Granite Group has always indicated that investors should follow what the Federal Reserve does and not pay too much attention to the political rhetoric coming from the talking heads in D.C. Political commentary generally gets short term knee jerk reactions, but should not apply to long term investment trends. The combination of trade Wars, interest rate hikes, the inversion of the short end of the yield curve, and Brexit have increased emotions and substantially increase market volatility. These issues will pass as do all of these short term events, however it certainly creates fear and raises volatility.
We mentioned in our October writing that the markets were adjusting to a lower price/earnings ratio because of higher expected rates. Granite Group believes the price /earnings ratio at current interest rates should be at roughly 15-16 times forward earnings estimates and we are currently trading at slightly under 15 times. At this point in time, this would not translate to a time to sell. The longer date 10yr treasury has dropped from 3.26 to 2.85 today, most likely on fear, and should bounce back up a bit on yield. In the bond world, this is a huge move, and is probably overdone, as all markets tend to overshoot in both directions. The better news is low unemployment, higher wages, a better GDP economy and the average CEO is business positive on a go forward basis.
Stay focused on the goal. Limit distractions and emotions when making financial decisions.
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