October 11, 2016 Newsletter

Dear Friends,

Tangents:

Yesterday was Columbus Day in the US (only the bond markets were closed, stock markets were open).  Tomorrow marks the anniversary of Christopher Columbus landing in the Americas in 1492.
He wrote in his journal on October 12, 1492:
When we stepped ashore we saw fine green trees, streams everywhere and different kinds of fruit….Soon many of the islanders gathered round us.  I could see that they were people who would be more easily converted to our Holy Faith by love than by coercion, and wishing them to look on us with friendship I gave some of them red bonnets and glass beads which they hung round their necks, and many other things of small value, at which they were so delighted and so eager to please us that we could not believe it.  Later they swam out to the boats to bring us parrots and balls of cotton thread and darts, and many other things, exchanging them for such objects as glass beads and hawk bells.  They took anything, and gave willingly whatever they had.
   However, they appeared to me to be a very poor people in all respects.  They go about as naked as the day they were born, even the women, though I saw only one, who was quite young.  All the men I saw were quite young, none older than thirty, all well built, finely bodied and handsome in the face.  Their hair is coarse, almost like a horse’s tail, and short; they wear it short, cut over the brow, except a few strands of hair hanging down uncut at the back…
   They carry no weapons, and are ignorant of them; when I showed them some swords they took them by the blade and cut themselves.  They have no iron; their darts are just sticks without an iron head, though some of them have a fish tooth or something else at the tip.
PHOTOS OF THE DAY

Costumed characters pose for a group photograph as they parade through the Brand Licensing Europe 2016 exhibition at Olympia in London on Tuesday. The 3-day trade show brings together brand owners, retailers, licensees, and manufacturers for deal making, networking, and trend spotting.Matt Dunham/AP

Northern Ireland soccer fans celebrate prior to the kickoff of the World Cup Group C qualifying soccer match against Germany in Hannover, Germany, on Tuesday. Martin Meissner/AP
Market Closes for October 11^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By Eric Lam
     (Bloomberg) — Canadian stocks ended the day lower, extending a three-day slide, as a rally in energy companies stoked by crude trading near a 15-month high was offset by declines among raw-materials producers amid slumping gold prices.
     The S&P/TSX Composite Index fell 0.1 percent to 14,549.60 at 4 p.m. in Toronto. Canadian markets were closed Monday for the Thanksgiving holiday. The index is up 12 percent this year, making it the third-best performing developed market equity index in the world behind the U.K. and New Zealand.
     Raw-materials producers fell 0.6 percent as gold traded near the lowest in four months. The precious metal fell for the seventh time in eight sessions and has tumbled 4.8 percent in October. Barrick Gold Corp. and Franco-Nevada Corp. lost more than 1.7 percent.
     Traders have now priced in a 67 percent chance the Federal Reserve will increase interest rates in December, according to data compiled by Bloomberg. Gold is less attractive in an environment of rising rates because it doesn’t pay a yield.
     Meanwhile oil and gas companies added 0.6 percent, one of only two industries among 11 to advance in the S&P/TSX. Crude traded just under $51 a barrel in New York, after climbing 3.1 percent Monday. Russia’s biggest producer, Rosneft PJSC, said it won’t reduce output, according to Reuters, increasing uncertainty over whether the country will join OPEC’s deal to curb supply and balance the market. Suncor Energy Inc. rose 7.3 percent and Cenovus Energy Inc. added 2.7 percent.
     Raw-materials and energy remain the top-performing industries in Canada this year, fueling a rebound in the wider gauge even as its first-half resurgence has sputtered somewhat in the second. The S&P/TSX Materials Index is up 35 percent and set to halt its longest yearly losing streak since 1988. Energy producers are second with a 26 percent gain.
     Canadian stock valuations remain 15 percent higher than their U.S. peers, with the S&P/TSX carrying a price-to-earnings ratio of 23.2 compared with 20.1 for the the S&P 500 Index, according to data compiled by Bloomberg.
     Teck Resources Ltd. jumped 4.4 percent, the most in two weeks, for a second day of gains. A potential benchmark settlement between Peabody Energy Corp. and Nippon Steel & Sumitomo Metal Corp. at $200 per metric ton may be a “meaningful positive” for metallurgical coal producers, according to FBR Capital Markets analyst Lucas Pipes.

