Granite Group has been stating all year that subpar growth will be persistent. Today, the IMF lowered it’s 2014 growth forecast from 2.8% to 2%. They are still maintaining a 3% global growth rate for 2015. Global Growth rates are important because they help determine market valuations. If the historical valuation is 14.1% times earnings and the economy is growing well below normal growth rates, how do does the market justify a premium valuation of 16.5 times 2014 and 15.25 2015 earnings?
Market pundits are touting 17 times earnings because of low interest rates and “there is no where else to go”. That would bring the 12 month S&P 500 target to 2150, 11% upside from today. That may happen, but we believe that the longer term might be fraught with headwinds as interest rates climb and China continues to slow. Have patience, be careful and wait for opportunities.