July 15, 2016 Newsletter

Dear Friends,

Tangents:

On this day in 1903, the newly formed Ford Motor Co. takes its first order. It’s from a Chicago dentist named Ernst Pfenning, and his $850 two-cylinder Model A was delivered just over a week later.

On July 15, 1918, the Second Battle of the Marne began during World War I.

SUMMER DAYS

      – Wathen Marks Wilks Call

In summer, when the days were long,
we pluck’d wild strawberries, ripe red,
Or feasted, with no grace but song,
on golden nectar, snow-white bread,
In summer, when the days were long.
We lov’d, and yet we knew it not,
for loving seem’d like breathing then;
We found a heaven in every spot;
saw angels, too, in all good men.
And dream’d of gods in grove and grot.

PHOTOS OF THE DAY

A man take a picture of Rome’s city hall, ‘Campidoglio’ (Capitoline Hill) as it is lit up in blue, white and red, the colors of the French flag, in tribute to the attack victims of Nice, in Rome, Italy on Friday. Tony Gentile/Reuters

Retired NBA basketball player Kobe Bryant reacts after he was ‘slimed’ after accepting the ‘Legend’ award at the Kids Choice Sport 2016 awards in Los Angeles on Thursday. Mario Anzuoni/Reuters

Market Closes for July 15^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

China’s second-quarter GDP came in at 6.7%, flat with the first quarter, amid massive stimulus spending; some analysts questioned the report’s veracity.

Canada

By Bailey Lipschultz

     (Bloomberg) — Canadian stocks slipped, snapping a five-day rally that extended gains to the highest level in a year, as declines in technology and consumer-staples companies offset gains by financial shares.

     The S&P/TSX Composite Index fell 0.2 percent to 14,482.42 at 4 p.m. in Toronto as nine of 10 main industries dropped, ending its longest rally since March.

     Bank of Nova Scotia and Canadian Western Bank increased more than 0.6 percent as financial stocks extended a rally to a sixth session, its longest since October. Fairfax Financial Holdings Ltd. and FirstService Corp. jumped at least 0.6 percent.

     Volume on the Canadian index was 29 percent below the 30- day average. The benchmark capped its best week since April, up 1.6 percent.

     Technology companies fell the most in the S&P/TSX with Sierra Wireless Inc. leading losses. Kinaxis Inc. and Computer Modelling Group Ltd. slid at least 2.4 percent.

     Consumer staples stocks dropped as Alimentation Couche-Tard Inc. had its worst two-day selloff in a month. Jean Coutu Group Inc. and George Weston Ltd. slid 0.7 percent.

     Health-care providers tumbled as Chartwell Retirement Residences fell as much as 1.9 percent.

US

By Oliver Renick and Bailey Lipschultz

     (Bloomberg) — U.S. stocks were little changed Friday as the S&P 500 Index halted its longest rally in four months, while investors weighed the potential for further gains with equities near records and corporate earnings projected to drop for a fifth quarter.

     The benchmark index ended a succession of fresh highs this week as Wells Fargo & Co. dragged on the gauge, losing 2.5 percent after its quarterly results disappointed. Also weighing, Amazon.com Inc. sank for a fourth day, the longest in four months. Raw-materials rose for an eighth session, the most since October.

     The S&P 500fell 0.1 percent to 2,161.74 at 4 p.m. in New York, after setting fresh all-time highs in the prior four days, the longest such streak since 2014. The Dow Jones Industrial Average rose 10.14 points to 18,516.55, notching a record for a fourth day. The Nasdaq Composite Index slipped 0.1 percent. About 6.1 billion shares traded hands on U.S. exchanges, 15 percent below the three-month average.

     “If we can come out of today even flat, then it’s been a fantastic week,” Mark Kepner, a managing director and equity trader at Themis Trading LLC in Chatham, New Jersey, said by phone. “We’re starting to focus on economic numbers and earnings which is what we were doing before Brexit, and that’s good.”

     The benchmark index capped a third week of gains, up 1.5 percent, as investors overcome concerns about the U.K.’s vote to leave the European Union amid speculation the Federal Reserve will refrain from raising interest rates this year while other central banks take steps to limit the Brexit fallout. Still, money managers including BlackRock Inc.’s chief Laurence D. Fink say the rally may not be justified and won’t last unless earnings pick up.

     Analysts project a 5.8 percent earnings decline at S&P 500 firms in the second quarter, which would make it a fifth- straight drop, the longest streak since 2009. Netflix Inc., Goldman Sachs Group Inc., Microsoft Corp. and Intel Corp. are among those scheduled to report results next week.

