May 4th, 2011 Newsletter
Dear Friends,
By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest. – Confucius (551 BC – 479BC)
Photos of the Day
Yorkshire terrier Ryota, left, greets miniature pinscher Pin-chan during their encounter in Tokyo.
Japanese astronaut Satoshi Furukawa (r.), US astronaut Michael E. Fossum (l.) and Russian cosmonaut Sergey Volkov smile for the camera during a training exercise in the Soyuz capsule simulator in the Russian cosmonaut training centre at Star City outside Moscow. The three man team is scheduled to leave for the International Space Station on June 7.
Market Commentary:
Canada
By Matt Walcoff
Canadian stocks fell for a third day as earnings at companies including Talisman Energy Inc. (TLM) trailed analyst estimates and a gauge of U.S. service industries showed the weakest expansion in eight months.
Talisman, an oil and gas producer with operations in North America, the North Sea and Indonesia, dropped 5.9 percent after its first-quarter profit excluding certain items missed the average analyst forecast by 50 percent. Agrium Inc. (AGU), Canada’s second-largest fertilizer producer, lost 3.7 percent after forecasting second-quarter profit below the average estimate. Iamgold Corp. (IMG) rose 5.7 percent after reporting a resources increase at its Niobec niobium mine in Quebec.
The Standard & Poor’s/TSX Composite Index slipped 81.05 points, or 0.6 percent, to 13,611.32.
“Weaker corporate earnings are definitely going to have some weight on the market,” said Marcus Xu, director of equity investments at Genus Capital Management in Vancouver, which oversees C$1.7 billion ($1.8 billion).“We’re starting to see some big companies miss.”
The S&P/TSX decreased 2.2 percent from the beginning of the current earnings-reporting season on April 11 to yesterday while the S&P 500 advanced 2.4 percent. Earnings for companies in the Canadian stock benchmark trailed analysts’ estimates by 1.6 percent, while those of S&P 500 companies surpassed forecasts by 8 percent, according to Bloomberg data.
The Institute for Supply Management’s index of non- manufacturing companies fell to 52.8 in April from 57.3 in March. The figure trailed all 73 forecasts in a Bloomberg survey.
Forecast Bottom
Talisman retreated 5.9 percent, the most since June 2009, to C$21.11. Weather delays on the Yme project in Norway “are pushing us to the bottom” of the company’s production-forecast range, Chief Executive Officer John A. Manzoni said in a press release.
Other energy shares dropped as natural gas futures declined on forecasts for cooler-than-normal weather in the U.S. South. Crude oil slipped for a third day as the U.S. Energy Department said inventories increased more last week than most analysts in a Bloomberg survey had forecast.
Canadian Natural Resources Ltd. (CNQ), the country’s second- largest energy company by market value, slumped 2 percent to C$42.34. Cenovus Energy Inc. (CVE), Canada’s fifth-biggest energy company, lost 1.6 percent to C$34.72. Imperial Oil Ltd. (IMO), the owner of Canada’s Esso chain of gas stations, retreated 1.4 percent to C$47.70.
Financials Fall
Canada’s six biggest banks all fell after the release of the ISM data.
Toronto-Dominion Bank (TD), which has more than 1,000 U.S. branches, dropped 0.7 percent to C$81.39. Royal Bank of Canada, its bigger rival, declined 1.2 percent to C$58.23. Bank of Nova Scotia, Canada’s third-largest lender by assets, slipped 1.1 percent to C$57.73.
Base-metal and coal producers fell as all major industrial metals traded on the London Metal Exchange dropped.
First Quantum Minerals Ltd. (FM), Canada’s second-largest publicly traded copper producer, decreased 2.1 percent to C$127.20. Teck Resources Ltd. (TCK/B), Canada’s biggest base-metals and coal producer, retreated 1.7 percent to C$49.62.
Uranium One Inc. (UUU), a mining company controlled by Moscow- based ARMZ Uranium Holding, rose 5.7 percent to C$4.44 as prices of the nuclear fuel increased. Shares of the Vancouver-based company have jumped 14 percent this week.
