Granite Group Advisors

In our thoughts, the panic buying in the short term has driven market valuations to unreasonable levels when looking at the fundamental and economic growth rates. When 35%-40% of the DOW stocks are trading at or above their 12 months price targets, that gives us pause . Investors have a Fear of Missing Out and that is not a sound or fundamental investment philosophy.

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

As we entered earnings season last night with Alcoa reporting, we were reminded by all those who talk about markets, that this is going to be a very ugly earning season. Alcoa did not disappoint, as revenue  and guidance came in weaker than expected. The S&P is now trading at an amazing 17 times this year’s earnings estimates. One could extrapolate that with markets trading at a premium to historical averages, that a pullback would be reasonable..

On the positive side, the weakening of the U.S. dollar and the stabilization of commodity prices would help US companies as it makes our products less expensive for foreign companies to purchase.  The effects will not be felt until probably 3^rd quarter of 2016.

The dim forward view on global growth this morning by the IMF and the high S&P valuation does not  provide a catalyst for higher stock prices.

The markets are technically overbought in the short term.  In addition, they are fundamentally overvalued.   As of yesterday’s close, the S&P was overbought according to Granite Group’s technical indicators.

Fundamentally, the S&P is trading at 17 times 2016 earnings which is well above the historical averages. At this juncture, you should be cautious with additional equity investments.  At the current market multiple,  we do not see a huge upside. As we have said before, there will definitely be more volatility, but also better entry points and opportunities.  On a slightly longer-term view , the S&P is trading at 15 times 2017 earnings.  Assuming the current projections for 2017 are accurate, then it is possible for a slightly higher S&P in 2017.

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

Since our post on Feb 12, the markets are up an amazing 8-9%. The S&P is now down about 3% on the year. We have repeatedly spoken about valuation, stating that 14-16 earnings is a more reasonable valuation given the low growth environment. The markets may climb the wall of worry, but at 16.5% times 2016 earnings, we believe there is not much room for error.

The good news is the support level on the S&P500 of 1820  held yesterday and is poised to open up today. The market is trading at about 15 times this year and 13.5 times next year’s earnings. At yesterday’s close, the market is now reasonably valued. If one takes energy out of the S&P calculations, earnings would look brighter.

The question for investors is: What is a reasonable valuation? In the graph below, we took the technical resistance levels and divided them by the estimated 2016 and 2017 S&P earnings to get a multiple. The ten year average is 14.1 times. If you believe a recession is coming then one would be expecting a much a lower multiple. We would love to see your comments on this.

S&P 500 resistance levels                             2016 P/E               2017P/E

S&P 500 at 2134 (2015 High)                         17.8x                     15.8x

S&P 500 at 1950                                                16.25                     14.4x

S&P 500 at 1867                                                15.5x                     13.8x

S&P 500 at 1820                                                15.1x                     13.5x

S&P 500 at 1740                                                14.5x                     12.9x

S&P 500 at 1687                                                14x                         12.5x

S&P 500 at 1560                                                13x                         11.5x

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

We have not commented as often this year about the market volatility, because our stance has not changed since the end of December.   At this moment, we still do not see a recession, nor do we see a surge in economic growth. Our writings in December explicitly said that the valuations in the markets seemed too high for the tepid growth rate.  We simply did not see the justification for a 10% return on equities that is the general consensus on the street for 2016.

The street’s guesstimate for the year-end S&P 500 target, has been lowered to 2175 from 2250.  This is 17% higher from current trading levels. In December, we indicated that the S&P 2016 target  would be closer to the 2015 close of 2040.  This should hold true, barring any unforeseen recession , war, terrorist attack or anything else.  If companies have an earnings recession, then the S&P 500 targets would be lowered.

If a family, entity or a company retirement plan, would like more market color/education or more personal advice, please feel free to call us directly at 203-201-7814.  You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

The Bad news: as the market looks to break the 1867 technical support level today, the next support level is 1820. If the market breaks through the 1820 mark, the next spot is the mid to low 1700’s. That would be a full 20% down from the 2015 high.

The Good News: the US economy, without  energy, is doing OK. The largest variable cost to many businesses is oil.  Cheaper oil helps business margins. At 1820, the market would be trading at 13 times 2017 earnings which is below the historical averages.

If earnings come in as expected this year and next, and the market continues its downward bias, this would present a good buying opportunity in the markets.

If you would like more detail, call us at (203) 210-7814.  You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

The economy is really not that bad, especially if you take out energy. China is still growing just not as fast as it has in recent years. The precipitous drop in the market over the last two weeks is not a reflection of what is happening in the underlying economy. It is a reflection that valuations were too high for the growth rate. The markets are adjusting, but we still do not think a recession is coming in the near future. We believe that  US large cap dividend managers and international managers are a good place to be for the long term.  As for fixed income, we do not think the fed will raise 3-4 times in 2016 based on recent ISM numbers. We think absolute return hedge fund of funds are a good place for more conservative investors.

From a technical perspective, the S&P 500 needs to hold 1867. If it breaks that, then 1820 would be the next resistance. These are guides and not absolutes. At 1867, the market trades at 15 times 2016 earnings and at 1820, at 14.5 times 2016. Based on 2017 earnings and at 1867 S&P 500 number, markets are trading 13.33 times earnings.

We are not calling a bottom in the market because we can never quantify investor anxiety, but when there is blood in the water, it does present a better entry point.

If you would like more detail, call us at (203) 210-7814.  You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

The markets have started the year in full sell mode.  Today, the equity markets will continue their slide. The weakness in oil combined with some major problems in economic growth in China has pushed markets lower.  While we haven’t seen this kind of precipitous drop since the beginning of the financial crisis, this is not a time for panic nor a time to start selling.  Market’s  do as they always do and that is price in future expectations.  Just before the holidays, we reiterated that the market valuation could not be sustained. This will stabilize shortly and may even present an opportunity to add to the equity markets when the S&P trades at 15 times earnings or in the 1900 range. One caveat that cannot be quantified is market perception, we would not want to see the market go below the August low of 1867. With the Fed slowly taking away its unprecedented accommodation policy, fundamental investing will take root again!

If you would like to get the detail, call us.  You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

Happy Holidays… and Happy New Year! We have not written in several weeks as there has not been much to say. So lets talk about 2016: We are looking for single digit returns because of the S&P valuation. We just do not believe a 16-17 multiple is reasonable given higher interest rates and slow growth. We believe the International and emerging markets afford better opportunities. The 10yr bond will not enjoy the same returns going forward as in past years. A better place for lower volatility investors will be absolute return hedge fund of funds . The devil is in the detail for the stock pickers out there!

If you would like to get the detail, call us.  You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.