July 6, 2016 Newsletter

Dear Friends,

Tangents:

SECRET 

In summer the park, for an hour or so before night,

is at its greenest, a whole implicit proposition

of green leaves, a triumph of leaves enfolding me

that day in a green intimacy so trustworthy I told

them my secret.  “It’s my birthday,” I said out loud

before turning away to cross the avenue.

                         –Dorothea Tanning, 1910-2012

On this day in:

1854, the Republican party was formed in the US.

1907, the artist Frida Kahlo, was born.

1923, the U.S.S.R. is formed.

1935, the Dalai Lama was born.

 PHOTOS OF THE DAYRevelers hold up traditional red scarves during the start of the San Fermín festival in Pamplona, Spain, Wednesday. Eloy Alonso/Reuters

Kennel Master Oliver Cruz tends to celebrity dogs outside the kennel aboard the ocean liner Queen Mary 2, docked at her home port at the Brooklyn Cruise Terminal in New York, Wednesday. The Cunard ship underwent $132-million of renovations that includes, for its four-legged passengers, additional kennels, more play space and an owner’s lounge. Richard Drew/AP

Market Closes for July 6, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Number of the Day

-0.005%

The 20-year Japanese government bond yield, which was above 1% as recently as last December, fell as low as minus 0.005% on Wednesday, the first time it’s fallen below zero.

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks erased losses to end little changed, as gains by gold producers and health-care shares offset declines in banks after a report today showed the nation’s trade deficit widened more than expected.

     The S&P/TSX Composite Index rose 0.1 percent to 14,231.06 at 4 p.m. in Toronto, after earlier falling as much as 1 percent. The benchmark trails New Zealand as the world’s top- performing developed market in 2016, according to data compiled by Bloomberg. 

     Financial services and consumer discretionary shares were the biggest drags on the S&P/TSX on Wednesday, as investors assessed data that showed the trade deficit in Canada held near a record high in May as exports of machinery and metals declined, worse than economists’ forecasts. The deficit follows an April figure revised higher to a record C$3.32 billion, according to Statistics Canada.

     Toronto-Dominion Bank slid 2.1 percent, while auto-parts manufacturer Magna International Inc. lost 0.8 percent.

     The S&P/TSX fluctuated after minutes from the Federal Reserve’s last meeting showed officials left interest rates on hold in June due to heightened uncertainties in the U.S. jobs market threatening their outlook.

     At their June 14-15 session, officials lowered their expectations for the number of times they’ll increase rates this year, indicating they believed the economy’s potential growth rate had dropped meaningfully, even before the U.K. referendum on June 23. Traders now see a 2 percent probability of an interest rate hike in September, according to data compiled by Bloomberg.

     Canadian equities have swung between gains and losses since the Brexit vote in June as investors sought havens from the market volatility. Canadian government bond yields tumbled for a fifth day, touching the lowest level since February. Ten-year government bonds in the U.S., Australia, Japan, Germany, France and the U.K. sank to records. Gold jumped to the highest in two years.

     Raw-materials producers increased 1.4 percent as gold prices climbed. Barrick Gold Corp. and Yamana Gold Inc. rose more than 2.7 percent.

     Valeant Pharmaceuticals International Inc. surged 15 percent, the most since April, after Walgreens Boots Alliance Inc. said in a third-quarter earnings call it was satisfied with its relationship with Valeant and willing to help Valeant be more successful.

     Centerra Gold Inc. sank 8 percent, the most since May, after agreeing to buy Thompson Creek Metals Co. in a stock deal valued at $1.1 billion. The move will help Centerra expand in North America and reduce its dependence on Central Asia.

     Torstar Corp., publisher of Canada’s biggest daily newspaper, retreated 4.8 percent for a second day of losses. David Holland, president and chief executive officer of Torstar, will step down this fall. The company hasn’t named a replacement.

US

By Anna-Louise Jackson and Bailey Lipschultz

     (Bloomberg) — U.S. stocks advanced, led by gains among drug companies, as cautious sentiment eased amid speculation the American economy can weather the impact of the U.K.’s decision to leave the European Union.

     Equities shook off early weakness as biotechnology shares rallied to lift the health-care group to the highest this year. Retailers rose after data showed the fastest expansion in services industries in seven months. A Goldman Sachs Group Inc.basket of most shorted shares surged for the fifth time in six days, rising 9.2 percent over the period. Phone companies fell for a second day after reaching levels not seen since 2001.

     The S&P 500 Indexincreased 0.5 percent to 2,099.73 at 4 p.m. in New York, after erasing a 0.7 percent drop and reversing most of Tuesday’s slide. The gauge halted declines today near its average price during the past 50 days, a key level watched by technical analysts. The Dow Jones Industrial Average added 78 points, or 0.4 percent, to 17,918.62, wiping out a 127-point drop. The Nasdaq Composite Index rose 0.8 percent, supported by the biotech rally.

     “You’re looking at a market that’s lacking direction right now,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “The primary driver for concern is what it always is — a slow growth backdrop. We’re in a no-man’s land before the next Fed meeting and the kick-off of earnings next week.”

     American equities overcame a retreat in global markets, which fell as knock-on effects of Britain’s vote start to materialize. Anxiety has increased over the potential for instability to spread after at least five asset managers froze withdrawals from U.K. real-estate funds following a flurry of redemptions, while data on Wednesday showed German factory orders were unchanged in May, disappointing forecasters who had called for an increase.

