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Friday, August 18, 2017
Over 90% of the world’s consumers reside outside the U.S., making global trade imperative for growth.  The global growth slowdown corresponds with an overall slowdown in trade..

While the media babbles on about the Trump CEO council and the world reels from the tragic terrorist attack in Spain, a crucial economic development is in the works. The NAFTA (North American Free Trade Agreement) is being re-negotiated for the first time since its inception 23 years ago. Globalization, technology and job transfers are some of major issues necessitating the renegotiations. The U.S. maintains a trade deficit with both Canada and Mexico. However, Canada and Mexico are also the biggest buyers of U.S. goods and services. The U.S. exported $266 billion to Canada and $231 billion to Mexico in 2016. Compare that to $115 billion in exported goods and services to China. So any agreement among the U.S., Canada, Mexico trading bloc will have significant economic implications. Despite worries over the Trump administration’s stance on trade, both U.S. and global trade has moved higher since the election. This is good news for the synchronized global economic expansion. Please see page 46 and page 47 of the Voya Global Perspectives™ Book for world trade growth and U.S. import/export growth.

Thursday, August 17, 2017
Weekly fund flows continued their mixed trend; cumulative equity flows, despite a multi year bull market, have yet to turn positive.

The market is adept at shrugging off political drama. North Korea was last week’s news and the latest Trump/CEO council rift will soon be in the rear view mirror. Meanwhile, the macro data marches forward. New jobless claims fell to a six-month low and although housing starts were down 4.8% for the month, national home builder sentiment rebounded significantly, and the continued limited supply of homes will persist in putting upward pressure on home prices. Add to this macro environment a pretty dovish sounding Fed, earnings that continue to impress, and many international economies growing faster than the U.S. Heck, even some of the brick and mortar retailers are surprising on the upside and Japan just reported 4% annualized GDP growth. So why then are mutual fund equity flows predominantly negative for the year? Good question. Investors are missing opportunities to potentially build wealth. So far this year the S&P 500 Index is up 11.7%, the MSCI Emerging Market Index is up 25.2% and the MSCI EAFE Index is up 17.1%. Please watch weekly mutual fund flows on page 79 of the Global Perspectives™ book and watch Doug Coté lay it on the line on CNBC.

Wednesday, August 16, 2017
Core and headline inflation remain subdued with the Fed’s preferred measure of inflation, Core PCE, remaining slightly below target.

Some interesting - and key - data coming showing better growth, low inflation and good spirits. U.S. CPI underperformed expectations both headline and core were just 1.7% YoY. The PPI is likewise showing a drop in inflation. This index has a more decided goods skew (vs. a services skew in CPI). In this case, PPI and core-PPI each printed below 2% in July. Productivity, on the other hand, was up 0.9% SAAR in Q2, and 1.2% on a YoY basis. That is in line with the 1.1% real hourly earnings report from July, and is another example that inflation and its drivers are quiescent and will make it tough for the Fed to hike rates under the current scenario in December. Retail sales were solid in July, with revisions to both June and May. Additionally, U.S. “animal spirits” continue to be positive. The NFIB small Business Optimism Index holding at a 13-year high with the BB US Weekly Consumer Comfort Index is at a 15-year high; Empire Manufacturing hit 25.2 vs 10 expected. As might be anticipated, the likelihood of a December hike over the past week fell to 29% from 38% one week earlier. It seems we are set for above-trend growth with low inflation. It’s a good scenario for stocks, given the strength earnings we are seeing. It’s especially good for the emerging market countries, especially with the dollar stable-to-softer. Please see page 59 of the Global Perspectives™ Book for more on inflation. - Special Guest Blogger: Tim Kearney

Friday, August 11, 2017

Gold is up more than 10% this year. Investors have been flocking to gold as the risks now seem riskier in terms of market valuations and geopolitical tensions.

  • Gold is a good portfolio diversifier because it exhibits ultra-low correlations to equity markets and is considered the classic safe haven if economic conditions significantly go south.
  • Inflation has been low. Today’s CPI reading shows core inflation up .1% MoM and only 1.7% YoY. However, gold has not been a good hedge against inflation and its inflation adjusted price is lower now than in 1980.
  • The nominal price of gold spiked to an all-time high of $1,828 in August, 2011 and currently stands at about $1,290/oz. - a 30% drop - while the S&P500 has returned 125% between August 2011 and today.

Even low inflation steadily and surely erodes purchasing power and depletes savings. Retirees in particular need to be aware of the debilitating effect inflation has on incomes. Healthcare expenses have been ominously outpacing core inflation and exacerbating retiree savings shortfalls. So even in retirement, investors may need to stay invested to grow their savings. Please track the price of gold back to 1975 on page 60 of the Voya Global Perspectives™ Book.

Thursday, August 10, 2017

Despite the recent minor tick up due to the North Korea threat, market volatility has been on life support with the VIX hovering around a reading of 10 all year.

  • The historic average of the VIX, also known as the fear gauge, is about 20. But the highest level reached in 2017 was 15 in mid-April.
  • Low volatility is not necessarily worrisome but could lead investors to become complacent and more likely to overact when volatility returns.
  • And volatility can return to the markets at any time even in this backdrop of robust earnings and improving economic data. Geo political tensions, central bank policies, cyber security threats - can all rattle markets.

Global diversification across markets and asset classes helps smooth the investing bumps. Please see the history of VIX on page 24 of the Voya Global Perspectives™ Book and watch the latest Global Perspectives comments on the market on CNBC.

