Granite Group Advisors

The stock market is up big again today, so it is hard to imagine any kind of pullback.  What one should look at is valuations, and recognize where the stock market trades in terms of P/E.  The US market is slightly over-valued and trading at almost 16 times 2014 earnings.  This is above the average P/E of market history, and may be stretched too far when considering corporate growth.  Small Cap stocks, according to JPM, are trading at 40% above their 200 day moving average, and we could have a crack there as well.  Other bearish traits, corporate insiders, are selling stock 6 times faster than insider buying which is double the average since 1990.  All of this information is a guide for caution in the upcoming months, as markets can continue to get stretched, before they come back to averages.

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

Earlier this week we received bad news on China’s economy.  For the last decade, growth in China has helped fuel many markets but cracks in the foundation are surfacing.  February China exports dropped by an astounding 18.1% and its trade deficit rose to the highest level  in 2 years.  The first effects are being shown in the Emerging Market (EM) economies as they have underperformed.  Commodity driven economies, like the EM,  need China to grow for them to grow.  As of this writing, China’s stock market has entered bear market territory which is defined as a 20% drop from the peak.  Whether this is the end of China’s continued economic growth is still up for speculation. The EM markets are inexpensive and not for the faint of heart, but one should revisit their total EM exposure just in case.

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

The market is taking a big drop because of our Russian counterparts. What is adding fuel to the fire is plain and simple:  market valuation. On Dec 27^th, we cautioned of an impending correction in January. What we did not expect was the rapid move back up to new highs. Granite Group Advisors believes the market is at a premium to historical S&P valuations, trading at 16 times 2014 earnings. When taking into consideration the slow, lukewarm economic data, tapering, and now political instability, we would again caution new allocations until a more reasonable valuation persists.

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

Investors are pondering over the recent economic reports as numbers are coming in below expectations. Housing starts, retail sales, manufacturing are down. Additionally, there have been two consecutive lower than expected employment reports.  Most of the pundits are blaming the weather, but we believe it is the Fed’s tapering  and other policies that are contributing to the slow economic growth.  If the pundits are correct, the economy needs a robust GDP growth rate for the rest of the year to make up for the 1^st quarter “weather”.  So far, the markets have ignored the bad economic data, hence the markets are right where they began the year.  As we previously mentioned, GGA expected higher market volatility with big up and big down moves for the year, but at the end of 2014 the S&P should be slightly higher.

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

This morning we had another anemic job report with only 113,000 jobs added, yet once again the headline read the unemployment rate fell to 6.6.  We believe that statistically this is not accurate, but  this has been the trend for some time.  Granite Group places less emphasis on lagging indicators like the job data ,  but this data does show that the US continues to struggle.  More important are the earnings of public companies and how they affect stock prices.  So far, of the 337 companies in the S&P 500, 69% beat on earnings and 58% have beat on revenue.  The S&P 500 revenue growth rose by a surprising 3.6%.  The earnings and revenue beats are around the average and affirms that we are not in the beginning of a bear market, but are in a healthy corrective mode. We do caution that volatility will be here for quite some time, but Granite Group’s  S&P target of mid-single digit return range for 2014 is still intact.

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

January has seen its ups and downs so far this year, but the last two days have pulled the market into negative territory for the year.  The S&P 500 is now down 3% for the month. Is this the beginning of a Bear market or a healthy correction?

In our year end blog on December 27^th,  we called for a January pullback based on market valuations being too high, tapering by the Fed, and the expectation of higher interest rates. It all started with some bad news coming out of the Emerging Markets, specifically China then Argentina which sent the market down over 300 points on Friday.  Earnings have come in relatively well so it is not corporate growth that is spooking the markets, and that is why we think this is a healthy correction and not a bear market.  If Granite Group is correct, this pullback is normal and should be deemed an opportunity to put some money to work in the equity markets.

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

There is a saying on Wall Street: As January goes, so does the year.  At this moment, market action would infer that 2014 is going to be a negative year for stocks.  According to recent article in Forbes, which studied the data from 1950 – 1984, this was true roughly 90% of the time when January is up and 70% of the time when January is down.  GGA has no idea how the month will end, but the early action is not looking good.  Some economic reports are coming out this week, but we do not see them making markets jump up or down.  Fourth quarter earnings are kicking off which will guide us through the rest of the month.  Expectations are moderate but the markets are currently trading at a premium, so good numbers are needed to provide a catalyst for higher markets. If earnings do not materialize, it will be a bumpy road with moderate returns at best.

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

Granite Group’s forecast of up a strong 15% for 2013 turned out to be not bullish enough, but we should all be happy none the less. We were correct about the slow growth, but were wrong on how the markets would anticipate any good news. The markets are no longer cheap, and we would expect a pullback sometime in January. We are not as bullish for 2014 because of the market’s current valuations. Granite Group is looking for the S&P to reach around 1900. That is not a lot of upside from here, so expect the volatility to continue, and let’s hope we are not bullish enough again.

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

This morning, 3 of the five regulatory agencies will be voting on the proposed Volcker Rule, and Wall Street doesn’t like it.  The Volcker Rule was created as part of the new Dodd Frank reforms and it disallows certain types of risk taking, such as proprietary trading, hedging and sponsoring hedge funds.  Brokerage firms said this will reduce profits and staff, but this is used as a threat to the regulators.  Granite Group’s  perspective:  the firms will circumvent these rules and find a way to make money regardless.

There are ways to circumvent some of the regulations, as The Volcker rule does not apply to Foreign entities.  Whether they choose that alternative or not, we do not see any real change happening to the nature of the investment firms nor the profits of the companies affected.

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