Granite Group Advisors

Today we saw an enormous rally in the 10yr bringing yields close to 2.4% which means bond valuations went down.  The continuation of disappointing economic numbers should push the Fed off from increasing rates.  There are many on Wall Street that feel the market should be trading at a premium simply based on the low risk free rate of the US treasury.  Granite Group believes that higher rates do not work well with equity markets that trade at a premium valuation.

The slew of bad economic data that has come out recently does not bode well for growth in the second quarter.  With a preliminary first quarter GDP of 0.2 and with many economists predicting it will be revised negative,  it is looking like the fed’s GDP growth target will not be reached again.  Interestingly enough, with all this bad data, the market is still trading at  a nice premium to historical P/E averages.  Currently the S&P 500 is trading at roughly 18 times earnings while historically the average is 14 times earnings.  Our perspective is that, due to the low interest rate environment, investors had nowhere else to go but into the equity markets. While the fed has telegraphed their intentions of raising short term rates, any move up in yields on the longer end of the curve will send stocks down.  We have seen this happen multiple times this year.  Stocks move up, yields move down, and then the big reversal.  This is why the markets are seeing such increased volatility.  This range movement in both the equities and bonds is our expectation for the rest of the year!

Yesterday we attended the Sohn Conference. The foundation was started in memory of Ira Sohn whom passed away from cancer years ago. The organization has contributed over 60 million to cancer research. Many of the speakers are legendary hedge fund managers. They include the likes of David Einhorn, Leon Cooperman, Jeffrey Gundlach, David Tepper and many more. It is consider one of the top investment conferences in the world.

Every year the conference brings together top ideas from stocks to general equity and fixed income views. They are smart, enthusiastic and more right than wrong. This year we noticed a difference, they are all on the same page with very little conflicting views. They all agree that interest rates will go higher, Gundlach said to be out of high yield within a couple of years. They all said the S&P should be higher next year and the Europe was also a good place to be. This complacency has made us nervous.

The markets are trading at what Granite Group believes to be fair to slightly over valued in the short term. Will they be higher next year, we believe so, but not by much. Will interest rates be higher next year, yes, but not by much. So what to do? We are looking for a catalyst to take the market one way or another, but in the meantime be patient and wait for weakness in equity markets to add to positions and strength in yields before adding to fixed income positions.

As always please feel free to call us directly with questions.

As predicted, European indexes are at 14 year highs,  much due to their quantitative easing efforts. The European YTD gains have surpassed their US counterparts, but the returns for US investors were tempered by the strength in the US dollar. We believe that Europe will continue to gain as earnings revisions should remain strong when compared to the weakened revisions in the US.

Historically, QE usually helps equity valuations. The QE European environment has increased valuations and they are getting closer to US valuations. QE should continue to help increase European equity valuations.

Please feel free to call us directly.  You can follow Granite Group Advisors on LinkedIn and learn more about our Wealth Management and Corporate Retirement Services on our Website.

After a volatile quarter, the markets are up slightly on the year.  Many US Economic indicators are pointing to a slowdown in anticipated growth.  Once again the weather is being blamed for much of this slowdown.  However, we believe that the key element to this story is the incredible strength of the U.S. dollar.  The dollar has and will continue to impact the top line revenue of many multinationals.  The S&P earnings forecast for 2015 has already been lowered  from 127 to 119.  A strong US dollar is good for many items like lower oil and gas prices, foreign investment and travel just to name a few, but it also has consequences for companies who export outside the U.S.  While we still expect the U.S. markets to put in a positive year as the S&P breached 2100 on Friday, we continue to look for shorter term weakness to add to positions.

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

My mentor in the business always said: eat the meat of the sandwich and let the greedy guys take the crust. This was sage advice 30 years ago, and still holds true today. With the S&P 500 trading at almost 18 times 2015  and 16 times 2016 earnings Granite Group believes the S&P is fully valued. First call estimates have come down from their original earnings forecasts for this year and next. Even though Technicians are calling for higher highs, we believe stock valuations have taken into account most  of the good news.

Our perspective, let the greedy guys have the crust and wait for a better entry point into the markets.

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

The market has not been this volatile in years. The intraday 1-2% moves occurring at a higher frequency tells us how skittish investors have become. As we said in December, Granite Group Advisors expected a pullback in January. As of this writing, the S&P’s return is a big fat ZERO.

In an environment such as this we favor different styles of dividend managers, as they will temper volatility. As for fixed income, we believe that shorter term bonds will not do well over the next few years. Additionally, we think absolute return hedge funds would be a good place to lower overall portfolio volatility.

In the short term, once again we would be cautious with new allocations. We are still moderately constructive of the markets for 2015 and continue to see mid to high single digit returns for 2015.

On December 30^th we said there would be a pullback, the S&P is down over 5% since then. We are not saying today’s the bottom, but fundamentally, the S&P has entered Granite Group’s buy zone. That is the good news.

Technically, a break below 1972 on the S&P would lead to further deterioration in the S&P valuation. The S&P long run average is 14.3x earnings. The S&P is trading at 15.8x 2015 and 14.5x 2016 earnings. At the moment, we are trading at a slight premium to the long run average partially due to the 10yr bond hitting new low yields at 1.7%. Oil will have a negative impact on S&P earnings for 2015.

Domestically, Granite Group would feel comfortable buying at these levels, but realize there might be some further downside. The European indexes and Emerging Market indexes are already trading at discount to their historical valuations.

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

The US equity market did slightly better than we expected for 2014.   All through 2014, almost every time stocks were at a point of over valuation, we have seen pullbacks. Granite Group feels that the current S&P 500 valuation is slightly overvalued in the short term. We believe that trend should continue which would translate to another pullback coming in January 2015. We are expecting single digit returns in 2015 for the S&P 500.

As for bonds, we expect the Fed to raise short term rates at some point during the year.  The 10 year treasury yield will certainly move a bit higher through the year, which means lower prices on bonds‎.

As always, please consult you advisor before taking any action or we encourage you to call us directly.

Happy New Year!

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

Yesterday afternoon, the markets were given an early Christmas gift in the form of dovish comments from the Fed. The Fed said they would not raise rates for a couple of quarters. This, combined with lower oil prices, creates stimulus to personal spending which sent the stock market flying. The recent 5% sell off put stocks in a position where they were back to reasonable valuations and all this good news provided a recipe for a great Christmas gift to the equity markets.

Granite Group believes that equity markets will put in another positive year in 2015.  If the markets slide a bit into year end, there will be more decent entry points. If the markets continue to rise into year end, Granite Group expects a little pullback early in the year setting up another good entry point. Either way, buying on pullbacks is the course of action.

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