Granite Group Advisors

It is Friday afternoon March 7th, and the markets are down for a 3rd week in a row and is now
negative on the year in most asset classes.

There is an enormous amount of uncertainty in the market right now as we all digest the changes
in economic policy coming from the White house. As of this moment, Large Value, International
and Emerging markets are the few sectors that are actually up for the year. The real culprit in this
downturn is not the economy, but valuations. We have talked about this in our commentaries for
the last couple of quarters. Current P/E on the S&P 500 is 21.2 this year’s numbers down from
22.5 times earnings. The ten-year average is 18.1 times earnings which means in the short-term
the S&P is still overvalued. This S&P earnings number includes all the tech and AI companies
trading at 30+ times earnings. If you look at the technology action in the market, those sectors are
being hit the hardest, and coming down to more reasonable levels, but we are not there yet.

Almost all of Wall Street expects at least a 10% downturn in a normal healthy market. One step
back, two step forwards is the best way to understand what is going on. We need a valuation reset
so that we can move higher again. While things may seem scary based on the constant media’s
enlargement of fear about government actions / potential government shutdown, etc…, the truth is
the S&P 500 is down 2% for the year not 20%. A 2% negative number on the market in the short
run is not concerning, especially since most of this downturn comes from the same 7-10 stocks
that put us up here to begin with.

While investors are concerned with market downturns, the ones that are the real culprits are the
monster downturns. Ten percent downturns happen roughly 50% of the time after a big up year,
so it is quite common to have the market make moves like this. We are monitoring every aspect
of the economy and the markets, and this correction has not even hit the 10% correction threshold
yet but most likely will. That is healthy and normal and good for markets.

Have a great weekend and if you have any questions or concerns, please feel free to reach out to
us to discuss in further detail!!!!