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Tuesday, June 6, 2017

Everyone knows a bubble spells trouble eventually. But it is challenging to argue that this near all-time high market is in bubble territory. Investors are still skeptical and far from exuberant. The 10-year treasury yield has been trending down and remains stubbornly below 2.2%. The S&P 500 is trading at 17.7 times forward earnings compared to almost 40 times earnings during the tech bubble. And last month’s panic selloff indicates markets are not totally confident enough to be immune from political drama. However, the economy is moving forward, the labor market is healthy, housing is advancing and most importantly company earnings are strong. Accordingly, the rally in stocks is broad based with the total return of the equal weighted S&P 500 index up 7.8% YTD (compared to 9.78% for market cap weighted S&P 500). So FANG Shmang. If anything investors should take solace in the prevalent skepticism as an anti-bubble indicator. Please see page 6 of the Global Perspectives™ book and notice that the S&P 500 price level is tracking the underlying company earnings. And watch Karyn Cavanaugh’s latest comments on the market.

Friday, June 2, 2017

It is quite impressive, that in the world of volatile statistics, that the U.S. just posted its 80th month of consecutive positive employment. What's not to like? It is not always like that as the non-farm payroll has gone through painful periods of declining employment. In fact, from 2008 through 2010 twenty-nine out of the thirty-six months were negative! Let’s look at the essentials of today’s report that were actually quite good:
• Non-farm payrolls increased by +138k
• Unemployment rate dropped to 4.3%
• Underemployment dropped to 8.4%
• Labor force participation dropped to 62.7% - this is not good
• Wages, measured by average hourly earnings (AHE), rose by 4 cents in May or 2.5% year over year
I refer to it as “Goldilocks” since it is not too hot and not too cold to force the Fed to change course at their June FOMC meeting where I expect a 25 basis point rate hike. The modest report likely gives the Fed room to pause through the next few meetings. Very market friendly indeed. Please follow Voya’s Global Perspectives™ weekly to keep up on the markets with a brief two-page report.

Thursday, June 1, 2017
Total payrolls, including all non-farm employment, have inched steadily upward with private job creation leading the way.

When it comes to economic data, employment data is the king of the hill. So, today’s ADP payroll report blowout of 251K private sector jobs added to the U.S. economy in May is significant. This is the second month of higher than expected hiring. Business services led the way with 88k jobs, its strongest monthly growth since 2014. Overall, small businesses added 83,000 jobs, medium-sized businesses added 113,000, and large firms hired 57,000. Ability to find qualified workers to fill these positions is increasingly becoming a challenge and labor shortages should lead to wage increases. This latest employment report should help allay concerns regarding inflation’s recent pause and the U.S. economy should see inflation gradually tick up toward the Fed’s target 2%. Meanwhile the latest manufacturing reading of 54.5 from ISM continues to show expansion in the manufacturing sector with new orders in particular surging to 59.5. Please watch the ADP and non–farms payroll reports on page 62 of the Global Perspectives™ book.

Wednesday, May 31, 2017
The U.S. manufacturing report has rebounded after a month of contraction; the latest euro zone and emerging markets reports also indicate expansion.

Six-months from the presidential election, and four months into the Administration, where stands the economy? It’s been widely noted that soft (expectations) data have picked up, and that leads a rise in hard (actual) data. So let’s take stock, shall we? Soft data continue to print strongly in general. The Conference Board of Consumer Confidence ticked lower in May but is still holding at 16 year highs. The Dallas Fed May Manufacturing Outlook is holding at 10-year highs. The May Philadelphia Fed Business Outlook ramped up to 38.5; a year earlier it was below zero. The Bloomberg Consumer Comfort Index is holding at 51, up 10% from pre-election and at ten-year highs as well. Importantly some hard data are picking up. Jobless claims are hitting new lows and holding at 40+ year lows in the May 19 reading. Capacity utilization moved up to 76.7, better than expected and the highest level in 18 months. April Manufacturing Production was up 1% MoM in April and looks to be breaking out to the upside. Some concerns have been noted over ISM data. ISM manufacturing has dipped a bit, but nota bene, the three-month moving average is holding high. What has caught most interest is the slip in New Orders, to 57.5 in April from 65.1 in February. Going back 30-years, downturns were typified by a leveling first of the 12-month moving average of the index. At this point, New Orders are still rising on that basis and are above the 30-year average for the indicator. Thursday will bring some more information on this front: stay tuned. In the meantime, please see page 8 of the Global Perspectives™ Book.- Special Guest Blogger: Tim Kearney

Friday, May 26, 2017

Everyone is concerned about healthcare and healthcare costs. In fact, Americans rank healthcare expenses as the number one financial concern in retirement according to Voya Financial research. Unfortunately, there’s is some bad news to accompany this concern. Despite all the worry, Americans are likely underestimating the cost of healthcare in retirement. When asked to calculate potential costs, 66 percent estimated such costs would be $100,000 or less in retirement. This calculation is significantly less than the estimates from the EBRI (Employee Benefit Research Institute), which estimated a 65 year old male will need $127,000 in savings, and a 65 year old woman would need $143,000 to give them a 90% chance of having enough savings to cover these costs in retirement. That’s a lot of savings, so the sooner you can get on track the better. It’s retirement insights like this that underscore the need for a long term retirement savings plan. Please visit and click on “Orange Money Makes it Easier” for valuable tools and education to help you with retirement readiness.