US
By Dani Burger and John Hyland
     (Bloomberg) — The S&P 500 Index fell to an almost four- week low as an early batch of disappointing corporate results damped optimism over a rebound in earnings, while growing speculation that the Federal Reserve will raise interest rates this year undermined demand for riskier assets.
     Equities suffered the worst decline in a month, with Alcoa Inc. tumbling the most in seven years as its earnings missed estimates. Health-care shares were the biggest losers, weighed down by Illumina Inc.’s 25 percent plunge after it said sales were lower than anticipated. Commodity producers retreated as a gauge on the dollar reached a two-month high, and chipmakers saw their biggest drop in four weeks.
     The S&P 500 slid 1.2 percent to 2,136.73 at 4 p.m. in New York, with losses accelerating in afternoon trading as the gauge fell below its average price during the past 100 days. The Dow Jones Industrial Average lost 200.38 points, or 1.1 percent, to 18,128.66. The Nasdaq 100 Index declined 1.5 percent following a fresh record on Monday, and the CBOE Volatility Index jumped 15 percent to a three-week high. About 6.7 billion shares traded hands on U.S. exchanges, in line with the three-month average.
     “We’ve got several factors weighing on the market right now,” said Alan Gayle, a senior strategist at RidgeWorth Investments. “Earnings, politics, Fed and oil taking a breather after a strong run. Typically, companies step over earnings guidance and the early news is that may not be happening. Investors have gotten news from multiple sources that are making them increasingly nervous and the market’s selling off.”
     It’s not the beginning to the earnings season investors had hoped for, with S&P 500 companies forecast to post a sixth consecutive decline in profits and trading at more than 18 times estimated earnings, compared with a 15.6 average for the past five years. In addition to the selloffs in Alcoa and Illumina, Fastenal Co. fell the most in 20 months after the industrial supplier’s profit missed predictions, and Seagate Technology Plc lost 7.6 percent after forecasting higher expenses.
     “Alcoa is always the first off and seen as a bellwether for industrial demand,” Chris Gaffney, president of world markets at St. Louis-based EverBank, said by phone. “People need to see strong earnings, especially with the thought that rates will start moving higher. The environment for companies is going to get less accommodating. The drivers today and going forward are going to be earnings.”
     Meanwhile, traders boosted odds for a December rate hike to nearly 68 percent, from 64 percent on Friday and about 50 percent two weeks ago as encouraging data signaled the U.S. economy is strong enough to cope with higher borrowing costs. They are pricing in a 17 percent chance of a move next month. Chicago Fed President Charles Evans told reporters in Sydney that a December move “could be fine,” after arguing in a speech to keep rates low until core inflation moves higher.
     Investors will also look to data and minutes from the Fed’s September meeting, which will be released on Wednesday, for clues on the health of the world’s biggest economy and the likely trajectory of interest rates. Reports on retail sales, producer prices and consumer sentiment are due Friday.
     “I think the only rationale for having valuations where they are is in the context of low interest rates,” said Mark Heppenstall, the Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management, which oversees about $20 billion. “If the bond market begins to show signs of weakness, that could spill over into pressure on equity prices.”
     Treasuries fell Tuesday amid bets that inflation will pick up, with 30-year bond yields touching the highest since June.
All of the S&P 500’s 11 main industries retreated, with health- care companies dropping to a three-month low amid the biggest selloff since June, while raw-materials fell 1.3 percent. Phone, real estate and consumer-staples companies were the only ones to lose less than 1 percent.
     Illumina posted its steepest drop in five years after saying third-quarter sales were lower than it previously anticipated because of declining demand for its high-speed genetic sequencers. Health-care equipment stocks saw their biggest slump since June’s Brexit vote, with Abbott Laboratories falling 5.4 percent, the most since April.
     Alcoa’s slide dragged raw-materials to a three-month low, with the aluminum producer capping its worst day since March 2009. Freeport-McMoRan Inc. lost 3.1 percent and International Paper Co. declined 2.3 percent.
     Intel Corp. decreased 2 percent to pace a retreat among chip stocks, the worst performers today in the broader tech group. Micron Technology Inc. and Applied Materials Inc. sank at least 2.5 percent.
     Banks in the benchmark index slumped 0.9 percent, even as rising bond yields signaled the potential for better earnings prospects. Citigroup Inc. and Bank of America Corp. fell more than 1.1 percent.

Have a wonderful evening everyone.

Be magnificent!

Beauty lies in the total abandonment of the observer and the observed,
and there can be self-abandonment only when there is total austerity.
There is no ladder to climb; there is only the first step
and the first step is the everlasting step.
Krishnamurti

As ever,
 

Carolann

The media.  It sounds like a convention of spiritualists.
                                   – Tom Stoppard, b. 1937

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