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Friday, February 24, 2017
It is not unusual for stocks to have prolonged periods of flat returns — sometimes punctuated by extreme volatility.

A story in the Wall Street Journal last week highlighted a huge problem with retirees in America. According to the story, people ages 65 to 74 hold more than five times the borrowing obligations Americans their age held two decades ago, (based on a study of federal data by the Employee Benefit Research Institute). Crushing debt, little savings and soaring healthcare costs are forcing retirees to alter their lifestyles significantly. Awareness and preparation are the keys to retirement success. Putting away for the inevitable rainy day is always a good idea. With market at all-time highs, it's important to remember that although over time markets generally go up, there are downturns. Please see a 100 year history of the Dow on page 15 of the Global Perspectives™ book.

Thursday, February 23, 2017
Stocks look historically attractive based on their earnings yield (E/P) compared to the yield-to-maturity of 10-year Treasuries.

The equity markets opened at all-time highs. But bond yields are trending lower. Are bonds smarter than stocks? No. Bonds yields have been melting in Europe as investors are worried about the upcoming elections in France and the latest Greece distraction – negative fourth quarter GDP after a fake out of two prior back to back quarters of positive growth. Hence, U.S. bonds become more attractive on a relative basis pushing prices up and yields down. U.S. stocks are rallying on better global economic growth, higher corporate earnings and potential for pro-growth reforms not seen in recent and not so recent history. The latest in a clear winning streak of economic data released this week was existing home sales. The 5.69 million sales pace (annualized) is the highest in 10 years despite higher rates and lean inventories. But what about stock valuations? The S&P is currently trading at 17.7 times its expected next twelve months of earnings. If you take the reciprocal of the 17.7 P/E, you get an earnings yield of 5.6%. Sounds relatively better than 2.4% yield for a 10-year treasury bond doesn’t it? And although many investors are warning that this is higher than historic averages, consider that this day in history in 1984 BankRate lists the relatively risk free short term 6-month CD yield rate at 9.84% when the average S&P500 P/E during the 80’s was 12.0 and at one point was higher than 18.0. Relatively speaking, today’s stock market doesn’t sound that expensive. Please see the stock/bond earnings yield comparison, The Fed Model, on page 19 of the Global Perspectives™ book and watch Karyn Cavanaugh justify the stock rally on CNBC.

Wednesday, February 22, 2017
U.S. consumer confidence hit a five-year high but is still off pre-crisis levels. Consumer confidence is typically backward-looking and has often been a contrary indicator for subsequent stock market returns.

This plateauing of bond yields appears to have sparked some housing activity, as January housing starts were better than expected despite a big upward revision to December. Importantly, building permits also outperformed expectations. Initial claims fell to 239k, holding at 40+ year lows. Another Federal Reserve Bank registered a sharp rise in expectations, this time Philadelphia. The Philadelphia Fed Business Outlook survey hit 43.3 (vs 18 expected); in November it was 9 and one year earlier was -4. This was the highest reading since 1983. Consider the run of regional expectations: Empire Manufacturing hit 18.7 in February vs 7 in January, the survey was below zero as recently as October. The Kansas City Fed Manufacturing index hit 9; it was -10 a year earlier. The Dallas Fed Manufacturing Activity index hit 22.1 vs 15 expected. It’s important to keep our eyes on expectations data. Neo-Keynesian models (like used at the Fed) can’t take into consideration animal spirits. It’s ironic, given that it was Keynes himself who wrote about the importance of said spirits to the economy and markets. It looks like we’ve had a turn to optimism. For more on consumer confidence, review page 56 of the Voya Global Perspectives™ book.

Friday, February 17, 2017
To fund retirements lasting many years, today’s workers expect to rely more on personal sources of retirement income, such as their savings plan and IRA, than is presently the case for those over 65.

