from cheaper oil and gas prices “could turn out to be quite large.”

     Some officials worried the oil decline could reduce longer- term inflation expectations, while others were concerned a drop in market-based inflation measures might reflect that “such a decline had already begun.”

     West Texas Intermediate has fallen 15 percent since the Fed’s last meeting. A combination of rising supply as domestic production picks up and slower growth overseas that’s reducing demand is leading to a rout in oil prices that has continued into 2015.

     “In general it seems they’re not too worried about inflation, and the oil shock is a temporary inflationary dampener,” said Frank Maeba, managing partner at Breton Hill Capital in Toronto. His firm manages about C$700 million ($592 million). “In the long term it will be outweighed by a general pickup in GDP and jobs.”

     Data from the Roseland, New Jersey-based ADP Research Institute showed companies in the U.S. added 241,000 workers in December, the most since June, indicating the U.S. job market was sustaining strength as 2014 drew to a close.

     The ADP data comes before the Labor Department’s report on Jan. 9, which may show payrolls, including government agencies, climbed 240,000 in December after a 321,000 increase a month earlier, according to the median forecast of economists surveyed by Bloomberg. The unemployment rate is projected to fall to 5.7 percent, the lowest since 2008.

     A separate report today showed the trade deficit narrowed more than forecast in November as U.S. petroleum imports sank to the lowest level in more than five years. Outside of fuel, Americans bought record amounts of consumer goods that shows the world’s largest economy is strengthening.

     “Investors have been overly pessimistic given the underlying fundamentals,” Karyn Cavanaugh, the New York-based senior market strategist at Voya Investment Management LLC, said by phone. “The underlying fundamentals are still very strong. Today’s ADP payroll report was positive, and central to everything is the labor market. If the labor market is strong, the economy is doing OK and this does bode well for Friday.”

     The bull market in equities, approaching its seventh year, has endured 30 declines of 4 percent or more. Last year, the benchmark gauge advanced 11 percent after experiencing three pullbacks of more than 4 percent and then recovering all the losses each time within one month.

     Investors expect this month’s swings to calm down as the year progresses, options trading shows. The Chicago Board Options Exchange Volatility Index, a measure of demand for options on the S&P 500, dropped 8.6 percent to 19.31 after rising for six out of the previous seven days. At 21.12 yesterday, the gauge was higher than all nine of its monthly futures contracts with expiration dates ranging from Jan. 21 to Sept. 16.

     Losses in equities have pushed the S&P 500’s price-earnings ratio down to 17.9 from as high as 18.5 on Dec. 29, according to data compiled by Bloomberg. The decade average is 16.3. Stocks are trading at about 1.8 times annual sales, compared with an average of 1.4 over the last 10 years.

     Stocks are cheap relative to bonds and global earnings should climb by 9 percent this year, Citigroup Inc. wrote in a note dated yesterday. The firm boosted its rating on U.S. equities to neutral from underweight, similar to sell, citing an increase in preference for growth.

     Nine out of 10 major industries in the S&P 500 advanced today. Health-care and consumer shares had the biggest gains, rising at least 1.5 percent.

     Energy stocks rose 0.3 percent, following a 5.3 percent tumble over the previous two days. West Texas Intermediate oil climbed 1.3 percent. Brent earlier slipped below $50 a barrel for the first time since May 2009.

     Anadarko Petroleum Corp. jumped 1.6 percent, pacing gains among energy producers in the S&P 500. Halliburton Co. rallied 2.7 percent and Exxon Mobil Corp. increased 1 percent.

     Helmerich & Payne Inc. plunged 6.6 percent for the worst performance in the S&P 500. The oil drill provider said low oil prices are “increasingly impacting” the U.S. land drilling market.

     The Nasdaq Biotechnology Index surged 3.6 percent for the biggest jump since April. Alexion Pharmaceuticals Inc. gained 5.6 percent for the biggest advance in the S&P 500. Biogen Idec Inc. also rallied 5.6 percent.

     J.C. Penney surged 20 percent. Fourth-quarter comparable- store sales will be at the upper end of its projected increase of 2 percent to 4 percent, the Plano, Texas-based department- store chain said.

     Monsanto Co. climbed 1.3 percent. The biggest seed company posted better-than-estimated fiscal first-quarter earnings and revenue, helped by sales of its newest soybean variety that’s genetically modified to withstand pests in South America.

     Eli Lilly & Co. lost 0.7 percent. The company forecast earnings for 2015 that missed analyst predictions even as the drugmaker said sales will rebound led by medications for diabetes, oncology and animal health.

Have a wonderful evening everyone!

Be magnificent!

“The most important thing is to enjoy your life – to be happy – it’s all that matters.” – Audrey Hepburn

As ever,

Karen

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7