Granite Group Advisors

With the recent volatility in the markets, Granite Group Advisors thought it would be prudent to share our thoughts on what is happening, and what you can do. While many of you may be interested in discussing the crazy happening in GameStop and Bitcoin etc.. we will focus on what we see going forward.

It is no secret that the equity markets are trading at records with lofty valuations. However, with the Federal Reserve continuing to provide liquidity, a new stimulus bill, keeping interest rates low, and other general government support, a case can be made that there will not be a 20% or greater market correction. Equity markets could experience a pullback of 10% or less which historically has been a part of norm.  

We believe once the country gets through covid and the economy opens back up to travel, vacation and other restrictions lifted, people will have a lot of savings to spend. This is why GGA is optimistic on the equity markets for this year.

It is important however to watch the 10 year treasury yield because the higher it goes in yield the less this thesis will play out.  As long as interest rates stay low things should go as expected.  There may be some exogenous events as well that can cause ripples which is an unknown at this time but this is what we see as of today. 

If you need or want any more clarification or just want to discuss this in more detail please do not hesitate to give us a call and set up some time to discuss your personal situation.  Thanks for your time and attention and we hope you all stay safe healthy and prosperous !!!

This year has been the tale of two tapes. For those that have exposure to the growth sector, those assets are up significantly this year. For those with exposure to the value sector they are down this year. This will not be forever. Look at the chart below, The NDX, (tech/growth stocks) is up 30%. The Russell 1000 Growth (R1K-Growth) and Russell Small Growth (R2K-Growth) are up 22.1, and 6.3% respectively. While the Russell Large Value (R1K Value) and Russell Small Value (R2K Value) are down 14.5, 19.5 respectively.

As of the 10/29/20 close:

Growth stocks like Amazon, Google, Microsoft , etc…,, have been the place to be while the American workforce hibernated over the past several months. Large value stocks like Chase, AT&T, Chevron, CVS,……. have done horribly this year.  But what will happen when a vaccine occurs, more stimulus is provided  and people become more confident to go back out? We believe the traditional old economy stocks may advance significantly over the next few years for a couple of reasons:

1. the valuations are somewhat depressed when compared to their growth/tech brethren
2. People start to turn off the computers and go out , they will utilize more energy, restaurants, amusement parks , vacations, etc…..

The markets predict 6-12 months in advance. What should you do? First, make sure your allocation reflects your needs. (i.e 80% stocks / 20% bonds, etc.)  Look for managers holding stocks that would perform better when the economy turns. This is all predicated on when a vaccine is available and the American public having the confidence to go back out. Granite wants to provide some direction on taking advantage of a return to normalcy. We are not saying it is happening now, but when it does, value stocks will do very well going forward. This is a suggestion of what we believe could happen, and it all depends on if it fits your risk appetite.

If you are retired or getting ready to retire or would just like investment assistance with respect to your account,  please call us at 203-210-7184.  We can be reached directly for one on one help.

We Answer Your Biggest Questions

For anyone with money in the stock market the last month has been harrowing to say the least. The S&P 500 has tumbled more than 30% from its high in mid-February, oil prices have cratered, and the coronavirus pandemic threatens to cause economic chaos as businesses large and small shutter operations and furlough employees.

What should you do?

Inevitably there is concern about protecting your 401K and other retirement investments, no matter what your age or stage in life. Here we answer some of your biggest questions right now.

As someone who is three years out or less from retirement, what investments are safest to stay in? What investments should I stay away from?

For investors retiring with three years or less, your overall portfolio should be primarily invested in conservative vehicles such as bonds, hedge fund of funds and conservative stocks. When referring to bonds, think high-quality instead of junk bonds. A true hedge fund of fund, even though it has equities, should have much less risk than the S&P 500. For stocks, large cap dividend-oriented stocks would be the best strategies for general guidance. For more specific retirement plan advice, contact us at (203) 210-7814.

As a young investor, should I be moving my investments in my 401k to mostly bonds?

In the short term, moving money into bonds during uncertain times may be appropriate; however, then the decision will need to be made when to switch back to other investment vehicles. A more important question to address is to ask if investment decisions and allocations are based on your personal needs. Once that is determined, stick with a long-term approach. With a long-term outlook, your contributions are buying at lower prices, which inevitably will rise with a longer-term focus.

As an employer, what advice should I give my employees about how to manage their 401ks during this time?

As history tells us, impulsive decisions during market crises is counter-intuitive to the long-term approach of retirement planning. As an employer, there are many ways you can reassure your employees. They need access to direct advice, guidance and investment education on a regular basis, even more so during a time of stress. An employer should be working hand-in-hand with their financial advisor on frequent communications and ensuring there are a variety of ways to interact. An accessible advisor will help ensure every employee feels comfortable and informed versus scared and reactive.

For the aggressive investor, is this a stock buying opportunity?

If your allocation is weighted heavily in stocks, we would advise that you continue having your contributions go in at this lower pricing point. As the number of coronavirus cases increase, the resulting angst may continue to drive stock prices lower. However, this will not be forever. GGA believes the general indexes will be higher a year from now with the stimulus that has been injected into the market.

Can 401k contributions be temporarily stopped?

Any decision to stop contributions should be taken seriously. While it’s a personal decision, if you can afford it, do not stop. Contributions result in your ability to put tax-deferred dollars towards your retirement. If you want to stop because of the market volatility, an option would be to change your contributions to money markets. That way you are still contributing without taking risk. Just remember to switch your allocations back. All contributions should be based on individual needs to ensure your long-term approach is getting the results you expect.

