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Friday, March 31, 2017

Inflation finally inched up to reach the Fed's target 2%. Big deal. Inflation is still below trend so this is essentially reflation, the good kind of inflation. And the latest wage reports show that wages rose faster than inflation, up .4% in February. Retirees have already been grappling with soaring healthcare costs so the latest inflation readings are not too significant for them. However, now that deflation fears have subsided and inflation is creeping back, the Fed will have latitude to raise interest rates perhaps a few more times this year. Higher rates based on an improving economy are good for retirees, savers and for investors. Please watch Doug Cote's latest comments regarding the durability of the reflation trade on CNBC.

Thursday, March 30, 2017

U.S. GDP has been decidedly below trend. In 2016 The U.S. economy grew at 1.6% which was below the 1.7% growth in the Eurozone. However, fourth quarter GDP was revised up from 1.9% to 2.1%. Once again it was the consumer doing the heavy lifting, accounting for most of the growth and the upward revision. Business investment has been notably absent since the recession and is needed in order to boost productivity and break the low growth trend. But now preliminary signs point to a reversal. Accelerating corporate profits, fewer onerous regulations, business optimism and tax reform are just the recipe for business investment and capital expenditures. The U.S. economy is indeed on a new path. Please see the Global Perspectives 2017 Forecast - A New Path.

Wednesday, March 29, 2017

The defeat of Speaker Ryan’s attempt to repeal Obamacare is being over sold as a defeat for the Administration. Dealing with health care will take time and public education; precious little of either was expended over the past month. As such, it seems unlikely that this is the end of the effectiveness of the Trump Administration. Regulations continue to fall and the Administration is pivoting to (needed) tax reform. Importantly, this era of good feelings continues to show up in data. New homes sales had a blowout month, up 6% in February with January revised to up 5.3%. Pending home sales were up 5.5%, well above the 2.5% consensus expectation. The KC and Richmond Fed both recorded big rises in their March Manufacturing Activity indices (though Dallas did slip on the month). Importantly, the Conference Board Consumer Confidence Index continues to record major, unexpectedly large improvements with the index hitting 125.6 in March. So look skeptically at arguments that the Administration is at sea; the tax reform process has yet to begin even. I think it’s premature to declare that the risk-on trade is over. - Special Guest Blogger: Tim Kearney

Tuesday, March 28, 2017
Home values are still 6% below 2006 levels, but the 20 City Composite Index has shown signs of a sustainable recovery after promising year-over-year price increases.

There is a wide divide between Wall Street and Main Street. Investors are letting Washington rattle them and many have turned pessimistic on the so called “Trump trade” despite improving fundamentals. March is shaping up to be a down month for U.S. equities and bonds are back in favor with investors snapping them up thus raising prices and reducing yields. However, Main Street is whistling a different tune. Consumer confidence in March soared to the highest level since December 2000 with an index reading of 125.6 up from 116.1 in February. The primary reason for optimism is a strong jobs market and rising wages. Cheap oil, higher stock prices and continuing home price appreciation are icing on the cake. Indeed, oil prices have dropped and stayed below $50/barrel, the stock market is 10% higher since the election and the S&P Case Shiller home index reported today that home prices increased 5.9% in January to a 31 month high. Maybe Wall Street needs to take a page from the Main Street playbook. You can follow the S&P Case Shiller Home Price Index on page 64 of the Global Perspectives™ Book. In addition, you can create your own mini chart book of slides that bolsters the case for stocks. View a GP Mini Book here.

Friday, March 24, 2017
New durable goods orders have made upward progress with surges and slumps along the way.

The pick-up in durable goods orders, up 1.7% in February and revised higher to 2.3% in January is a respectable first indicator of a return to business spending which has been missing from the U.S. economy. As the economy continues to broaden, markets will likely be focused on politics. But remember, healthcare was never the big kahuna when it comes to markets and corporate earnings. And trying to Washington proof your portfolio is often akin to eating a dirt sandwich. Markets are going to be looking for tax cuts and deregulation, the two prime pro-business possibilities on the Trump agenda. So while U.S. equity markets seem distracted, investors should note that all major bond classes are up for the year despite warnings of rising rates and that emerging market equities are up 12.5% and the EAFE equity index is up 7.0% (thru 3/23/17). Retirees frantically looking to boost their returns and income may need a reminder that tried and true global diversification mitigates risk and may increase returns. In fact, all investors should remember and repeat the Global Perspectives adage. “Keep Calm and Stay Diversified”. Please watch Doug Coté’s latest comments about Washington on CNBC and track durable goods on page 67 of the Global Perspectives™ Book.

Thursday, March 23, 2017
U.S. Leading Indicators have been consistently positive — in fact, for 17 of the last 24 months.