Missing Estimates
Agrium Inc., a fertilizer producer and agricultural- products retailer, declined 3.7 percent to a five-month low of C$80.47. The company provided a first-half forecast that indicated it will earn $3.37 a share to $3.87 a share in the second quarter, excluding certain items, compared with the average analyst estimate in a Bloomberg survey of $3.97 a share.
I amgold surged 5.7 percent to C$19.77. The company reported a 691 percent increase in the measured and indicated mineral resource at the Niobec project. Niobium is a metal used in steel production and superconductors.
Kinross Gold Corp. (K) and Loblaw Cos. rose after reporting earnings that beat analyst estimates. Kinross, Canada’s third- largest gold producer, rallied 4.9 percent from a 29-month low to C$14.88 after raising its 2011 production forecast. Loblaw, the country’s biggest grocery chain, surged 4.6 percent, the most since November 2009, to C$41.90.
Publisher Tumbles
Torstar Corp. (TS/B), the owner of the Toronto Star, plunged 9.5 percent, the most in 23 months, to C$12.35. The publisher reported first-quarter earnings that missed the average of six analyst forecasts by 15 percent, excluding certain items.
West Fraser Timber Co., Canada’s largest lumber producer, sank 5.3 percent to C$51 after its first-quarter revenue of C$687 million trailed analysts’ estimates of C$690 million and C$717 million.
“Prices for the company’s construction products are expected to remain volatile until the U.S. housing industry experiences sustainable recovery,” West Fraser said in a press release.
US
By Rita Nazareth
May 4 (Bloomberg) — John Silvia, chief economist at Wells Fargo Securities LLC, talks about the ADP Employer Services report for April and its implications for the U.S. economic recovery. Companies added 179,000 workers last month signaling the labor market is strengthening, data from the private report based on payrolls showed today. Silvia speaks with Betty Liu and Michael McKee on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)
U.S. stocks fell, with commodity producers driving a third straight loss for the Standard & Poor’s 500 Index, as lower-than-estimated reports on service industries and job growth damped optimism in the economy.
Caterpillar Inc. (CAT) and DuPont Co., among companies most-tied to the economy, fell at least 1.7 percent to help lead declines in the Dow Jones Industrial Average. Freeport-McMoRan Copper & Gold Inc. (FCX) and Occidental Petroleum Corp. (OXY) led commodity producers lower, dropping more than 2.4 percent, as oil and metals sank. Las Vegas Sands Corp. (LVS), the U.S. casino company expanding in Asia, slumped 7.3 percent after reporting profit that missed estimates.
The S&P 500 lost 0.7 percent to 1,347.32 at 4 p.m. in New York. The index has dropped every day since closing at the highest level since June 2008. The Dow fell 83.93 points, or 0.7 percent, to 12,723.58 today. Oil for June delivery declined 1.6 percent to $109.24 a barrel in New York.
“We’ve seen some tempering of economic statistics,” said Michael Mullaney, who manages $9.5 billion at Fiduciary Trust in Boston. “We’re going to see some sloppiness in the market until we get a clear indication on whether the sluggishness in economic activity is temporary. Employment growth is critical for the economy becoming self-sustaining.”
The S&P 500 extended its drop since April 29 to 1.2 percent. Oil, metal and chemical companies have led the market’s slump. Silver futures have plunged 19 percent, the biggest three-day drop since 1983, as increases in Comex margins spurred investor sales. Oil has slumped 4.1 percent.
Earnings Reports
The S&P 500 has trimmed its 2011 gain to 7.1 percent. The index rallies since Dec. 31 amid higher-than-estimated profits and economic reports. Earnings-per-share beat estimates at 73 percent of the 359 companies in the S&P 500 that reported results since April 11, according to data compiled by Bloomberg.
Stocks extended losses after a report showed that service industries in the U.S. expanded in April at the slowest pace in eight months as higher fuel prices prompted companies to cut back. The Institute for Supply Management’s index of non- manufacturing companies declined to 52.8 last month from 57.3 in March. Readings greater than 50 signal growth, and the median forecast of economists surveyed by Bloomberg News called for a gain to 57.5. A gauge of new orders dropped by the most since record-keeping began in 1997.
