Short term liquidity needs?

During Christmas season of 2018, investors were seemingly panicked and selling. Some of our private clients were calling and asking to sell equities from their portfolios.  At that time, the S&P 500 valuations had become relatively low, to the point where we were suggesting that this moment was a good time to buy.  Granite Group sent out a blog in the hopes of sharing our opinion and instilling  confidence that the markets were not going to collapse. Our perspective was that we could get as much as a 20% rebound to the upside from the Christmas lows.

We also know that there are periods of time when the markets are fairly valued.  Today, we write for people who might have short term needs.  At this stage, until we see the next batch of earnings and growth, our perspective is that the market is fairly valued. This might be a good point to raise some cash to help pay for short term needs, like college tuition, general expenses or expected retirement. In general, If you have short term liquidity needs, we encourage you to look at your allocation to make sure it reflects not only your personal risk, but your personal needs. If you need help, please call us at (203) 210-7814.

Short Term Pain, Long Term Gain

We have been cautious for most of the year, but with the enormous amount of volatility combined with the market sell off during the 4th quarter, we want to clarify our targets for the S&P 500. We already had lower targets on the S&P than other firms, with an expectation of low to moderate single digit returns for 2018. We have stated that the S&P should have a slightly lower multiple (15 -16 times earnings, instead of the 17-18 times earnings over the past couple of years) based on the theory of a higher interest rate environment. So to make it clear, here are ranges that the S&P should trade in for 2019 and 2020 based on projected earnings:

2019              2670 – 2848

2020              2900 – 3100

If we take the low end for each year, we are looking at roughly 6% higher from today’s market action in 2019 and about 16% higher for 2020. In addition we would suggest bond yields will stabilize and if and when the 10yr yield goes back above 3%, it will be a good entry point to get back into the bond market.

Market psychology usually overshoots in both directions and while there is no easy way to determine a market high or bottom. Baron Rothschild has said, “the time to buy is when there’s blood in the streets.”  This just might prove to be true when we look back in a year or two from now.

 

Now that the Mid-terms are over what comes next?

As we have always stated, politics don’t really matter, policy is what matters and that turns our attention back to the federal Reserve and trade issues. The futures this morning are pointing higher.  So what gives?

It has always been the case that Wall Street is very comfortable with Washington gridlock meaning nothing changes, which gives Wall Street some degree of certainty. Pundits and investors alike anticipate that the economy will not be getting too much policy support from Washington. This will put less pressure on the Federal Reserve to raise interest rates, making money cheaper for longer, which is good for stocks.  

As for the big picture the economy is strong, interest rates are still historically low and we are entering a period of historically good equity performance. The markets always look in advance by about 6-9 months. The S&P is trading at 2755 and Granite believes a little more upside is in store for the rest of this year as well as some decent upside in 2019.

 

Please feel free to call us with questions at (203) 210-7814

 

Entry Point

The markets long run price earnings ratio is about 15. The market is trading at about 13.7 times 2019 earnings. Earnings are strong and rates staying relatively low, Granite Group believes today would be a much better entry point.

Interest rates have gone up, now what?

interest rates

In 2017 , Granite Group wrote several pieces on the effect of higher interest rates on bonds. Investors have just witnessed the third interest rate hike in 2018. Granite Group continues to encourage investors who hold bond mutual funds or bond ETF’s to be cautious. We do not expect the same percentage back up in rates going forward, but do believe rates will go slightly higher over the next 12 months.

What does this mean for the investor?

Granite Group proactively shortened durations and modified allocations last year and this year to protect client’s fixed income allocations. As higher yields become more compelling, we still believe there is slightly more to come.  It is important for investors not to stray from their fixed income allocations, but be diligent of how one invests within allocation. To lessen the impact, for those who desire income, it will be appropriate to have shorter durations. For those who are conservative but do not need income, there are several other low volatility options as interest rates go up.

