July 21, 2016 Newsletter

Dear Friends,

Tangents:

I read Elie Wiesel’s obituary in the most recent edition of the Economist last night; I imagine you’ve read his works, especially Night.  The obituary ends with this reflection on his life, which I find very poignant:

“Nor did the questions ever stop.  His Talmud-studying childhood had been devoted to God, but where  had God been in the camps?  Why had He allowed Tzipora, the little golden-haired sister, to die for nothing?  Why had he caused old men to fall down from dysentery on forced marches, when they might have died peacefully in their beds?  Why had God created man, if only to abandon him?  What exactly did God need man for?

  Against the melancholy that never really lifted – for how could it ever do so? – he clung to the words “and yet”.  The sun set, and yet it rose again.  Delirium struck, and yet it passed.  He railed at God, and yet still strapped on his tefillin and recited his prayers as fervently as he had done on the day of his bar mitzvah.  For ritual, too, was part of memory.  And besides, how could he ever get closer to the mystery of God, unless he battered Him with his doubts?”

PHOTOS OF THE DAY

A man paints Olympic rings at Copacabana beach ahead of the 2016 Rio Olympics in Brazil on Thursday. Ueslei Marcelino/Reuters

Trampolinist Rosie MacLennan (l.) waves the Canadian flag next to Prime Minister Justin Trudeau after being named Canada’s flag-bearer for the opening ceremony of the 2016 Rio Olympics, following a ceremony on Parliament Hill in Ottawa, Ontario, Canada, on Thursday. Chris Wattie/Reuters

Market Closes for July 21^st, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Telecommunications operator Rogers Communications Inc. rallied to a record, and gold producers rebounded to send Canadian stocks higher for a second day.

     The S&P/TSX Composite Index rose 0.2 percent to 14,565.83 at 4 p.m. in Toronto, in trading volume 26 percent lower than the 30-day average. Canadian stocks are more expensive than their U.S. peers, with a price-earnings ratio of 22.4 for the S&P/TSX, about 11 percent higher than the S&P 500 Index.

     Rogers added 3.9 percent, the most since October, after second-quarter earnings topped analysts’ estimates. Wireless customers jumped 171 percent. Rogers is the second-largest media and telecommunications company in Canada.

     Raw-materials producers increased 2.1 percent, rebounding after slumping the most since May yesterday. Barrick Gold Corp. and Kinross Gold Corp. added at least 2.7 percent as gold prices advanced from the lowest level in three weeks. The S&P/TSX Global Gold Index increased 2.9 percent, for its biggest gain since July 4.

     Mining stocks have fueled Canada to the second-best performance among developed markets this year with a 12 percent advance, trailing only New Zealand. The group has rallied 56 percent increase amid a rebound in gold prices, the best such performance for the group in at least 30 years, according to data compiled by Bloomberg.

     BlackBerry Ltd. added 1.6 percent for a second day of gains. The Waterloo, Ontario-based technology company is hosting a live event July 26, and is expected to unveil a new smartphone. Chief Executive Officer John Chen has said he’ll unveil two phones between now and March 2017.

     Encana Corp. climbed 3.6 percent, paring an earlier gain after touching the highest level since October, as the oil and gas producer posted an unexpected second-quarter operating profit and boosted its production outlook. Oilfield services company Mullen Group Ltd. jumped the most in more than a decade on earnings. The broader gauge of oil producers however slipped 0.1 percent as a group as crude prices fell in New York.

US

By Oliver Renick and Bailey Lipschultz

     (Bloomberg) — U.S. stocks declined as results from companies including Intel Corp. and Southwest Airlines Co. disappointed, casting doubt on whether corporate earnings will be healthy enough to sustain equities at all-time highs.

     Intelslipped 4 percent after reporting slower growth in its server-chip division. American Express Co. lost 1.6 percent as its revenue was short of predictions. Southwest Airlines tumbled 11 percent, weighing on shares of other carriers. Qualcomm Inc. gained 7.4 percent after it gave a forecast that beat analysts’ estimates, and EBay Inc. surged 11 percent after also raising its outlook.

     The S&P 500 fell 0.4 percent to 2,165.17 at 4 p.m. in New York, the most in two weeks after closing Wednesday at its sixth record in eight days. The Dow Jones Industrial Average declined 77.80 points, or 0.4 percent, to 18,517.23, halting its longest winning streak in more than three years. The Nasdaq Composite Index slipped 0.3 percent, and a gauge of volatility had its biggest gain in four weeks.

     “A lot of the rally has been post-Brexit relief, and I don’t really see anything out there, other than some decent earnings that’ve beaten, to validate the rally so far,” said Tom Siomades, head of Hartford Funds Investment Consulting Group in Radnor, Pennsylvania, whose firm oversees $76 billion. “The other thing is it’s summertime and it’s quiet. There’s really not much moving things other than earnings.”