Stock-index futures fell before the start of trading as an ADP Employer Services report showed that employment at U.S. companies increased by 179,000 in April. The median estimate in a survey called for a 198,000 increase this month. Estimates ranged from a gain of 164,000 to 240,000, according to the Bloomberg survey of 34 economists.
Employment probably increased for a seventh straight month in April, economists in a survey said before a U.S. Labor Department report on May 6.
Caterpillar, the world’s largest maker of construction equipment, dropped 2.2 percent to $110.77. GE retreated 1.8 percent to $20.27.
U.S. equities also followed European and Asian shares lower amid concern central banks will need to lift interest rates to fend off accelerating inflation.
The Federal Reserve may start raising its benchmark interest rate late this year, Miguel Savastano, the deputy director for Western Hemisphere at the International Monetary Fund, told reporters today in Santiago.
‘Critical’
The People’s Bank of China said stabilizing prices and managing inflation expectations are “critical” after policy makers from India and Brazil yesterday signaled further tightening is possible. Interest-rate futures are indicating European Central Bank President Jean-Claude Trichet may signal more increases at the end of a policy meeting tomorrow.
Gauges of raw-material and energy producers led the declines in the S&P 500 within 10 industries, falling at least 1.5 percent. Gold declined after a report that Soros Fund Management LLC may have cut metal holdings. Crude oil dropped to a two-week low as a U.S. Energy Department report showed supplies surged.
Freeport-McMoRan, the largest publicly traded copper producer, slumped 3.9 percent to $51.14. Occidental Petroleum declined 2.5 percent to $108.89
Las Vegas Sands fell 7.3 percent to $42.53. The casino operator reported a first-quarter adjusted profit of 37 cents a share, missing the average analyst estimate of 44 cents, amid lower winnings from table games in Nevada.
First Solar Tumbles
First Solar Inc. (FSLR) tumbled 6.2 percent to $126.31. The largest maker of thin-film solar modules reported first-quarter profit fell 33 percent as competition from Chinese manufacturers increased and prices declined in Europe, its largest market.
Varian Semiconductor Equipment Associates Inc. (VSEA) surged 51 percent to $61.36. Applied Materials Inc. (AMAT), the world’s largest producer of chipmaking equipment, agreed to buy Varian for $4.9 billion in cash. Applied Materials will pay $63 a share, a 55 percent premium over yesterday’s closing price.
Ralcorp Holdings Inc. (RAH) rose 4.9 percent to $87.39, paring a gain of as much as 8.2 percent. The maker of Raisin Bran and Grape-Nuts cereal spurned a $4.9 billion offer from ConAgra Foods Inc. (CAG) and adopted a shareholder rights plan to bar its suitor from gaining control of its shares.
“We’re seeing a lot of M&A deals,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “I expect that trend to continue as many of these companies have a huge amount of cash on their balance sheets.”
Global Deals
About $834.3 billion in takeovers have been announced globally so far in 2011, a 23 percent increase from the same period in 2010, according to data compiled by Bloomberg.
Bank of America Corp. boosted forecasts for S&P 500 earnings in 2011 and 2012, citing more manufacturing and business spending, as well as gains from higher foreign profits, commodity prices and a weaker U.S. dollar.
David Bianco, the bank’s New York-based chief U.S. equity strategist, said S&P 500 companies will earn a total of $97 a share in 2011, up from a prior projection of $95. In 2012, they will post profit of $104, said Bianco, who had estimated $102.
Credit Suisse Group AG boosted its year-end forecast for the S&P 500 to 1,275 from 1,250 while lifting the earnings-per- share estimate for the benchmark to $94 from $91.
Have a wonderful evening everyone
Success is how high you bounce when you hit the bottom
-George S. Patton (November 11, 1885 – December 21, 1945)
Be magnificent!
As ever,
Nishma for Carolann
Carolann Steinhoff, B.Sc., CFP, CIM, FCSI
Senior Vice-President &
Senior Investment Advisor