Wednesday, August 9, 2017
The U.S. manufacturing report has rebounded after a month of contraction; the latest euro zone and emerging markets reports also indicate expansion.

Another good run of global economic data, led by the US unemployment report. Non-farm payrolls were up 209k with June revised up to 231k from 222k. The manufacturing report was really strong, with the 16k print besting the 5k expected; what’s more June was revised to +12k from +1k. And The US registered some other positive numbers. Auto sales were at 16.69mn a bit less than the 16.8mn but that’s against an annualized 180k upward revision in June. Challenger job cuts were -37k YoY in July. Bloomberg Consumer Comfort ticked higher again to 49.6 from 48.6 for July 30. Durable goods orders were up 6.4% (zero was expected), following May’s 6.5% final. The Dallas Fed Manufacturing Activity index hit 16.8 vs 13 expected. Layer on this good news: the global recovery continues led by the big countries which are powerful engines for the world. But looking at the top of the leader board, we see strong growth from the EU, USA, Australia and UK and hence globally we see the world clocking in at 52.7. Brazil remains about 50, but is well above its 12 month moving average of 47.7, which is validated by other rebounding data. Retail sales in May were up to 4.5% YoY growth-was as low as -14% in early 2016. GDP growth is up to 1.4% YoY in May from a low of -8% in Q1 2016. Business confidence remains above 55 from 35 in 2016. Both India and South Korea are below 50, though at 49.6 Korea is basically there, and is above its 12 month moving average. For long term global manufacturing trends please see page 8 of the Global Perspectives™ Book. - Special Guest Blogger: Tim Kearney

Tuesday, August 8, 2017

The U.S. dollar has weakened 8.7% versus a basket of trade weighted currencies since the end of 2016. So, is that good or bad?

  • A weaker dollar lifts U.S. company earnings because almost 50% of corporate revenues come from overseas sales. Morgan Stanley estimates a 1% improvement for every 2% drop in the dollar.
  • A weaker dollar boosts commodity demand because most commodities are priced in dollars. This benefits energy companies and emerging market commodity exporters in particular.
  • A weaker dollar makes international companies less competitive when selling to the U.S. This will be a headwind for international stock indices and international economies.
  • A weaker dollar makes it easier for foreign central banks to pay back dollar denominated debt.
  • A weaker dollar is a detriment to U.S. travel overseas but encourages foreign visitors to the U.S.

The dollar weakness will likely moderate as the Fed begins unwinding its balance sheet and could downright reverse if we see the tax cuts and infrastructure spending the Trump administration has promised. Please refer to the G4 currencies and the DXY dollar index on page 53 of the Voya Global Perspectives™ Book.

Friday, August 4, 2017
  • Nonfarm payrolls increased 209K in July, handily beating expectations. In addition, June’s payroll report was upwardly revised to 231K from 222K.
  • The unemployment rate ticked down to a 16-year low of 4.3% and labor force participation rate increased to 62.9% as more workers entered the workforce.
  • Average hourly earnings were up 0.3% in line with expectations but unchanged year over year at 2.5%, indicating there is still some slack in the job market.
  • The biggest jobs gains were in the leisure and hospitality sector but hiring also hit a five month high in manufacturing, education and health services.

This strong report affirms the ongoing economic expansion, bodes well for consumer spending and retail sales, clears the way for the Fed to begin unwinding the balance sheet in September and pushes up expectations for a rate hike in December.
Please watch the latest Global Perspectives comments on the market.

Thursday, August 3, 2017

Earnings season for Q2 is 75% complete and earnings continue to exceed expectations and drive markets higher.

  • Initial forecasts of about 7% growth in profits now look closer to 10%.
  • Tech and financial sectors are leading the way with double digit earnings growth.

Meanwhile today’s economic data was mixed.

  • On the negative side, the non-manufacturing ISM indicator of services was weaker than expected (but still expanding), down to an 11 month low of 53.9 from 57.4 in June.
  • But on the positive side, initial jobless claims fell 5,000 last week and factory orders rebounded in June, up 3% after declining in April and May.

Investors worried about the high price of the market (Current S&P p/e is about 17.7 times forward earnings) may want to focus on the E not the P.

  • Companies are poised to move their earnings significantly higher in a backdrop of synchronized global expansion and will downright surge if Washington enacts tax cuts.
  • Even if the market pulls back 5% (which typically happens several times a year) investors would still be up 7% YTD.

Please follow how the S&P index price relates to earnings on page 6 of the Voya Global Perspectives™ Book.

Wednesday, August 2, 2017

As was widely expected, the FOMC left interest rates unchanged at its July meeting. My take away is that the FOMC wants to raise rates, wants to normalize, and expects that conditions will permit it, but will not jump the gun. So the outlook remains dependent on fiscal policy. Thus far, the Administration has deregulated up a storm, with 16 regulations eliminated for every one promulgated. Tax policy principles are beginning to be formulated (which would’ve been a good idea for health care reform). There is pressure for the Congress to put it on Trump’s desk by Thanksgiving – if not sooner. Principles are not policy, but the ideas are reasonable and good for the economy and markets: a lower tax rate for small business, doubling the standard deduction, capital expensing, repatriation of foreign holdings, and lower tax rates for businesses.

Meanwhile the latest ADP payroll report shows 178K private sector jobs were added in July, a little shy of expectations but in line with the solid averages posted over the last year.

Please follow the latest Voya Global Perspectives comments on the market by reading the recent MarketWatch article.

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