     “When we think about Brexit, we really think that it’s much more of a local U.K. issue and that it becomes much less important even as you start geographically expanding, even if you go to the Euro area, to the U.S.,” Gabriela Santos, a global strategist with JPMorgan Chase & Co. said in an interview on Bloomberg TV. “It doesn’t shift our allocations, it doesn’t shift our view of U.S and European investing, so we haven’t materially changed in the aftermath of Brexit.”

     Before yesterday’s decline, the S&P 500 capped its strongest weekly rise since November, boosted by assurances that central banks are prepared to loosen monetary policy to limit the fallout from Brexit. The benchmark is trading at 16.6 times estimated earnings, a higher valuation than the MSCI All-Country World Index and above its own three-year average.

     The main U.S. equity index has whipsawed in the past month, twice climbing within 1 percent of a record in June, including the day before the U.K. referendum’s result. It then lost 5.3 percent in its worst two-session rout in 10 months before a four-day rally nearly erased those declines. The S&P 500 closed Wednesday 0.6 percent below its level before the Brexit selloff.

     The CBOE Volatility Index fell 4 percent Wednesday to 14.96, after eliminating an early 9.4 percent surge. The measure of market turbulence known as the VIX on Friday posted its biggest-ever weekly decline, down 43 percent. About 7.4 billion shares traded hands today on U.S. exchanges, 2 percent above the three-month average.

     Minutes today from the Federal Reserve’s June meeting showed heightened uncertainty as officials were concerned by a hiring slowdown and thought it prudent to wait for the Brexit vote before a rate move. While policy makers agreed they shouldn’t overreact to one or two job reports, the implications of recent data were viewed as “uncertain,” the minutes showed. Most officials judged that they needed more information on employment, production and spending.

     At their session last month, several Fed officials lowered their expectations for the number of times they’ll increase rates this year, though the median projection held at two. They also reduced their estimate for the longer-run Fed funds rate, indicating they believed the economy’s potential growth rate had dropped meaningfully, even before the U.K. referendum on June 23.

     “The main takeaway from the minutes is the uncertainty in the mind of the Fed has increased, which we can all understand given the weak May jobs data and recent U.K. referendum,” said Jon Adams, portfolio manager at BMO Global Asset Management in Chicago, where he helps oversee $217 billion. “This is another sign that the Fed’s not going to do too much to upset the apple cart. They’re looking for any excuse not to raise rates at this point.”

     Traders have pushed back bets for the next Fed interest- rate increase, with odds for a move at less than 42 percent until at least 2018. As investors and policy makers scrutinize data to assess the sturdiness of growth, a report today showed service providers expanded in June on stronger orders and sales that signal a healthy U.S. economy.

     Another earnings season will also soon vie for investors’ attention, with Alcoa Inc. unofficially launching the second- quarter reporting period next week. Analysts predict a profit decline of 5.4 percent compared to a year ago for companies in the S&P 500, which would mark a fifth-straight quarterly drop, the longest streak since 2009.

     In Wednesday’s trading, eight of the S&P 500’s 10 main industries rose, with health-care adding 1.2 percent, while consumer discretionary, energy and technology shares gained at least 0.5 percent. Phone companies fell 0.4 percent, paring a drop of as much as 1.9 percent.

     Celegene Corp. and Vertex Pharmaceuticals Inc. advanced more than 3.6 percent, among the strongest performers in health- care. Vertex announced a $40 million dollar upfront investment with Moderna Therapeutics Inc. for a cystic fibrosis treatment. The Nasdaq Biotechnology Index rose 2.3 percent to a three-week high. In a note today, Leerink Partners LLC forecast biotechs will post “strong” quarterly results. Merck & Co. increased 2 percent to an almost 11-month high, while AbbVie Inc. added 2.3 percent.

     Bolstering gains in retailers, Amazon.com Inc. rose 1.3 percent to a record amid its longest winning streak in more than two months. Home Depot Inc. climbed 1.7 percent and Bed Bath & Beyond Inc. gained 3.1 percent. Among other consumer discretionary companies, a gauge of homebuilders increased 2.1 percent to a four-week high as D.R. Horton Inc. and Toll Brothers Inc. advanced at least 2.4 percent.

     Banks in the benchmark index wiped out a 1.4 percent drop, rising 0.9 percent for the first gain in three days. Zions Bancorporation and Regions Financial Corp. added more than 2.1 percent, while SunTrust Banks Inc. increased 1.7 percent.

     Raw-materials producers edged higher after erasing a 1.1 percent slide. Martin Marietta Materials Inc. jumped 4.4 percent, the strongest in four months, to an all-time high. Newmont Mining Corp. rose 2.6 percent as gold climbed to to a two-year high.

     American Airlines and United Continental Holdings Inc. slumped at least 2 percent, trimming earlier declines of more than 6 percent, after Credit Suisse Group AG cut its ratings on the carriers. The Bloomberg U.S. Airlines Index has tumbled 24 percent in 2016, putting it on track for the largest annual decline since 2011.

     Among other shares moving on corporate news, Netflix Inc. lost 3.4 percent after Jefferies Group LLC downgraded the shares to underperform, similar to sell, citing concerns about the trajectory of subscriber growth.

Have a wonderful evening everyone.

Be magnificent!

Bees suck nectar from many different flowers, and then make honey.

One drop of honey cannot claim to come from one flower, and another drop of honey from another flower; the honey is a single consistent whole.

In the same way, all beings are one even though they are not aware of this.

The tiger and the lion, the wolf and the boar, the worm and the moth, the gnat and the mosquito, all come from the soul, and are part of the soul.

Chandogya Upanishad

As ever,

Carolann

I write in order to understand as much as to be understood.

                                               -Elie Wiesel, 1928-2016

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