October 12, 2016 Newsletter

Dear Friends,

Tangents:

Carolann is out of the office, I will be writing the newsletter on her behalf.  

PHOTOS OF THE DAY

Pilgrims pray at the Basilica of Our Lady of Aparecida, Brazil’s national saint, in the city of Aparecida, Sao Paulo state, Brazil, on Wednesday. Every year on this date, millions of Brazilian and foreign pilgrims visit the shrine and about 100,000 people usually attend services in Aparecida commemorating her. Roosevelt Cassio/Reuters

Queen Letizia of Spain looks through the window of a car after attending a military parade marking Spain’s National Day in Madrid on Wednesday. Juan Medina/Reuters
Market Closes for October 12^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By Eric Lam
     (Bloomberg) — Canadian stocks halted three days of declines as miners rallied with groups that pay high dividends as the Federal Reserve’s latest meeting minutes showed officials continue to favor only gradual increases in U.S. interest rates.
     The S&P/TSX Composite Index rose 0.5 percent to 14,618.97 at 4 p.m. in Toronto. The gauge has retreated 0.7 percent so far in October after capping a third monthly gain. The index is up 12 percent this year, making it the third-best performing developed market equity index in the world just behind the U.K. and New Zealand.
     Nine of 11 industries in the benchmark for Canadian equity advanced Wednesday, led by a 1.9 percent climb among raw- materials producers. Real-estate, utilities and consumer-staples stocks rose at least 1 percent.
     Gold miners jumped as the price of the metal for immediate delivery added 0.2 percent in New York, holding near the lowest level in four months. Gold has fallen on speculation the Fed will raise rates this year. Officials at the September meeting said a “reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.”
     Traders have now priced in a 68 percent chance the Fed will increase interest rates in December, a modest increase from before the minutes were released, according to data compiled by Bloomberg. A gauge measuring the dollar against its major peers advanced a third day to trade at the highest in seven months. 
     Gold is less attractive in an environment of rising rates because it doesn’t pay a yield, while a firming greenback is generally negative for commodities priced in U.S. dollars.
     Oil and gas companies lost 0.1 percent, paring an earlier retreat, as crude fell 1.2 percent in New York, holding near $50 a barrel for a second day of losses. Crescent Point Energy Corp. and Husky Energy Inc. lost at least 2.6 percent.
     Enbridge Inc. added 1.1 percent, reversing an earlier decline. Protesters seeking to stop construction of an oil pipeline in North Dakota temporarily shut five pipelines. Protesters used bolt cutters to tamper with valves in an attempt to disrupt a pipeline in Minnesota, forcing Enbridge to shut two of its main lines as a precaution.
     Commodities producers remain the top-performing industries in Canada this year, fueling a rebound in the wider gauge after a weak 2015 when the benchmark equity gauge posted its worst loss since the 2008 financial crisis. The S&P/TSX Materials Index is up 38 percent and set to halt its longest yearly losing streak since 1988. Energy producers are second with a 25 percent gain.
     Canadian stock valuations remain 16 percent higher than their U.S. peers, with the S&P/TSX carrying a price-to-earnings ratio of 23.3 compared with 20.2 for the the S&P 500 Index, according to data compiled by Bloomberg.

US
By John Hyland and Anna-Louise Jackson
     (Bloomberg) — U.S. stocks extended gains after minutes from the Federal Reserve’s latest meeting showed officials were in no rush to raise interest rates as they wait for additional data on the strength of the labor market.
     The S&P 500 Index rose 0.3 percent to 2,143.69 at 2:22 p.m. in New York, near its average price during the past 100 days after the steepest selloff in four weeks took it below that closely watched level for the first time since June. The index extended gains following the Fed release as officials were seen debating the timing for higher rates amid data showing steady but slow improvement in the economy.
     “It was a little bit more balanced in the sense of more talking around the possibility of raising the rates,” said Melda Mergen, senior vice president and director of U.S. equities in Boston at Columbia Threadneedle Investments. “That being said, it’s pretty much offset with the factors like looking at the downside risk outside the U.S. and maybe the other things in the economy can give them a pause here.”
     Uncertainties over the economic outlook and the desire by the committee to assure that job growth remains strong are likely to delay another rate increase until December, federal funds futures traders are betting. Fed officials next meet Nov. 1-2, just before the U.S. election on Nov. 8.
At the September meeting, the Federal Open Market Committee left the benchmark lending rate unchanged, even as a majority of the 17 participants still forecast at least one hike this year. Officials debating the merits of raising interest rates last month described the decision as a close call, with several saying a rate hike was needed “relatively soon,” minutes of the September meeting showed.
     Equity investors are on edge after Alcoa Inc. yesterday dropped the most in seven years following results that missed analysts’ estimates. The release came as projections called for a sixth quarter of falling earnings for the S&P 500, while speculation intensified that the Fed will raise borrowing costs this year. The benchmark U.S. 10-year note yield rose to a four- month high Wednesday, while traders place the odds of a move in December at 67 percent, up from 50 percent two weeks ago.
     “The combination of bad out-the-gate earnings reports, rising sense of Fed raising rates, and bond yields going up is a tough combination for stocks,” said Jim Paulsen, chief investment strategist at Wells Capital Management, which manages about $350 billion. “The market is going to need a show of momentum economically and on earnings to handle higher yields.”
     Recent economic data beating forecasts and comments by Fed officials have fueled bets that the central bank is on a path to increase rates this year. Investors will watch reports on retail sales, consumer sentiment and producer prices due on Friday.
     “Some investors are a bit nervous,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “Hiking once is fine, but a series of increases could hurt the market. While good for banking, it means higher financing costs, which means lower profits for firms.”
     Railroad CSX Corp. will release earnings after Wednesday’s market close, while Delta Air Lines Inc., JPMorgan Chase & Co. and Citigroup Inc. are also among those scheduled to report this week. Analysts forecast a profit drop of 1.6 percent for S&P 500 companies in the third quarter.
     “The trend coming out of the industrials companies that reported is very weak, but we’re not seeing any indication that that’s bleeding outside of industrials,” said John Augustine, chief investment officer for Huntington Bank in Columbus, Ohio, which oversees more than $17 billion. “There’s still the potential for a 2 to 3 percent upside surprise overall to earnings estimates and that will end the profits recession.”
     After surging as much as 7.2 percent this year through a record in August, the S&P 500 has failed to push higher. On Tuesday, the gauge closed at an almost one-month low, while the CBOE Volatility Index surged 15 percent. The measure of expected stock-price swings added 3.3 percent on Wednesday.

Have a wonderful evening everyone.

Be magnificent!

“Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible.” Francis of Assisi

As ever,
 

Karen

“Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment.” Buddha

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