May 19, 2016 Newsletter

Dear Friends,

Tangents:

By the numbers…

75.4 MILLION: Number of Millennials (ages 18-35) in the United States in 2015; they have dethroned the 74.9 million baby boomers as America’s largest age cohort.

197: Countries in which a production of Shakespeare’s Hamlet was performed by London’s Globe Theatre in the past two years, part of a celebration to mark the 400^th anniversary of the Bard’s death.

10,000: “Bonus” (in Norwegian kroner, about US $1,225) given by the government to asylum seekers who agree to leave Norway voluntarily.

Today in History:

On May 19, 1935, T.E. Lawrence, also known as “Lawrence of Arabia,” died in England from injuries sustained in a motorcycle crash.

When Noël Coward saw the premiere of the movie  Lawrence of Arabia, he said afterward that “ if he [Peter O’Toole] had been any prettier, they’d have had to call it Florence of Arabia.”

PHOTOS OF THE DAY

Israel’s Ziv Kalontarov starts in the men’s 100m freestyle preliminary event in the European Aquatics Championships in London on Thursday.Stefan Wermuth/Reuters

Cracked and curled mud covers ground that was once under water at the Lake Mead National Recreation Area, near Las Vegas, on Thursday. Lake Mead’s surface was at its lowest level Wednesday since the reservoir was created. John Locher/AP

Market Closes for May 19^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks ended little changed after an afternoon rally in gold producers nearly wiped out losses among financial and industrial firms.

     The benchmark S&P/TSX Composite Index retreated 0.1 percent to 13,817.32 at 4 p.m. in Toronto. The Canadian benchmark equity gauge has lost 0.7 percent in two days, mirroring a slide in global equities after the Federal Reserve signaled it’s prepared to raise U.S. interest rates as soon as next month.

     Global equities pared losses as the trading day persisted, as a dollar rally evaporated, easing pressure on commodities prices. That helped materials shares climb, while banks slumped 0.5 percent and industrial shares lost 1.1 percent. Seven of 10 industries in the S&P/TSX lost ground on trading volume 4.6 percent lower than the 30-day average,

     Canadian Natural Resources Ltd. and Husky Energy Inc. declined at least 1.5 percent as energy producers fell. Barrick Gold Corp. jumped 3.6 percent as gold producers rebounded from an early loss.

     Investors are scrutinizing data from the world’s largest economy after April Fed meeting minutes released Wednesday showed policymakers said boosting borrowing costs in June was “appropriate” should the U.S. economy continue to improve. That prompted traders to boost the probability of a rate hike next month to 30 percent. A report Thursday showed initial jobless claims in the U.S. dropped last week from a one-year high. 

     Energy and raw-materials industries account for about 32 percent of the broader benchmark by market capitalization and have led gains this year, with the materials group surging as much as 43 percent for its best year-to-date performance in three decades. That’s helped the S&P/TSX post one of the best performances this year among developed economies, behind only New Zealand out of 24 markets.

     Russel Metals Inc. tumbled 6.5 percent to lead industrials lower after Raymond James lowered its rating for the steel distributor to the equivalent of a hold, from outperform. Russel has rallied 38 percent this year. The stock now has zero buys, four holds and one sell, according to data compiled by Bloomberg.

     Potash Corp. Of Saskatchewan Inc. climbed 4.1 percent, the most in a month. A potash contract with China is expected in the next couple of weeks, Potash Corp. CEO Jochen Tilk said during the BMO Farm to Market conference in New York. Potash prices have stabilized in the U.S. and the company is seeing improvements in prices, Tilk said.

US

By Anna-Louise Jackson and Joseph Ciolli

     (Bloomberg) — U.S. stocks declined, with the S&P 500 falling to a seven-week low, amid concern that a Federal Reserve interest-rate increase as early as next month could further burden a struggling global economy.

     Equities pared losses in an afternoon comeback as a dollar gauge trimmed its climb. The Fed’s hawkish commentary in meeting minutes yesterday has bolstered dollar gains, pressuring commodity prices as well as multinational companies whose overseas sales may be dented by a stronger U.S. currency. Wal- Mart’s strongest rally in seven years on better-than-estimated earnings offered some support to optimism that the American economy may be sturdy enough to handle higher rates.

     The S&P 500 fell 0.4 percent to 2,040.04 at 4 p.m. in New York, erasing a 2016 gain that had approached 3 percent. The Dow Jones Industrial Average sank 91.22 points, or 0.5 percent, to 17,435.40, and has now gone a year since it last reached an all- time high. The Nasdaq Composite Index slipped 0.6 percent. About 7.2 billion shares traded hands on U.S. exchanges, 3 percent below the three-month average.

     “The weakness is a continuation of yesterday and the threat of higher interest rates, either real or perceived,” said Terry Morris, a senior equity manager who helps oversee about $3.2 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co. “The economy is fragile, and a hike in interest rates could send it over the edge. There’s a fear that if rates do go up, the economy won’t be able to support it.”

     Minutes from the Fed’s April meeting indicated policy makers’ willingness to raise interest rates in June if the economy continues to improve, sending the S&P 500 on Wednesday to its widest intraday swings in three weeks. Some meeting participants expressed concern that markets were ill-prepared for rate boost next month.

