May 24, 2016 Newsletter

Dear Friends,

Tangents:

On May 24, 1883, the Brooklyn Bridge, linking Brooklyn and Manhatten, was opened to traffic. 

Soccer introduced to British Columbia – May 24, 1862 

The first documented match of “football” (soccer) in British Columbia was organized by the Royal Engineers stationed at New Westminster. This match preceded the official Laws of the Game in use now, so it was likely very different from the game we’re used to seeing. 

Bob Dylan’s birthday today.

PHOTOS OF THE DAY

Street artist JR poses in front of the Louvre Pyramid in Paris on Tuesday. For his latest bold project, he is creating an eye-tricking installation at the Louvre Museum that makes it seem as if the huge glass pyramid at the heart of the courtyard has disappeared. Francois Mori/AP

A fly sits on a Begonia in a garden display at the Chelsea Flower Show in London on Monday. Toby Melville/Reuters

Market Closes for May 24^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks rose to the highest level since October, as the nation’s largest lenders joined a global rally in financial shares amid speculation the U.S. central bank is prepared to raise interest rates this summer. Miners plunged with the price of gold.

     The S&P/TSX Composite Index added 0.2 percent to 13,952.85 at 4 p.m. in Toronto, pulling back after briefly climbing above 14,000 index points to reach its highest intraday level since October. The benchmark Canadian equity gauge was closed on Monday for a holiday after rising 1.2 percent last week. The index has climbed 7.3 percent this year, second most among developed-market nations tracked by Bloomberg.

     Global shares jumped 1 percent today, as European and American financial firms paced gains on growing conviction the Federal Reserve will raise interest rates this summer and Britain will vote to remain in the European Union.

     In Canada, Bank of Nova Scotia and Royal Bank of Canada added more than 0.9 percent to lead a 1.2 percent gain among the big banks. The nation’s largest lenders touched the highest levels in a year before Bank of Montreal kicks off the second- quarter earnings scheduleon Wednesday.

     The Bank of Canada is also set for its next policy decision on Wednesday, with the renewed speculation of an interest-rate increase at the Fed lowering the pressure on the central bank to cut its own lending rates to keep the currency competitive for exports. Higher U.S. rates weakens the Canadian dollar, making Canada more attractive for foreign investment.

     Gold producers sank 6.6 percent to offset gains as the metal slumped a fifth day for the longest slide in six months due to Fed speculation. That dented a yearlong rally in raw- materials producers, which have been the best performer in the index with a 32 percent rally.

     Commodities producers make up about a third of the S&P/TSX by market capitalization Resource prices came under pressure last week as the Fed’s April meeting minutes increased speculation an interest-rate hike could come as soon as June, driving the dollar higher.

     Suncor Energy Inc. rose 2.6 percent. Energy producers added 0.5 percent, rising a second day. Eight of 10 industries in the S&P/TSX advanced on trading volume 14 percent below the 30-day average. The S&P/TSX now trades at 21.2 times earnings, about 11 percent higher than the 19.2 times valuation of the S&P 500.

     Oil traded above $48 a barrel, posting the first gain in a week. All of the Canadian oil-sands facilities that workers fled last week as a wildfire spread are being allowed to prepare for restart, including sites connected to operations of Suncor, Syncrude Canada Ltd. and Cnooc Ltd.’s Nexen unit. The wildfires around Fort McMurray, Alberta forced operators to take more than 1 million barrels a day of production offline this month. U.S. data Wednesday is forecast to show crude inventories declined.

US

By Oliver Renick and Joseph Ciolli

     (Bloomberg) — U.S. stocks rose the most in more than two months, as a surge in home sales fueled speculation the economy can withstand higher interest rates amid rising bets the Federal Reserve will tighten policy this summer.

     A gauge of homebuilders jumped the most since January 2014 amid the data, with Toll Brothers Inc. seeing its biggest climb in three years as its quarterly profit also topped estimates. Technology companies soared to their strongest gain in 12 weeks, as Microsoft Corp. and Google parent Alphabet Inc. rose at least 2.2 percent. Banks climbed on expectations for higher rates, with Treasury yields at a three-week high. JPMorgan Chase & Co. and Citigroup Inc. added at least 1.6 percent.

     The S&P 500 gained 1.4 percent to 2,076.06 at 4 p.m. in New York, the steepest climb since March 11, pushing the index to a two-week high. The Dow Jones Industrial Average added 213.12 points, or 1.2 percent, to 17,706.05. The Nasdaq Composite Index increased 2 percent, the most in almost three months. About 7 billion shares traded hands on U.S. exchanges, 4 percent below the three-month average.

     “Maybe investors are realizing that a hike of 25 basis points is not the end of the world,” said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “Those were nice housing numbers. It seems as though the market is excited that we are still going strong and the Fed can raise rates.”

     A report today showed April new-home sales surged to the highest level in more than eight years, pointing to a robust spring selling season for builders. The median sales price climbed to a record, reflecting a pickup in signed contracts for more expensive properties.