As rates increase into 2019, we encourage investors desiring fixed income (bond) exposure to dip their toe in the water when the 10 year treasury yield goes higher next year.

Please feel free call Granite Group with any questions. (203) 210-7814

It’s about the economy, not politics

Even among the political tensions last week, all three major U.S. stock indices were up! In the past, we have said to follow the Fed and the economy, because political actions usually have short-term, knee jerk reactions on the markets.  Considering all the news about Syria, and Trumps legal situation, the S&P rose 2%, the Dow rose 1.8% and the Nasdaq increased 2.8%.

With the market trading at just above the historical average of 15 times 2019 earnings, we still believe that the market can achieve mid-single digit returns for 2018 due to the fact that earnings are expected to rise 18% during the year.  We also believe investors should diversify their equity holdings within specifics:  emerging markets and international market sectors, as they are relatively cheaper on a P/E basis than their US constituents.

Trade Wars

The banter of a trade war between the US and China has taken the stock market down again. As of this writing, the futures are down big. At this point the so called “trade war” is just talk, but when the dust settles we believe there will be a nominal impact to GDP for either country. In fact, negotiations may surprise investors with a positive outcome.

We would caution investors not to panic. The market is trading at approximately 15 times 2019 earnings which is not excessive. The long run average is around 15 times earnings. Even with slightly expected higher interest rates (10 year treasury), the market should be around 16 times earnings because of earnings growth.

We still see upside in the markets! Even though the markets are down on the year, Granite Group is sticking with mid to high single digit return for 2018. We also believe investors should have healthy exposure to Europe and Emerging markets.

Please feel free to call us with any questions.

What a day!

The Dow was down 4.6% or over 1100 points! This was the largest point loss in history, but does not rank in the top 20 as a percentage loss.

The question is when to buy or add? We alluded in our Friday’s blog, that any further pull-back from last week’s turmoil would present an opportunity. We still believe that to be true. As of Feb. 5, 2018 close, the S&P is trading at 17 times 2018 earnings and 15.4 times 2019 First Call earnings. The average P/E ratio is historically around 15. We are still trading at a premium to 2018 earnings, but are no longer trading at a premium to 2019 earnings. We believe a slight premium is justified given the current global economic backdrop. We would start dipping the toe into the US markets, we also think emerging and international markets deserve more attention than the US markets, as those markets can potentially have more upside over the next few years.

As for bonds, the 10 year yield had a huge sell-off today, going from 2.85 to 2.71. We have and will continue to believe that bonds are not a good place for investors seeking total return for a couple of years. This would present an opportunity, if appropriate for the investor, to reallocate to other classes that afford similar volatility.

We encourage you to call us with any questions at 203-210-7814.

You got to know when to hold ’em

In the last couple of days the 10 year treasury yield sold off rather dramatically, finally reaching a yield of 2.85 today.   While many were expecting longer rates to rise gradually, the pace of this move has spooked bond and equity investors.  Here is the good news: the economy is doing well and all indications point to continued growth. Job growth is steady and strong and wage increases have risen at the fastest year over year growth of 2.9% since 2008.  All that should alleviate any true panic.  However, markets are overvalued and a healthy pullback is positive.  What is important to focus on?  There is no sign of recession and one week’s market action should not deter investors from long-term goals. We believe, if there is an additional downside after this week, it could be a better point to add capital.

You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

Has the market rally finally run out of steam?

Markets have recently reached new highs.  This is making investors reasonably cautious, since we are about to enter the traditionally weakest time of the year.  It is generally thought that October is a bad month for equities; however it really is September when markets have gone awry historically. There is only one month in the history of the S&P that has averaged a negative return since 1926:  September.  While September could potentially be tough, this year the market does appear to have some good legs, as corporate earnings have rebounded.  The more recent weakness in the US dollar is also a big help to the multinationals in the US.  We believe the markets will have a dip, and if anything comes out of the federal government  (such as tax relief), this could help sustain an expensive S&P valuation.

You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

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