How often should my allocations change in this type of market?

An allocation established through the Granite Group Advisors’ investment education toolkit should stay in place. History and experience tell us that markets go up and down in the short term, however; over the long-term, markets move up. While it may not happen overnight, remember that your current contributions are buying at lower price points. As the markets recover, that should help your retirement in years to come.

How do we know when the market is bouncing back?

It is very hard to catch a falling knife. One should instead look at forward indicators — one of the best is the Bullish Sentiment. At the moment the ratio is below 40%, which historically indicates investor sentiment is not optimistic at all and suggests one reason to buy. On the other hand, a 60% ratio means investors are extremely optimistic and stocks are likely overbought. We can’t emphasize enough that patience is a virtue in this market.

Given historical crises, how long will it take to reverse losses in my 401k?

In past bear markets, history has told us that the following year is typically an up year. While history has a way of repeating itself, there is no way to guarantee that this is certain. Still, Granite Group Advisors has no reason to believe as of today that it will be different this time. Depending on one’s allocation, time frame and how the markets behave, we expect to see a higher market return a year from now. The main takeaway: the markets will eventually come back and investors should be patient and hold their long-term view to see investment returns.

The difference between the 2008-2009 and today is the catalyst.

It was clear before the markets broke in 2008, that financial firms were leveraged and made loans to people that should have never been allowed to have a loan. It was a known.

The S&P fell about 45% from October 2008 through March 2009. Lehman Brothers, Bear Stearns and other famous Wall Street firms went out of business and many professionals lost their jobs or had their income severely reduced. It wasn’t fun. The government had to get involved, but it was a fixable problem because it was known.

Back then, the visibility on future earnings was taken down to 8 times forward numbers, an occurrence that had not happened since the fall of 1974. We all knew a solution could be devised.

Today, we have an unknown: Covid-19. Many people in the US are contracting it and do not know it. Testing for the virus has thus far not been done in earnest. Famous large events such as the Master’s, St. Patrick’s Day Parade and others have been cancelled. Schools are closed across 26 states and large cities like San Francisco and New York have become ghost towns as local governments follow the guidance of the CDC in implementing stricter social distancing measures.

It’s the uncertainty around this coronavirus that has exacerbated market volatility. Investors simply don’t know when this outbreak will end. Other unknowns are just adding to the mix of trepidation and confusion:

Putin’s fight with the Prince

The dispute has taken oil prices to a point not seen in recent years. For oil companies to survive, the price needs to be higher or risk job losses for thousands of employees. Resolution of this dispute is a big unknown and we would call on President Trump’s administration to serve as referee between the two and get them to play nicely in the sandbox. The fight will drag on S&P earning if a remedy is not found.

Earnings Impact 

The impact of the virus and other market antagonists on earnings is still very much an unknown. The S&P 500 was trading at 19.5 times earnings, slightly expensive considering the U.S. growth rate before the virus and the oil dispute.

Most estimates peg S&P earnings for 2020 in the range of 160 to 165, down from 175. At Granite Group, we’re looking at 157 for 2020. For 2021, estimates have lowered to 175 from 195. Given where the S&P closed on Monday at 2386, that would make for a price-to-earnings ratio slightly more than 15x earnings 2020 and almost 14x earnings for 2021. The long run P/E are 15x, 15.8 and 16.4 for the 30, 20, and 10-year average respectively, no longer expensive if the earnings hold, but not dirt-cheap like in 2009.

What should investors do?

We understand that people are panicked. Cooler heads will prevail. The markets may go lower but the upside a year from now is appealing. Here are steps to take now:

1. Make sure your allocations between stocks and bonds reflects your cash flow and risk tolerance
2. In case of a further meltdown, have cash on hand for six months of expenses
3. Speak with your investment professional
4. Be prepared for a longer U-shaped recovery. It will be a recovery but not a bounce back

At 2,386, we would leg in slowly and if there is any further down, we would be aggressive to allocate according to your plan.

Concerned about your market moves? Granite Group Advisors can answer questions at any time so give us a call today at (203) 210-7814 and speak to one of our investment professionals.

While news about the Coronavirus may seem unsettling and somewhat frightening, it is not the end of the world.  Outbreaks like this have happened before and will happen again, they usually last a few months. To provide some perspective, US influenza in 2018-2019 season resulted in roughly 34,000 deaths and in 2017-2018 there were 61,000 associated deaths.* Even with those statistics, the market hit new highs.  We don’t want to make light of over 200 deaths in China, but as a percentage, it is infinitely smaller than the US.  Do we think it will definitely cause a slow-down, yes, as many business are temporarily shutting down.  

Our perspective: the far east will suffer the most from this event in the short term which in turn will cause a less robust GDP growth for the countries most affected by the outbreak.  While this is still developing, there is no reason to panic as China is attempting to control the outbreak.  If it is prolonged, the GDP will suffer a bit more; if short term, the economic impact will be minimal. As with everything else in life, this too shall pass.  With that being said, if our markets take a downturn from this event, it will only serve as a nice buying opportunity in the equity markets.

As always, please feel free to call Granite Group Advisors at 203-210-7814.

*Data from CDC site.

Granite Group Advisors is a private investment advocate for families, foundations and pensions. We are also a 3(38) Investment Fiduciary providing managed models with investment education to make retirement plans simple.