     “Markets have gone beyond their expected altitude,” said Peter Dixon, global equities economist at Commerzbank AG in London. “If we do get some decent earnings from banks, that might drive the markets a bit higher, but I suspect it could be a good trigger for people to think about taking some profit.”                       

     The S&P 500 yesterday capped its longest winning streak since March, but fell short today of extending it to the lengthiest in two years. The recent advance has pushed the U.S. benchmark to 20 times reported earnings, the first time its valuation has crossed that threshold since 2009, data compiled by Bloomberg show. U.S. shares have added almost $2 trillion since June 27 as the S&P 500 climbed 8.1 percent.

     Better-than-forecast data have helped to buttress the rally, with the Bloomberg U.S. Economic Surprise Index turning positive this week for the first time since the end of May. A report today showed sales at retailers rose more than predicted last month, while manufacturing in June posted the strongest advance since January, according to another measure. A separate gauge indicated consumer confidence dropped in July as the U.K.’s vote to leave the European Union flustered high-income earners.

     Amid signs of a strengthening economy and stocks rising to all-time highs, traders have been pricing in higher probabilities for a Fed rate increase this year. Odds for a move by December have climbed to 44 percent from less than 21 percent a week ago, and just 12 percent before June’s stronger-than- estimated jobs report released last Friday.

     In today’s trading, the CBOE Volatility Index fell 1.2 percent to 12.67, extending an 11-month low. The measure of market turbulence known as the VIX posted a third weekly decline, the longest since March.                      

     Six of the S&P 500’s 10 main groups fell today, with consumer discretionary shares losing 0.5 percent, while financial and technology companies declined at least 0.1 percent. Raw-materials producers rose 0.4 percent to extend gains to an eighth day, and utilities added 0.3 percent.

     Financials halted their longest rally since November 2014 amid declines in Wells Fargo and Citigroup Inc. Citi erased a 1.3 percent gain to slip 0.3 percent, after its quarterly profit dropped 17 percent on lower revenue from consumer banking. Still, its earnings exceeded estimates. Wells Fargo fell the most since the U.K.’s Brexit vote, after its profit slipped as more energy loans soured, expenses rose and revenue from mortgage lending declined.

     The terror attack in Nice, France weighed on travel-related shares. A truck plowed into a late-night crowd, killing at least 80 people and injuring scores of others. Cruise operators Royal Caribbean Cruises Ltd. and Carnival Corp. fell at least 2.1 percent. Delta Air Lines Inc. slid 2.4 percent, while Priceline Group Inc. declined 1.2 percent.

     Also dragging on the consumer discretionary group, CBS Corp. sank 3.6 percent after UBS Group AG cut the stock to sell from neutral, citing the risk of slower national TV advertising in the second half of this year. Chipotle Mexican Grill Inc. dropped 3.1 percent after Morgan Stanley downgraded the shares to the equivalent of neutral from buy, saying it could take years for sales to fully recover after an outbreak last year of food-borne illnesses.

     Intel and International Business Machines Corp. were among the biggest contributors to the technology group’s decline before their earnings reports next week. Both ended seven-day rallies, with IBM’s the longest in almost four months. Cognizant Technology Solutions Corp. lost 2 percent, after falling as much as 4.1 percent, as peer Infosys Ltd. cut its revenue outlook. Infosys dropped 8.8 percent, the worst since April.

     Raw material producers were the benchmark’s best performers, with WestRock Co. climbing 5.7 percent to its highest since December. Analysts at Jefferies LLC said in a note that favorable June containerboard data should lift container and packaging stocks. International Paper Co. rose 3.2 percent near an 11-month high, while Sealed Air Corp. gained 1.6 percent.

     Among other shares moving on corporate news, Herbalife Ltd. rallied as much as 22 percent before finishing 9.9 percent higher. It agreed to pay $200 million to settle U.S. claims that the nutrition company deceived consumers with get-rich-quick promises, though the government stopped short of hedge fund manager Bill Ackman’s call to shut it down.

Have a wonderful weekend everyone.

Be magnificent!

We think as our ancestors did, away back in pre-historic ages.

Where even tradition cannot pierce the gloom of that past,

there our glorious ancestors have taken up their side of the problem

and have thrown the challenge to the world.

Our solution is renunciation, giving up, fearlessness, and love;

these are the fittest to survive.  Giving up the senses makes a nation survive.

Swami Vivekananda

As ever,
 

Carolann

Our doubts are traitors, and make us lose the good

the we oft might win by fearing to attempt.

                      -William Shakespeare, 1564-1616

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