September 20, 2016 Newsletter

Dear Friends,

Tangents:
We went to see the new Beatles’ documentary last night – Eight Days A Week – The Touring Years.  Even though I was a little too young during their touring years to see one of their concerts or to even witness Beatlemania, I must say it is a wonderful movie produced by Ron Howard, which invokes the intended nostalgia.  It’s well worth the effort to go see it on the big screen.

DAZZLING HIMALAYAS
Travel virtually to the Himalayas with the new app Verne: The Himalayas, which uses Google Maps to allow you to see the vistas as a yeti known as Verne.  Kids can learn from the app, but adults will appreciate the dazzling visuals too.  It’s available through Google Play (there’s no iOS version yet) free of charge. –CSM.

PHOTOS OF THE DAY

King Willem-Alexander arrives in the Glass Carriage at Knight’s Hall in The Hague, Netherlands, on Tuesday, prior to delivering a speech outlining the Dutch government’s budget plans for the year ahead. Lex van Lieshout/AP

People enjoy a slide at the 183rd Oktoberfest in Munich, southern Germany, on Tuesday. The world’s largest beer festival will be held from Sept. 17 to Oct. 3. Matthias Schrader/AP

Men compete in the Irish National Ploughing Championships in Tullamore, Ireland, on Tuesday. Clodagh Kilcoyne/Reuters
Market Closes for September 20^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By John Hyland
     (Bloomberg) — Canadian stocks rose a second day, led by gains among the nation’s largest lenders as investors await crucial policy decisions Wednesday from the Federal Reserve and Bank of Japan.
     The S&P/TSX Composite Index added 0.2 percent to 14,521.98 at 4 p.m. in Toronto, to the highest level since Sept. 12. The Canadian equity benchmark advanced in line with a gauge of global developed and developing markets as equities rallied across North America and Europe.
     Financial markets around the world are anticipating the latest decisions from the Fed and BOJ, with the latter expected to add to unprecedented stimulus. Traders now see a 22 percent chance of a rate increase when Fed policy makers meet Wednesday, and a 56 percent likelihood by the end of the year. Two of the Fed’s 23 preferred bond-trading partners forecast officials will raise rates at Wednesday’s meeting.
     Bank of Nova Scotia and Toronto-Dominion Bank gained at least 0.6 percent as financial services stocks rose 0.6 percent as a group to pace gains in the S&P/TSX.
     Industrial stocks fell 0.5 percent with Bombardier Inc. leading the decline. The planemaker fell 6.3 percent to its lowest level in five months, after declining for three straight days. Bombardier and its competitors face a drop in demand for business-jets, according to a Bloomberg Intelligence report.
     Encana Corp. slumped 7.6 percent to the lowest in a more than a month, after selling about $1 billion of shares to fund drilling in Texas next year and repay debt. The company agreed to sell 107 million shares at $9.35 apiece through underwriters led by Credit Suisse Group AG and JP Morgan Chase, with a 30 day allotment to purchase 16.05 million additional shares.
     Crude closed little changed, adding 0.3 percent to its two day rebound. Growth continues after Algeria said OPEC may have formal sessions next week to discuss a cut in crude supplies to re-balance markets and stabilize prices. U.S. crude stockpiles probably increased by 3.13 million barrels last week, according to a Bloomberg survey before government data Wednesday.
     Natural resource producers remain the best-performing industries in Canada this year, fueling a 12 percent rebound in the S&P/TSX for the second-best performing developed market in 2016 behind New Zealand.