Thursday, May 25, 2017

The market continues to climb higher based on improving economic fundamentals in the U.S. and emerging markets, and, surprisingly, Europe. But investors should always have a plan, because volatility will inevitably rear its ugly head at some point. A proactive plan offers the guidance and discipline investors need to avoid poorly timed knee jerk reactions that ultimately derail their investing goals. The FOMC minutes released on Wednesday provided some clarity on the Fed’s plan to reduce its balance sheet and gradually raise interest rates. Regarding the Fed’s well laid out plan, Matt Toms, Voya IM CIO commented to Reuters that “Even though the Fed is reducing stimulus, I think this gives the market some comfort.” There is an old saying – A goal without a plan is just a wish. So while investors enjoy the market’s ride higher on global synchronized expansion, this may also be a good time to make a spare key, Lee – a practical plan for the not so good times. Please watch Doug Coté’s latest comments on the market on CNBC.

Wednesday, May 24, 2017

From 1998 to 2011, the S&P 500 and 10-Year U.S. Treasury yields moved in lockstep with one another. Since 2011 however, equity markets have continued to move higher while bond yields hit all-time lows of just under 1.3%. Have years of unprecedented monetary stimulus fundamentally changed the relationship between bonds and equities? Are nominal bond yields no longer a barometer for economic growth? Post-Brexit, yields and equity prices seemed poised to start moving together again, however currently as equity prices threaten all-time highs, bond yields have retreated to the lower part of the post-election range. Eight years into the current equity bull market, and some would say over 30 years into a secular bond bull market, which bull is right? - Special Guest Blogger: Pavel Dekhman

Tuesday, May 23, 2017

The market has been up the last several days prompting investors to wonder if the move up will continue or if the market is poised for a drop. Yes, no, maybe? Where is your magic eight ball when you need it? Market ups and downs are normal and the path up is never straight. However, fundamentals are strong and getting stronger, which bodes well for the bull market. In particular, European growth is accelerating and the latest Eurozone PMI manufacturing figures are at the highest levels in 6 years. Germany is leading the way but even France, beleaguered by political uncertainty, saw unemployment fall below 10% in April for the first time since 2012. In our view, there a few things that probably won’t happen. The Washington drama won’t abate any time soon, the President won’t stop tweeting, Congress won’t be voting for impeachment and the press won’t stop complaining. Keep your eye on the hard data. The Chicago Fed national activity index (an average of 85 economic indicators) rose to .49 in April from 0.07 in March, the highest since March 2014. Please see the investment weekly for all of the latest market metrics.

Friday, May 19, 2017
U.S. manufacturing and industrial production reached all time highs before pulling back amid the global slowdown.

The markets bounce back from this week’s selloff is an affirmation of strong underlying fundamentals and a solid economic backdrop. The consumer and manufacturing are two big drivers of the U.S. economy. Consumer spending has been steadily moving up (although maybe not as fast as some would like). The consumer is the game changer accounting for 70% of the U.S. economy and has undoubtedly been doing most of the heavy lifting since the recession but in the past year manufacturing has started to up its contribution. The 1% rise in industrial production in April was the third straight month of increases and the best jump in three years. This bodes well for second quarter GDP growth. However, bond yields are reserving judgement and the 10 year UST yield remains below 2.3%. Please follow industrial production on page 10 of the Global Perspectives™ book.

Thursday, May 18, 2017
Returns for a globally diversified strategy over the last 10 years refute the notion of a “lost decade”.

Last week investors were complaining that things were too quiet and volatility was almost non-existent. Well, be careful what you wish for, it may just bite you. Yesterday was a wake-up call for complacent investors as Wall Street decided that all of the Washington drama might delay the long awaited pro-growth policies. Today investors are taking a sensible second look at the market and coming to the realization that companies will continue to do business regardless of what happens in Washington. A blowout manufacturing Philly Fed Index of 38.8 and a 4K drop in initial jobless claims on the economic front also added some comfort. Please see page 4 of the Global Perspectives™ book for a look at an effectively diversified portfolio designed to help reduce volatility when wading into the market waters.


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