     Traders are now pricing in a better-than-even chance of a rate increase by July, as Fed officials signaled their willingness to make such a move if the economy shows sustained progress. Odds for a June boost rose to 36 percent from 4 percent last Monday. Along with today’s April new-home sales report, investors will further scrutinize releases on consumer sentiment and GDP later this week for signs of further strengthening.

     Tuesday’s rally suggested equities will snap out of a torpor that’s left markets struggling for direction as investors sought clarity on the Fed’s monetary path. The S&P 500 has alternated between daily gains and losses for seven sessions, and hasn’t had a back-to-back climb in two weeks. It traded Monday in the narrowest range since April 15 amid volume on U.S. exchanges that was the lowest in almost two months.

     “People may be coming around on the idea of a rate hike as an indication of economic strength,” said Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania. “Before there was a sense that higher rates would spell trouble, but the market has had time to digest that.”

     After a rebound of as much as 15 percent from a 22-month low in February, the main U.S. equity benchmark has churned in a range of less than 50 points in May. The rally ran out of steam in late April, after the S&P 500 came within 1.4 percent of a record set just over a year ago, amid mixed earnings reports and lukewarm signs of economic growth.

     Fed meeting minutes last week, as well as more hawkish commentary from policy makers and improving data stoked concern the Fed may move sooner than markets were prepared. Fed Bank of Philadelphia President Patrick Harker late yesterday said two to three rate increases in 2016 were possible, while San Francisco Fed President John Williams said earlier a similar pace sounded “about right.” Fed Chair Janet Yellen is scheduled to speak on Friday.

     In Tuesday’s trading, all of the S&P 500’s 10 main industries rose, with technology, financial, health-care and consumer discretionary companies rallying at least 1.4 percent. The CBOE Volatility Index fell 8.9 percent to 14.42, the most in nearly two months. The measure of market turbulence known as the VIX erased a gain for the month after reaching a two-month high last week.

     “The first weeks of the year were the end of the world, and the story the next eight weeks was that there’s great promise on this Earth,” John Stoltzfus, chief market strategist at Oppenheimer & Co. in New York, said by phone. “Now, if the Fed is raising rates because the economy is doing better, that looks like a good thing and it seems the market is recognizing that. The jump today in new-home sales, it’s a volatile figure, but that’s a big deal.”

     Tech companies led the benchmark gauge with a 2.1 percent jump, the biggest since March 1. Xilinx Corp. added 5.7 percent and Western Digital Corp. climbed 4.5 percent as the best performers. The group is still down 3 percent since touching a 2016 high on April 1, amid corporate earnings from giants including Microsoft and Apple Inc. that missed expectations. Apple rose for a third day to a four-week high, and Intel Corp. gained 2.8 percent, its strongest advance since January.                     

     Financial companies have rallied more than twice as much as the S&P 500 since the Fed minutes last week, extending gains to 3 percent since May 17 with a 1.5 percent rally on Tuesday. Moody’s Corp. and Affiliated Managers Group Inc. each added at least 3.5 percent as all but two stocks in the 91-member index advanced. The KBW Bank Index climbed 1.6 percent.

     A group of insurance companies in the S&P 500 rose to a five-month high on speculation higher interest rates will help lift profits. Principal Financial Group Inc. gained 2.3 percent, while MetLife Inc. and Prudential Financial Inc. increased more than 1.8 percent.

     An S&P index of homebuilders hit a three-week high following the jump in new-home sales and Toll Brothers’ results. KB Home soared 7.5 percent, while PulteGroup Inc. and Lennar Corp. gained more than 3.8 percent. Builders were the strongest performers among consumer discretionary stocks, though other housing-related companies joined the rally. Whirlpool Corp. advanced 4.4 percent, its best this year, while flooring maker Mohawk Industries Inc. added 2.3 percent.

     The health-care group capped the biggest climb since April 6, lifted by a parade of biotechnology companies. Vertex Pharmaceuticals Inc. and Gilead Sciences Inc. increased more than 3.4 percent. The Nasdaq Biotech index advanced 2.3 percent, rising for a third day in its longest winning streak in a month.

     Among other companies moving on corporate news, Best Buy Co. tumbled 7.4 percent, the worst drop in four months, after forecasting second-quarter profit that trailed analysts’ estimates and announcing the departure of Sharon McCollam, who helped revamp the company’s operations and cut costs.

     Norfolk Southern Corp. lost 2.9 percent, its biggest slide since March 8, after the railroad predicted coal volume will be lower than an earlier forecast.
 

Have a wonderful evening everyone.

Be magnificent!

Facts are not frightening.

But if you try to avoid them, turn your back and run, then that is frightening.

Krishnamurti

As ever,

Carolann

When you feel in your gut what you are and then dynamically

pursue it – and don’t back down and don’t give up – then you’re

going to mystify a lot of folks.

                                                      -Bob Dylan, b. 1941

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