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Friday, January 18, 2019

Across the United States, one in five children and adults — 65 million people — will experience a special need or disability during their lifetimes. Without assistance from government programs, non-profit organizations or employers, caregivers often face a tough and confusing journey — especially when it comes to planning for retirement and a lifetime of continuous care for their loved one with special needs.

When working with clients impacted by special needs, it's important to help them fill gaps of coverage without affecting government benefits. A few of the most effective options for caregivers include:

1. Working with a financial advisor who specializes in special needs planning.
2. Enrolling in accident insurance coverage can limit out-of-pocket expenses in the event of a debilitating accident.
3. Using Special Needs Trusts (SNTs) for cash, investments, life insurance proceeds, and other assets can prevent jeopardizing government benefits and preserve the beneficiary's eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI). Assets held in these trusts are not counted toward eligibility.

For a more complete list of options and more information, please read the full article by Voya Financial Advisors President Tom Halloran in InvestmentNews.

Thursday, January 17, 2019

As the government shutdown drags on, investors are increasingly worried about the bite it will take out of economic growth. Estimates for 1Q19 GDP are being revised down but when the government does reopen, a rebound likely will ensue. Meanwhile, the data points we have been able to receive during the shutdown have been positive. A bounce-back in the Philadelphia Federal Reserve regional manufacturing index, the drop in initial jobless claims last week and an encouraging start to the 4Q18 earnings season bode well.

For those investors disheartened by the impasse and animosity in Washington, it may be helpful to note that historically speaking, the current acrimony is mild. The 1800 presidential election between former friends Thomas Jefferson and John Adams stands out, as does the 1828 Jackson/Quincy Adams campaign.

As always, we encourage investors to block out the noise and focus on the fundamentals. Please follow GDP on page 70 of the Global Perspectives book.

Wednesday, January 16, 2019

Special Guest Blogger: Tim Kearney

There are a few cross-currents of analysis swirling through the markets: a slower first quarter, brought lower by the government shutdown; a slower but still above-trend growth outlook; and concerns over a potential recession. With the Trump administration and the House in a complete stalemate, and given the Federal Reserve’s stance, which to me seems “data dependent,” there is no ready tool available for further policy easing in the United States. The seeming cognitive dissonance of expectations, for both above-trend growth followed apparently quickly by recession, is actually easy to unpack.

The consensus belief has been that the tax cuts enacted in 2017 have produced a “sugar high,” which is bound to wear off. When it does, the combination of the (inevitable) Fed tightening with the advanced age of the recovery will deliver a recession, perhaps as soon as 2020. The consensus has growth down to 1.5% in the first half of 2020 — call it a growth recession.

The flattening of the yield curve is a major concern among many forecasters. Yield-curve based estimates of the likelihood of recession in 12 months range from 21‒64 percent. Taking a broader look at recession risk beyond the yield curve, however, we see that many indicators are flashing, “grow” rather than “recession.” For example, confidence has slipped but remains high. Yes, interest rates have moved higher but we rate the Fed’s Senior Loan Officer survey as still “mid-cycle.” While the index of leading indicators has slipped, it remains healthy and the labor market remains strong. When contemplating recession risks, we need to look beyond the historic unwinding of quantitative easing and its impact on the yield curve.

Please see current economic metrics on pages 58‒71 of the Global Perspectives book.

Tuesday, January 15, 2019

Investors fear market volatility and have been especially worried about the recent market swings, after becoming used to a low-volatility environment. If you ask investors if they want to buy high or buy low, most likely they will choose to buy low; however, this is difficult to do without volatility. Jay Mooreland, author of “The Emotional Investor,” notes that volatility is subjective. If you took a nap two years ago on January 15, 2017 and woke up today, the S&P 500 is up more than 18% since then and the NASDAQ is up more than 26%. You would conclude that it had been a very good, positive run for the market.

The volatile swings of November and December would not have concerned you in the least, because you did not experience them. Market volatility is inevitable — investors cannot predict or control it. Global diversification potentially may help smooth the bumps, but another simple way to deal with market volatility is to pay less attention to it — do not look at your returns quite so often.

Please see an example of global diversified returns over long periods on page 5 of the Global Perspectives book.

Friday, January 11, 2019

Today’s CPI inflation report was the first sub-2% year-over-year print on the headline CPI since August 2017. This certainly backs up Fed Chair Jay Powell recent dovish tilt. US 10-year bond yields summarily dropped to a 2.6 handle and volatility dropped along with it. This is in-line with the January 9th Fed Minutes report that emphasizes “patience” holding rates steady at 2.5%. This is encouraging and kills “two birds with one stone” that is rates at a high enough level just under the ten year yield to appease the hawks but an indicated pause in hiking to appease the doves. No easy task, but the Fed has not had it easy for the past decade. It sure did help last week to have former Fed Chairs Ben Bernanke and Janet Yellen on either side of Jay Powell as they spoke extemporaneously and Fed Chair Powell read from a script. Please see our 2019 Forecast: The Storm Before the Calm.

Thursday, January 10, 2019

With so much attention focused on the slowdown in China, the biggest driver of the global economy, it is easy to overlook the slowdown in the Eurozone. Germany, the Eurozone’s growth engine, posted a negative GDP reading of -0.8% in the third quarter of 2018. German industrial production took a dive in November, unexpectedly dropping 1.9% because of weaker demand from China for German exports. Overall auto exports were down 8.9% in 2018. The cracks in the economic data, coupled with Brexit uncertainty, French political protests and Italian bank struggles, have dragged down sentiment and confidence.