     This week’s vault in expectations for higher rates has dealt another blow to sentiment that was already brittle amid slumping corporate earnings. The S&P 500 rallied 15 percent between a February low and a four-month high on April 20, but has slipped 3 percent since then, losing momentum last month amid disappointing results from technology giants Apple Inc. and Microsoft Corp., as well as recent letdowns from a handful of major retailers including Macy’s Inc. and Target Corp.

     “The minutes from the most recent meeting could very well be interpreted as more hawkish and June or July are very much in play,” said Eric Wiegand, senior portfolio manager at the New York-based Private Client Reserve of US Bank, which oversees $128 billion in assets. “The reaction yesterday was somewhat muted and the follow-on shows people are still processing that. The volatility in commodities prices is also a byproduct of those concerns about higher rates.”

     The CBOE Volatility Index climbed 2.4 percent to 16.33, a two-month high. The measure of market turbulence known as the VIX is headed toward a second consecutive weekly gain for the first time since the S&P 500 reached a 22-month low in February.

     In contrast to Thursday’s downdraft, Wal-Mart surged the most since 2008 after better-than-estimated first-quarter results assuaged some fears that the retail industry is mired in a slump. Urban Outfitters Inc. jumped 14 percent after its results topped predictions, and Cisco Systems Inc. rose 3.2 percent, the best since Feb. 11, after its results and forecast topped predictions. Monsanto Co. gained 3.5 percent after an unsolicited acquisition offer from Germany’s Bayer AG.

     With attention riveted on the central bank, New York Fed President William Dudley said Thursday the central bank is moving closer to raising rates at one of its next two meetings and the fact this message is getting through to financial markets is welcome news. Richmond Fed’s Jeffrey Lacker also talked up the prospect for an imminent increase, saying during an interview on Bloomberg Radio that there’s a strong case for raising rates next month.

     Traders now price in a 30 percent chance of higher borrowing costs next month, up from 4 percent at the start of this week. Odds for a July move are 48 percent, while September is the first month with at least an even chance of higher rates.

     Investors “are understandably concerned after the Fed minutes,” said Mike Ingram, a strategist at BGC Partners in London. “Growth isn’t looking great and equities are still going to struggle. It’s important for the Fed to reaffirm the underlying strength of the U.S. economy if it’s really considering a rate hike in June.”

     As policy makers scrutinize data that will guide their rate decisions, a report today showed filings for unemployment benefits declined last week from a more than one-year high, as a plunge in New York returned claims to a level consistent with a firm labor market. A separate measure showed manufacturing activity in the Philadelphia region unexpectedly contracted this month. Also, a gauge of leading indicators last month rose more than economists forecast.

     With the reporting season winding down, analysts estimate first-quarter income at S&P 500’s companies declined 7.4 percent, compared to calls for flat growth earlier this year. So far, 75 percent of those that have reported beat profit estimates, while 54 percent surpassed sales predictions.

     In Thursday’s trading, six of the S&P 500’s 10 main industries fell, led by declines of at least 0.8 percent for health-care, financial and industrial companies. Utilities gained 0.9 percent, springing back from a two-day, 3.6 percent drop, while consumer staples added 0.8 percent.

     Industrial stocks tumbled 1 percent to levels last seen in March. General Electric Co. paced the selloff, falling to a two- month low. Boeing Co. lost 2.2 percent, the most since Feb. 11. Delta Air Lines Inc. and United Continental Holdings Inc. lost at least 1.7 percent in the wake of the crash of an EgyptAir flight.

     Financial companies slipped 0.9 percent, erasing about half of Wednesday’s rally. The S&P 500 REITs Index fell 1 percent to a two-month low. Twenty-two of 24 lenders in the KBW Bank Index sank, led by declines of more than 1.7 percent for Regions Financial Corp. and Citigroup Inc. The gauge yesterday rallied the most in five weeks amid speculation higher rates would lift banks’ profits. Treasury yields fell today after surging by the most since March 1 on Wednesday.

     Technology shares slipped, alternating between gains and losses for a fifth day. Microsoft Corp. was the biggest drag on the group, falling 1 percent. Google parent Alphabet Inc. decreased 0.9 percent and Oracle Corp. lost 1.6 percent to also weigh. More than half of last year’s revenue at both companies came from outside the U.S., making them vulnerable to the stronger dollar.

     Consumer staples bounced after falling to a three-week low yesterday. Wal-Mart’s 9.6 percent surge led the recovery, while Kraft Heinz Co. added 2.2 percent after losing 5.5 percent over the prior two sessions. Kroger Co. and Archer-Daniels-Midland Co. increased at least 1.3 percent.

Have a wonderful evening everyone.

Be magnificent!

Nations cohere because there is mutual regard among

individuals composing them.

Some day we must extend the national law

to the universe,

even as we have extended the family law

to form nations – a larger family.

Mahatma Gandhi

As ever,

Carolann

Nothing is so strong as gentleness and

nothing is so gentle as real strength.

      -Ralph W. Sockman, 1889-1970

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