On December 30th we said there would be a pullback, the S&P is down over 5% since then. We are not saying today’s the bottom, but fundamentally, the S&P has entered Granite Group’s buy zone. That is the good news.
Technically, a break below 1972 on the S&P would lead to further deterioration in the S&P valuation. The S&P long run average is 14.3x earnings. The S&P is trading at 15.8x 2015 and 14.5x 2016 earnings. At the moment, we are trading at a slight premium to the long run average partially due to the 10yr bond hitting new low yields at 1.7%. Oil will have a negative impact on S&P earnings for 2015.
Domestically, Granite Group would feel comfortable buying at these levels, but realize there might be some further downside. The European indexes and Emerging Market indexes are already trading at discount to their historical valuations.