Category Archives: Uncategorized

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.

The Higher Market Grind

Our last writing was on March 6th, titled Life’s Lessons. The reason is, there is not too much to do in the short term.  We intimated that pundits have become too bullish and that gave us pause. The markets sold off and then moved back up which means we need a catalyst to move markets higher or lower.  As of this writing, FactSet says the S&P price return is up 117 bps or about 1.17 percent since March 6. Also, according to FactSet, the S&P is trading 18.3 times 2017 and 16.4 times 2018 earnings.

Why is this important?

We believe the markets are slightly expensive given the current valuations. The combination of expected growth, higher interest rates and high valuations dictate that we should be patient. We caution on making new allocations to the equity markets at this junction. We do not believe a bear market sell off is imminent, but some bad news can certainly cause a retracement.  Considering all of these factors, we think it is prudent for investments to be added at a better market valuation.

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

Life’s Lessons

Years ago I was managing money at DLJ. In 1999, when I was in my early to mid-thirties, I felt that I did not understand valuations. So, I fired myself and hired independent managers to replace me for my clients. The reality was that I was influenced by the dotcom hype and my judgement became skewed. This was fortuitous as many of the tech holdings were sold in February of 2000 and I launched myself into the consulting business of finding managers with process.

Fast forward to 2008, Granite Group was 4 years old, the market was moving up and one of our prestigious Wall Street clients called to change his allocation to more equities. He was a very conservative gentlemen, who’s returns were very good, but wanted to be in more aggressive asset classes. We told him that it was not a good idea because of valuations and that it did not fit his risk profile. We reluctantly agreed and of course the markets moved down 40% in short order.

Today with the market valuations moving up, many people are calling to change allocations, but in addition want more aggressive managers. It is not just one or two, but many. Sound familiar? Markets historically run 7-8 year cycles and they run hot and sometimes they are stone cold. With high valuations (not market price) and many clients calling to be much more aggressive than normal, it tends to give us pause to reflect on life’s lessons: have an investment and allocation process and stick to it.

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

Everyone is all Trumped up!

In the past, we have mentioned that investors should not focus on politics when it comes to the markets. Presidential decisions have very short term emotional impacts on the market. The best example is that investors were told to sell stocks if Trump was elected. Many people did this, and are now very sorry. We constantly need to be reminded that the Fed, market fundamentals and economic growth will dictate the long-term stock market outlook, and not the President.

As posted in our December 12th blog, (and the market has appreciated almost “0” from the high), Granite Group still believes there is limited upside in the short-term. We would wait for a better entry point. We are still confident in the long-term.

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

Market Color

The Gross Domestic Product (GDP) is a measurement of the output of the US Economy. Sixty Six percent (66%) of the growth of GDP is based on the amount we spend as consumers. Two thirds of that spending comes from disposable income (how much extra money we have after we meet our required expenses). Higher interest rates and higher oil prices will generally lower the amount of disposable income we have, unless it is offset by higher wages.

The market is currently trading at 17 times 2017 earnings, which is much higher than the long term average of 15 times earnings.  If higher oil prices and higher interest rates persist it will most likely affect most Americans excess income.  With the current market valuation trading at premium, this leads us to believe that there is limited upside in the short term return for equities; and we should expect a slight pull back.  There is a caveat to this analysis and that is the Trump economic agenda.

If President elect Trump can push his agenda of lower taxes, reduced regulations, and repatriation of US corporate earnings held overseas, then earnings could potentially move higher than is currently predicted for 2017.

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

We are full

We hope you had a great Thanksgiving with family and friends! Like us, we hope you are stuffed, as we believe the S&P valuations are as well.

We sent an email to private and retirement plan clients on the Wednesday morning after the election.  It was titled “Don’t Panic” and outlined the reasons for a buying opportunity. The Trump-effect of new stimulus has taken the S&P 500 to new highs. Pragmatically, all the Trump policies would not come into play for a while. At almost 17 times 2017 forward earnings with the long run average of 15, this would suggest the markets are stuffed.  A pull back of greater than 5% would be viewed as a better entry point.

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

Pre-election jitters…

Since our July blog we have been cautious on the market. The market has moved down about 3-4% since the end of July. The elections have everyone spooked. The markets hate uncertainty.  The Trump presidency is perceived as such uncertainty, whereas a Clinton presidency is seen as the devil you know. Here is the secret: the Fed is in charge and not a President or a Presidential election. An election’s effect on the markets is only in the short term. There are only two Presidents that we are aware of, that have affected our GDP due to their policies; but that is for another discussion.

If Donald wins, the markets expect a sell off, and if Hillary wins a mild positive reaction is expected. Of course, these are very short term, knee jerk reactions. While this might seem concerning, we would get ready to buy on a significant move to downside. Here’s why: market valuations have gone from expensive to fairly valued, so we believe that any sharp selloff would be a good time to add to positions.

Here are some good reasons:

  • ISM and PMI have been positive
  • Rates are staying low ( range of 1.9-2% 10yr is still low, currently 1.83)
  • Demographics will start turning to consumption within a few years as millennials and echo boom kids begin buying stuff
  • There is a lot of cash on the sideline

We are not saying buy today. We are saying that if there is a big sell off, it would present a more reasonable entry point. We are currently at 15.8 times 2017 earnings.

Good luck, call us with questions.

It’s all about employment

It’s all about employment. The market is extremely focused on this Friday’s payroll numbers. This focus is on the payroll because it will dictate what the Fed should do with interest rates.  This week, the 10yr treasury yield climbed from 1.53% to 1.68%, meaning the markets think the Fed is finally ready to raise rates. Some market pundits are calling for a yield of 2% on the 10yr treasury by year end, however we do not see it happening that quickly.  If the numbers come in stronger than expected, it will likely cause the Fed to raise rates by the end of the year. This would clearly be a negative for bond holders, and should put downward pressure on stock prices. If the numbers do not exceed expectations, then the artificially low 10yr treasury yield will most likely trade in a narrow range. In either case, the valuations are full.

Rumors…

Our latest post was on July 28th , and our convictions have not changed. The market is still ahead of itself.   So why should you hear from us today? Because of the market rumors about Deutsche Bank’s credit lines.  Whether the rumors are true or not, they are impacting the equity markets today. If true, we do not expect another Bear Stearns-like selloff.  A selloff will still hurt, but most other banks are much healthier today than in 2008.

If there is a 5-10% or greater selloff due to a DB related incident, we would think that would present a buying opportunity. Be patient, be prudent. We shall see………………………Call us with questions

Nowhere else to go? Or is there?

We haven’t posted in a while, because we wanted to let the market run. The Fed induced a low 10yr yield; investor attitude is “there is nowhere else go”  and the S&P valuations are too high for our comfort.

Having no other option is not a fundamental, but an artificial reason to invest. We would be cautious with putting new money to work until a better entry point presents itself. We want to be clear that we are not calling for a correction, but we think the market is ahead of itself. Either the earnings catch up to the market or the market catches up to the earnings. We think the later.

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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