Save more, save earlier. Great retirement advice. Max out your 401K plan and take advantage of employer matching contributions. Great retirement advice. Make the most of tools like 529 plans to amass tax free gains needed to unburden younger generations’ education debt loads so they can start saving too. Great retirement advice. Don’t let fear or intimidation of the market derail your retirement plans when there are solutions available such as target date allocations which offer instant market diversification and a tailored glide path. Great retirement advice. Another valuable piece of advice is working past what is considered normal retirement age. According to Voya Retirement Coach Holly Kylen, a Certified Financial Planner with Voya Financial Advisors, retirement is “ultimately about ‘doing what you want, when you want and not being dependent on your wealth to be able to do it. Working longer could significantly help you when it comes to the cost of health care. Furthermore, deferring Social Security benefits past the full retirement age will result in a boost to benefits until age 70. Additionally, working longer can help married couples decide where to live and how to live in retirement. Research from Voya Financial found that when it comes to an ideal retirement lifestyle, among those with a spouse or partner, 37 percent did not agree or had not discussed the topic, so by delaying retirement, you can work to define retiring on your own desired schedule.” Please review some expectations regarding retirement on page 83 of the Voya Global Perspectives™ book and read more of Holly Kylen’s advice here.

Thursday, February 16, 2017
The U.S. has more than recovered the output level lost in the Great Recession and has reached new highs. Expansions historically last about five years.

Another day, another record? Investors worried about the market lull at the beginning of February have been treated to a significant winter thaw. The market is responding to better than expected corporate earnings and economic data that smacks of the V shaped recovery we must have slept through in 2010. The Philly Fed manufacturing index soared to 43.3, the highest level since America was watching Dynasty, Knots Landing and Family Ties. In case you’re too young to remember that was 1984. The latest housing starts figure was a little lean, down 2.6%, but permits for new construction surged 4.5% to the highest level since 2007. Yes, the Fed may raise rates in March and the global landscape if full of potential geo-political party killers, but the economy is starting to run on all cylinders. As for the pro-growth policies, are they already priced in? Some investors may say yes. However, consider how many moving parts are involved when it comes to tax, regulation, trade, healthcare, infrastructure, defense, energy and immigration policies. If true pro-business policies are enacted, the market and the economy may just be getting warmed up. And by the way, in 1984 the U.S. GDP was 7.3%. Follow U.S. GDP on page 68 of the Voya Global Perspectives™ book and notice that despite trillions of economic stimulus the U.S. has been running below trend since the recession ended in 2009.

Wednesday, February 15, 2017

A plethora of good economic data was released today. Retail sales were up .4% to an all-time high in January, Core inflation (CPI) hit 2.3% YoY, the highest the market has seen in four years, and the Empire State manufacturing index jumped to 18.7, the highest level in more than two years. But the jobs situation is by far the most important ingredient of a healthy economy. Here’s the latest on the labor market.

  • Our labor Market Conditions index as of 1/31/2017 improved to 3.1 from 2.8.
  • The unemployment rate rose to 4.8 from 4.7, as the labor force participation rate and the employment to population ratio rose to 62.9 from 62.7 and 59.9 from 59.7 respectively.
  • Average hours were unchanged at 33.6 and average earnings were lower at 2.4 vs 2.5.
  • The Non-farm payrolls change was 227 vs 157 the prior month, and initial claims rose to 246 from 237 the prior month.
  • Temporary employment rose, and long term unemployment increased.
  • The index is above its 20-year average value of 1.4, indicating labor market conditions consistent with long run equilibrium in the labor market. The most recent high of the index was 3.5 in 1/2007. Please see the latest investment weekly for all of the latest market stats.- Special Guest Blogger: Elias Belessakos, Ph.D

    Tuesday, February 14, 2017

    First it was not enough water in California and now it is too much. After a four-year drought wreaked havoc with farmers, businesses and consumers, the state now faces the prospect of a calamity due to too much water — as the emergency spillover component of California’s Oroville Dam is in jeopardy of collapsing. As a result, nearly two hundred thousand people were ordered to evacuate nearby towns, and millions of gallons of precious fresh water have been wasted. It was also reported that over a decade ago, three groups filed a motion to have a federal regulatory agency armor the Oroville dam with concrete, but to no avail. Water is critical to our economy and well-being and is virtually the “new oil” not only in California but globally. Moreover, water is a Global Perspectives core “tectonic shift” that was added in our 2015 Market Forecast. For more detail on these tectonic shifts, please read our 2015 Market Forecast: Sustainable Global Expansion Driven by Tectonic Shifts.