US
By Dani Burger
     (Bloomberg) — For all the dread surrounding central banks and valuations, risk appetites are being fed in at least one corner of the stock market.
     The S&P 600 Health Care Index of small caps posted a fifth- straight gain, surging 2.5 percent to briefly touch an all-time high. Its larger-company counterpart rose 1.1 percent over the same period, and sits 6.5 percent below its record. The outperformance is reason for optimism to JC O’Hara, chief market technician for FBN Securities Inc., who says it’s more evidence investors are being weaned of their defensive obsession.
     U.S. stocks closed little changed for a second day following another afternoon fade, as sentiment wavered before key policy decisions Wednesday from the Federal Reserve and Bank of Japan. The S&P 500 Index added less than 0.1 percent to 2,139.76 at 4 p.m. in New York, after climbing as much as 0.6 percent.
     “From a top-down point of view, when you have strength in small caps in any particular sector, it’s a sign of risk-on and it’s taken as an offensive signal for the market,” said O’Hara by phone. “The ability to take on risk and buy individual companies is starting to happen again.”
     A brightening forecast for biotechnology acquisitions is partially behind the resurgence of small-cap health-care companies. On Tuesday, Allergan Plc agreed to purchase Tobira Therapeutics Inc., while other companies are looking to buy Bayer AG’s dermatology unit. 
     Still, it’s an about-face from the sentiment surrounding biotech and health-care stocks to start the year, when stretched valuations and concerns about global growth sent small-cap shares tumbling into a bear market. While it isn’t unusual for the shares to lead equities out of a downturn because they are less liquid and also tend to fall harder, the speed and force of their recovery is what’s notable.
     The small-cap health index has outpaced the S&P 500 Health Care Index by 5 percentage points from the start of August through Monday. That’s lifted the gauge to its highest-ever level relative to the large-cap index. Among individual companies, MiMedx Group Inc. and Phibro Animal Health Corp. have surged more than 21 percent in the past month.
     In Tuesday’s trading, the Dow Jones Industrial Average rose 9.79 points to 18,129.96, nearly wiping out a gain of more than 100 points for a second day. The Nasdaq Composite Index increased 0.1 percent. About 5.9 billion shares traded hands on U.S. exchanges, 13 percent below the three-month average.
     “People are waiting for the Fed and the Bank of Japan,” Jim Davis, regional investment manager for The Private Client Group of U.S. Bank, said by phone. “The overall market is positioned for the Fed not to do anything. We’ve had a reset and we’re back to where we were pre-Brexit. Investors are seeking affirmation that central banks are going to continue to be somewhat friendly.”
     Stocks have struggled for direction since Sept. 9, when worries that central bankers may be less committed to further stimulus efforts spurred the biggest slump in more than two months, ending the summer’s calm. Amid swings between gains and losses as investors assessed economic releases and comments by Fed officials, the S&P 500 eked out an advance of 0.5 percent last week. The benchmark is trading at 18.3 times estimated earnings, its highest since 2002.
     A report today showed new-home construction fell more than projected in August, representing a pause after a spell of strong gains. Permits, a proxy for future construction, unexpectedly slipped on fewer applications for apartment projects. It’s the last piece of significant data before the Fed announces its rate decision and Chair Janet Yellen holds a press conference tomorrow afternoon. The Bank of Japan will also undertake a review of its monetary policy, with its outcome due before Wednesday’s Fed statement.
     The housing starts data added to a recent slew of weaker- than-forecast reports that has lowered trader odds of higher borrowing costs this month to 22 percent, from more than 40 percent in late August. A Bloomberg gauge tracking the degree to which data miss or exceed economists’ estimates is hovering near a two-month low.
     “It really is only about central banks,” said Christian Gattiker, the Zurich-based head of research at Julius Baer Group Ltd., which manages about 284 billion Swiss francs ($290 billion). “We’re generally in a bit of wait-and-see mode and it will depend on how much we get in terms of direction. A hike this month is priced out, but the market is waiting for guidance whether it’s going to happen in December or next year.”

Have a wonderful evening everyone.

Be magnificent!

The universe is not ruled by arbitrary, temporary martial law.
No force exists that is powerful enough to derail it, or to continue indefinitely on its own path unregulated,
like an outlaw who disrupts all harmony around him.  On the contrary, every force must return
to a state of equilibrium along a preordained curve.  Waves rise, each to its own level,
with an apparent attitude of relentless rivalry, but only up to a certain point.  We can thus understand
the vast serenity of the sea, to which all the waves are connected,
and to which they must all subside in the rhythm of marvelous beauty.
Rabindranath Tagore

As ever,

Carolann

In rivers, the water that you touch is the last of what
has passed and the first of that which comes;
so with present time.
                  -Leonardo Da Vinci, 1452-1519

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