Notwithstanding these pressures, the latest figures show that the Eurozone unemployment rate dipped below 8% for the first time in a decade, indicating that maybe the slowdown is not as severe as expected. What’s more, the recent drop in energy prices is likely to help consumer spending, and the economic malaise is likely to stave off planned interest rate hikes by the European Central Bank. The latest Eurozone growth expectations for 2019 still range between 1.5–1.9%. As China’s economic stimulus starts to impact the global economy it should boost Germany’s economy, since German manufacturing activity has a 60% correlation to Chinese demand for German exports (Source: Cornerstone Macro 1/10/2019).

Please see Eurozone Real GDP on page 51 of the Global Perspectives Book.

Wednesday, January 9, 2019

There is a seeming tatonnement (trial and error process) going on in U.S. markets, as the outlook vacillates over contrasting views on the Federal Reserve, economic growth and the likelihood of recession. The flattening of the yield curve and drop in the year-over-year return on the S&P 500 are driving the negative view. Based on the shape of the yield curve alone, the New York Fed model of a recession 12 months out rose from 3% probability in December 2018 to 21% in December 2019. Such a sharp rise cannot be ignored. The strong employment data put the sharp downturn narrative into question, though admittedly labor is a lagging indicator.

On the other hand, the strong employment picture is likely to keep the Fed poised to tighten. Fair enough. As the new members of the Federal Open Market Committee get comfortable in their chairs, however, markets will focus on the FOMC message of “data dependent, not on a set path at present,” which seems to offer a counter argument to imminent tightening. This back and forth is likely to continue into the early part of 2019, but in the end, the fundamentals win out. Right now, it appears the fundamentals still include good growth and low inflation.

Please see the section on the economy, pages 58–76 of the Global Perspectives Book.

Tuesday, January 8, 2019

Market sentiment has turned notably more positive in the last week. So what changed? In a nutshell, the spectacular nonfarm payrolls report of 312,000 jobs added in December allayed recession fears. Maybe the economy is not falling off a cliff when companies are adding jobs at such a rapid rate. In addition, small business optimism ticked down slightly in December but remains near all-time highs and both the ISM manufacturing and services indicators are firmly expansionary. The trade turmoil is still an issue, but news surrounding the current talks with China is cautiously optimistic. Finally, the Federal Reserve’s tone changed dramatically.

In his latest comments, Fed Chair Jerome Powell showed a gymnast’s instincts, bending over backwards to convey the Fed’s flexibility with both rates and the balance sheet. The willingness to listen to markets and exercise patience and caution was just what investors needed to get their floor routines back on track. Does that mean the volatility is over? Nah. Global growth estimates, trade concerns and rate policies will continue to impact markets, but fourth-quarter earnings season on tap should help settle investors. Expectations are for 12% growth in 4Q18. Looking forward to 2019, we expect earnings growth to slow but not stall; and at the end of the day, advancing corporate earnings are the fundamental drivers of markets.

Please watch the Fed rates and balance sheet moves on pages 34 and 39 of the Global Perspectives Book.

Friday, January 4, 2019

Investing is not for the faint of heart. Nowhere is it implied or explicitly stated that markets operate smoothly or calmly. That would be tantamount to expecting a long ocean trip to be smooth sailing all the way. Ships equipped with radar can anticipate storms but cannot outrun them; the point is to weather the storm and carry on once the seas are calm again. Inexperienced investors are like ship captains who never have been storm-tested. The fastest way to calm for such investors is to sell out of “risk” assets and go to cash. While this solution may reduce the pain of loss in the moment, it risks giving up long-term return potential and heightens the risk that investors will not reach their goals.

For followers of Global Perspectives, there is a North Star that can help them navigate the storms: remember, “Fundamentals drive markets.” Today we see a great example of positive fundamentals — a blowout nonfarm payrolls report of 312,000 for December, resulting in a 3.9% unemployment rate, rising wages, an increase in the participation rate and positive revisions of 58,000 from prior months. Despite aggressive policy tightening from the Federal Reserve — eight interest-rate increases over the last two years — economic growth and jobs are surging due to the powerful pro-business policies of lower taxes and lower regulatory costs to businesses.

Please read the Voya 2019 Forecast “The Storm before the Calm.”

Thursday, January 3, 2019

Global synchronized growth was the buzz phrase in 2017. Global growth divergence was the theme of 2018, with the U.S. economy accelerating while other global economies slowed. Now the latest data is showing a convergence, but unfortunately it is because the U.S. economy is slowing its pace a bit. Manufacturing expanded in December, but declined sharply from the previous month with a reading of 54.1, the slowest pace of expansion since November 2016. This is on the heels of a contractionary manufacturing report from China. Fears of a global slowdown and the possibility of the Fed making a mistake, as well as the government shutdown and ongoing trade tensions are weighing down markets. The fear and pessimism on Wall Street has spilled over to Main Street with consumer confidence dropping in December to the lowest level since July and well off peak confidence levels in October. While there are some reasons for concern, the latest ADP payroll report showed a blowout 271,000 private sector jobs added in December with small and medium sized companies doing the heavy lifting compared to large sized companies. The U.S. economy is still doing fine. A strong employment market, robust consumer spending, falling mortgage rates, low gas prices and still vigorous corporate earnings growth are just a few reasons to greet the new year with cheer not fear.

Please see the Global Perspectives 2019 Forecast: The Storm Before the Calm.

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