Markets have been a little jittery, waiting for the long awaited health care vote this evening and generally paying just a little too much attention to the noise from Washington. Investors need to focus on the strong economic trends that affect company earnings instead. The ACA vote is not the make or break moment for the new administration. Make no mistake, we are on a new path of pro-growth. And this new path will be good for company earnings. Any bumps in the road may be buying opportunities. Please watch Doug Coté’s latest comments on CNBC and keep an eye on economic leading indicators on page 66 of the Global Perspectives™ Book.

Wednesday, March 22, 2017
At about 70% of GDP, the U.S. consumer is the game changer in economic growth. Consumption, income and retail sales have achieved all-time highs.

There is some confusion about the consumer’s recent behavior, with retail sales strong but personal consumption expenditures softer. Retail sales in February were up 0.1% MoM, but that was following on a blowout revision of January to 0.6% from 0.4%. Ex autos (which are doing pretty well at this stage of the cycle) were up 0.2% with January revised to 1.2%. The six-month change in retail sales (SA) is running around 7% annualized. The flip side is that real PCE was down 0.3% MoM in January, and the six-month growth rate is up but 2.2%. Some of the softness could be the result of warmer winter bringing down utility usage. It’s important to note that consumers spend out of their expected permanent income. Post-recession, we are seeing consumers remaining cautious as wage growth has been slow. The personal savings rate is 5.5%, rather than the sub-4% recorded prior to the recession. This has translated into a healthy consumer balance sheet, with the household net worth reaching nearly $93 trillion in Q4. High net worth, positive outlook, likely tax cuts for consumers, lower unemployment, rising interest rates benefiting savers: the board is being set up for the consumer, but the regulator on spending is going to be the outlook for earnings. Please review page 12 of the Global Perspectives™ book for more on consumption, income and retail sales.- Special Guest Blogger: Tim Kearney

Tuesday, March 21, 2017

It seems like each year since the bull market began in 2009, an inflation scare causes a sell off in bond and bond-like asset classes. After the strong non-farm payroll report on March 3rd, the probability of a Fed rate hike jumped to 100 percent. As if on cue, corporate, treasury and high yield bonds got hit, but bond-like global REITs got slammed down 3.5% on the next week. The Fed, did in fact, hike rates, but a funny thing happened; bond yields dropped and, you guessed it, global REITs almost fully recovered. There are many headwinds to keep 1970’s inflation from happening for as far as the eye can see, some of which include still low economic growth, lower oil prices due to the prospect of increasing supply, and a labor participation rate that has shown signs of increasing, keeping the lid on wage growth. We are in an environment of “reflation” aka “good inflation”, bond and bond-like asset classes are attractive at these levels. Please review the Voya Global Perspectives™ Weekly to track these statistics.

Friday, March 17, 2017
Declining funding and sponsorship of pension plans is shifting the burden of retirement savings to participants in defined contribution plans.

According to a Voya Retirement Research Institute report, nearly half of workers over age 50 will be able to count on some sort of pension. But only a quarter, 27%, of the youngest workers participating in the study have pension expectations. For these younger workers, retirement is many years away and those pension expectations may be subject to much potential change. In the meantime, younger generations also have multiple significant barriers to saving for retirement. One of the biggest is the student debt overhang. The average college student graduates with $37,000 in student debt and many are struggling to pay it down. Parents of these younger workers may be tempted to borrow from their retirement funds to help their children climb out of debt. This is not advisable and one of the reasons the 529 plan could be the best thing since sliced bread. These innovative plans allow anyone - parents, grandparents, friends - the ability to help younger generations save for education which grow tax free. Many plans also have state tax advantages too. Yes, the funds grow tax free and if used for higher education, there is never any federal tax due on the investment earnings. Not only is this free money, it is a gift to both the student and to the parents who often feel responsible for college costs, to their own financial detriment. A 529 plan is an important piece of the retirement puzzle across generations. Please take note of the decline in defined pension benefit plans on page 84 of the Global Perspectives™ book.

Thursday, March 16, 2017

Who would have “thunk” it? Central Banks raising rates and the market actually rallies. The latest surprise, China inched up its key short-term interest rates, arguably in response to the Fed’s actions yesterday, sending Asian markets, yes you guessed it, higher. It was a veritable party of Central Bank actions yesterday and overnight with the Bank of England although not raising rates a key member of their Monetary Policy Committee, Kristin Forbes, voted to raise rates. Right again, the U.K. markets rose and their currency, the pound sterling, strengthened. The signal of rising rates or reflation, aka good inflation, to the markets is robust economic growth. What hasn’t gone up lately? Almost every U.S. economic data release is positive including manufacturing, retail sales, housing, corporate earnings, inflation (C.P.I.) and more; China, despite perpetual fears of a hard landing, recorded a 38% year over year surge in its imports and Britain now worrying about an overheating economy despite triggering Article 50 aka Brexit. Oh, and forget about the “2013 Taper Tantrum” where rising rates crushed Emerging Markets. This reflation trade as of today has sent Emerging Markets up over 13% or about double the U.S. market. Please see Voya Investment Management’s forecast “A New Path: The Growth & Reflation Trade”.


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