     Since the earnings season started, profits and sales have mostly topped analysts’ estimates, fueling optimism that they’ll help support further stock gains. The S&P 500 has rebounded 18 percent from a 22-month low in February, and the Dow reached seven straight records in nine days of advances before ending its streak on Thursday.

     Among companies that reported results since yesterday’s close, General Motors Co. added 1.7 percent, rising to a two- month high after raising its profit outlook. United Rentals Inc. soared 9.2 percent, the most since October, as its earnings and sales exceeded predictions. Paint maker Sherwin-Williams Co. tumbled 6.9 percent after its earnings trailed estimates, and ad agency Interpublic Group of Cos. sank 5.9 percent, the worst in almost four years, after revenue missed forecasts.

     The CBOE Volatility Index rose 8.2 percent today to 12.74, snapping six days of declines, the longest streak in three months. The measure of market turbulence known as the VIX capped its biggest increase since the results of the Brexit vote, after closing yesterday at the lowest since August 2014. About 6.5 billion shares traded hands on U.S. exchanges, 10 percent below the three-month average.

     Speculation that the Federal Reserve will push back its timeline for interest-rate increases and signs of economic strength have propelled stocks higher, with the S&P 500 erasing its losses following the U.K.’s vote to leave the European Union. The European Central Bank left its interest rates unchanged at today’s meeting, while President Mario Draghi signaled policy makers will consider adding fresh stimulus later this year when it has a clearer picture of the Brexit impact.

     The U.S. looks insulated from the fallout so far. A Citigroup gauge that tracks the degree to which data are exceeding economist projections is at an 18-month high, helping to boost wagers on a Fed rate move this year. Traders are pricing in 45 percent odds of higher borrowing costs by this December, from just 12 percent two weeks ago.

     With policy makers and investors scrutinizing data, a report today showed the number of applications for unemployment benefits unexpectedly fell last week, reaching a three-month low. Another reading showed sales of previously owned homes climbed in June to the highest in more than nine years, while a separate measure of leading economic indicators rose last month more than economists forecast.

     Almost 80 percent of the S&P 500 companies that have reported results this earnings season have beaten profit forecasts, while 57 percent exceeded sales expectations. Analysts expect net income at the gauge’s members will slide 5.8 percent in the second quarter for a fifth straight decline, the longest streak since 2009. They project they’ll be little changed for the year.                

    “At these levels there’s some trepidation with investors with valuations extended,” Jim Davis, regional investment manager for The Private Client Group of U.S. Bank, said by phone. “The earnings season has been pretty friendly to the market so far, against the backdrop of economic data that has been positive which has helped the market take its mind off some of the other risks out there, mainly geopolitical ones.”

     Intel was the biggest drag on the S&P 500 amid concern its server-chip division — the company’s most profitable business – – won’t be able to make up for weakness in the PC market. Before Thursday, the stock had rallied 16 percent since the Brexit selloff to the highest since January.

     Technology shares in the benchmark slid amid Intel’s selloff, even as EBay countered with its strongest advance since October to a record, and Qualcomm jumped the most in four years. Its results were in contrast to Intel, showing the chipmaker is overcoming hurdles in China, while its rival Intel faces fresh headwinds.

     Southwest Airlines dragged down industrial stocks, retreating 11 percent, after saying heightened competition is driving down airfares more than in previous quarters as the industry’s capacity expansion outstrips demand. It was Southwest’s worst slide in more than seven years, and weighed on other carriers as Delta Air Lines Inc. and United Continental Holdings Inc. fell at least 3.4 percent. The Bloomberg U.S. Airlines Index dropped 4.8 percent, the steepest since June 27.

     The health-care group extended 11-month highs, led by Biogen Inc. as the drugmaker rallied 7.6 percent, the biggest climb in 16 months. Its profit beat estimates and the company announced a $5 billion share buyback program. Also, Chief Executive George Scangos said he’ll leave the company after a series of top managers were replaced and sales of its biggest product stalled.

     The Nasdaq Biotechnology Index climbed 1.3 percent, bolstered by deal activity. Relypsa Inc. jumped 59 percent after agreeing to be bought by Galenica AG, the owner of Switzerland’s biggest pharmacy network, for about $1.53 billion. Celgene Corp. rose 2.7 percent after a 2.3 percent rally yesterday.

     Joy Global Inc. added 20 percent after Komatsu Ltd., the second-biggest mining and construction equipment maker, agreed to buy the largest independent maker of underground-mining equipment for $2.89 billion. Joy’s share price fell 73 percent last year amid declines in commodity prices.

Have a wonderful evening everyone.

Be magnificent!

Your reactions are shared by all humanity.

Your brain is not yours,

it has evolved through centuries of time.

So we are questioning deeply whether there is an

individual at all.  We are the whole of humanity,

we are the rest of mankind.

Krishnamurti

As ever,

Carolann

Good luck is what happens when preparation meets opportunity, bad luck

is what happens when lack of preparation meets a challenge.

                                                                  -Paul Krugman, b. 1953

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