January 14, 2015 Comments

On Wednesday the S&P 500 was down 0.6% and Toronto was down 0.7%.

Melcor was down 5.7% to $17.06. Canadian Tire was down 3.0%. Agrium was down 3.0% as was Walmart, Liquores N.A> down 3.2%, Element Financial down 3.3%.

Clearly there is some level of fear in the market.

Wells Fargo reported Q4 earnings that were 2% higher than the prior year which was apparently about as expected. They continue to grow their loans and deposits but the interest spread continues to lower with low interest rates. The CEO is apparently quite optimistic about the next year.

Long-term interest rates in Canada are at record lows. This means that long-term government bonds have made gains lately. However with the yield on a 30-year government bond at about 2.17% these are destined to be abysmal investments in the long term. Meanwhile consider that it is very easy to find corporations with P/Es of 15 or below and growing earnings. That’s an earnings yield of 6.7% or higher. And cheap borrowing costs help companies to continue to grow earnings. It seems clear that stocks will offer a better return that government bonds in the long run.

Corporate earnings may set the tone of the U.S. market in the next couple of weeks.

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