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

    The retirement world is ever-changing. With the new Presidential Administration dominating headlines, minor stories such as retirement get pushed aside making it difficult to remain well informed regarding the current retirement landscape and your financial future. One key headline that is often overlooked is 84 percent of all people over 65 and about 90 percent of surviving spouses over 65 receive income from Social Security, and for three-fifths of them, Social Security makes up at least 50 percent of their income.* This significant dependence on Social Security highlights the need for an additional source of income during those vital retirement years. Entire dependence on the government’s fleeting retirement program is a dangerous game; a retirement income producing alternative is essential to a happy and financially secure retirement. That alternative solution is a personal retirement account backed by a solid and reliable investment strategy. Please turn to page 5 of the Voya Global Perspectives™ book to see how a retirement strategy backed by the Global Perspectives can produce consistent throughout this ever-changing world.
    *Reuters: Retirement News, Feb 2017

    Thursday, February 9, 2017
    Investors seeking income may benefit from the rich opportunities for higher yield available from global bonds.

    Now that interest rates are on the rise, bonds are bad for a portfolio, right? Wrong! Sure long maturity bonds are sensitive to interest rates as bond prices move inversely with rates. And if you bought an individual 10 year treasury bond last summer with a 1.6% yield, now that current 10-year rates are above 2.3%, although you will receive steady income and a return of principle at maturity, you will take a loss if you try to unload it today. But interest rates have recently dialed back after their post-election surge, reflecting the risks in the market and economy. In fact, major bond indices are up YTD across the board – corporate bonds, high yield bonds, global bonds and even long, long 20 year Treasuries all positive for the year (thru 2/8). Additionally, there are numerous flavors of bonds and when rising rates are reflective of economic growth many post positive returns. Senior loans for example, are floating rate and do not have duration risk. But more importantly, bonds may provide risk control and peace of mind so investors can tango with stocks. With all the recent political turmoil stirring the risk pot, investors could use some calm in the storm. As Voya IM, CIO Matt Toms stated in the latest edition of Money, “A core bond fund can still play a very constructive role in a diversified portfolio. Those bonds do a good job of offsetting equity volatility.” See how bonds have performed in previous rising rate environments on page 31 of the Global Perspectives™ Book.

    Wednesday, February 8, 2017

    The economic ball is in the Administration’s court, with some favorable winds at its back. The January employment report was about as good as they come in our current, low growth environment. While too early to tell if a new trend is developing, this is heartening; an increase here will give the Fed more comfort to move deliberately with rate hikes. Some other positive developments include a January rise in ISM manufacturing to 56, Vehicle sales continue to hold at a high level of 17.5 million in January and near fifteen year highs in consumer confidence. So the issue now is policy direction. There remains confusion about the border adjustment tax which will have to be settled as part of corporate tax rate reform. There are some issues of whether this is WTO compliant, though other countries have a similar tax. Policy risk comes from the impact on the macro economy of tax and regulatory changes being pushed off, perhaps into 2018. At the margins, businesses are likely to move slowly on investment decisions until the full tax package is seen. What’s more, with a border adjustment in play, businesses may take early moves to off-set the expected impact. To the extent that imports would be affected, we could see a buildup of inventories, but with imports subtracting from current growth. My outlook remains broadly unchanged: I expect that policy will be pro-growth but the question is timing. A pro-growth policy will put further upwards pressure on wages in the short run. Importantly, if structured to increase business investment then fiscal policy should lead to higher wages and employment. This would be a good backdrop for risk assets, though would come with higher bond yields with a stronger dollar. - Special Guest Blogger: Tim Kearney


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