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Tuesday, March 10, 2015

Weak global rates are working to push U.S. rates down. But, on the flip side, a surging dollar and ever improving U.S. economy have significantly moved rates up from the ultra-low rates we saw just a month ago, thereby pushing prices down. The U.S. 10-Year treasury yield was 1.67 percent at the start of February; now it is 2.12 percent. March has been negative so far across the board for both stocks and bonds. Investors may be tempted to head for the hills of cash. But, hold your horses. Yes, the strong dollar is causing issues with U.S corporate earnings estimates and in many emerging markets. Yes, the Fed may remove the word “patient” from their rhetoric. But the U.S. economy and the U.S. job market are looking better than they have since the recession. And global central banks are fully committed to keeping the global liquidity party going. First quarter earnings reports set to begin in mid-April will be the true litmus test of the market’s future direction. Keep calm and stay diversified. Please follow U.S. Treasury rates on page 30 of the Voya Global Perspectives™ book.

Friday, March 6, 2015

The pile of reasons for the Fed to delay raising rates is getting thinner. Today’s nonfarm payrolls report showed that the economy added 295K jobs to the economy in February, the twelfth straight month above 200K. The unemployment rate dropped to 5.5% the lowest reading in almost 7 years. Wage growth remains sluggish with hourly wages up only .1% and the labor participation rate was down slightly giving the Fed some wiggle room if desired. The last several months of strong payroll numbers have resulted in short term negative market reactions. Well, boo hoo to the market crybabies. Robust job creation is indicative of positive business sentiment and more jobs and lower unemployment rates will undoubtedly put upward pressure on wages, good news for workers and consumers. The real economy is getting stronger and that is what really matters. Please see the latest Global Perspectives monthly market commentary, “Market Whipsaw Sheared Bears Like Sheep in February”.

Wednesday, March 4, 2015

China cut lending rates again to help stimulate their slowing economy, as did India which surprised markets with their second rate cut this year. A steep drop in inflation due to lower oil prices – in addition to the growth concerns – was cited as a reason for cutting rates. Annual inflation rates in developed economies are at their lowest point since the recession and underscore that the threat of deflation has not been extinguished. Inflation and employment are the two key metrics the Fed will be looking at when determining when to raise rates in the U.S. Ultra low inflation is actually detrimental to an economy because it suppresses consumer spending and compounds household debt burdens. Please follow inflation on page 64 of the Voya Global Perspectives™ book.

Tuesday, March 3, 2015

Auto sales are up in February but are coming in shy of expectations. Surely the harsh winter weather is a factor, especially in the Northeast. But consumers generally still don’t believe the lower oil prices are anything more than a temporary blip and, as a result, have yet to seriously ramp up their spending. Spending on energy was down 18 percent in January and consumer spending was down 0.2 percent overall. Consumers used their energy windfall to boost their savings accounts instead, and the savings rate rose from 5 percent to 5.5 percent, the highest since 2012. The current low oil scenario is not a blip. The blip in energy prices was the plus $100/barrel oil consumers have been living with the last few years. More supply and less demand have been working to erode energy prices for quite some time. Please see the Voya Global Perspectives™ energy whitepaper written in 2012, outlining the case for lower oil prices.

Friday, February 27, 2015

Fourth quarter GDP was revised down from 2.6 percent to a 2.2 percent. Weak exports and lower than initially reported inventory stocking, were the reasons for the downward revision. This shouldn’t come as a surprise given the strength of the U.S. dollar. But, before investors throw their arms up in despair at the tepid rate of U.S. growth, they should take a look at some of the bright spots. Consumer spending increased 4.2 percent. This is indeed solid evidence that the, game-changing 70 perecnt of the economy, consumer remains resilient and that cheap gas will continue to bolster spending in 2015. In addition, Capex (capital expenditures) were significantly bumped up to 4.8 percent despite the fact that any Capex related to the oil sector is under pressure. Capital spending is crucial because it begets more jobs and hence more consumer spending. Overall GDP for 2014 ran about 2.4 percent; higher than 2.2 percent in 2013 and 2.3 percent in 2012, so we’ll take it. Please follow GDP on page 61 of the Voya Global Perspectives™ book.

Thursday, February 26, 2015

Durable goods orders rose 2.8 percent in January, the biggest increase in six months. Business spending (less the volatile defense and transportation sectors) was also a positive surprise, increasing 0.6 percent after four months of decline. In other important economic news, January posted the third straight month of consumer price drops – primarily due to falling gasoline prices. Core CPI was down 0.1 percent year-over-year. Investors should not worry too much about deflation. A decline in energy prices is the good type of deflation and, as gas prices stabilize, inflation should gradually move towards the Fed’s target. So this report is unlikely to deter the Fed and its rate hike time table. Please follow inflation on page 64 of the Voya Global Perspectives™ book.

Wednesday, February 25, 2015

A recent deal gives Greece a four month $273 billion extension. However, Greece is certainly not out of the woods yet. Creditors have serious doubts that Greece will be able to adhere to the terms of the bailout but European markets don’t look too concerned. The euro zone has been in rally mode this year despite the Greek drama. The MSCI EAFE index is up double (6.2 percent as of 2/24,) compared to the S&P 500 (up 3.1 percent as of 2/24,) so far this year and many of the major European stock indices are at all-time highs. And, why not? The ECB is has significantly ramped up their stimulus efforts and the euro is down to trading at 1.14/$, boosting export driven economies like Germany. Top it off with cheaper oil and the equity markets are happy to join the party. Keep your eye on the European stock markets on page 39 of the Voya Global Perspectives™ book.

Tuesday, February 24, 2015

The market is dissecting every word of Fed Chair Janet Yellen’s testimony today to determine when we may or may not see the inevitable first rate hike. The labor market is key to the decision and although job growth has been strong, the sluggish wage growth and low labor participation rate are monkey wrenches the Fed has in its pocket if needed. Yellen also mentioned the slow recovery in the housing market as a potential reason to hold off on rate movements. Today the Case-Shiller home price index came in a little better than expected for December with prices ticking up 4.5 percent year-over-year in the 20 metro city areas. Bear in mind, this is more than twice the rate of inflation. However, home sales have disappointed as of late. Existing home sales fell 4.9 percent to 4.82 million in January, a larger than forecasted decline. Despite no significant news in Yellen’s testimony, equity markets seem to like the somewhat dovish tone with many indices reaching multi-year intraday highs. Please see the latest Voya Global Perspectives™ comments on interest rates in "Wall of Worry Punishes Market in January."

Friday, February 20, 2015

Earnings season for the fourth quarter is winding down and growth reports have been better than anticipated at the beginning of the quarter. With about 88 percent of the companies on the S&P500 reporting, earnings have grown 3.8 percent over the same period a year ago. That’s the good news. However, there is some potentially negative news looming. Earnings for Q12015 are projected to report negative 5 percent growth when compared to a year ago (Q12014). Leading the decline is a projected 63 percent plunge in energy sector earnings. Earnings forecasts are constantly changing so it’s too early to sound the alarm bell. But, it underscores the need for investors to remain globally diversified even when the bull is running. Please see an example of global diversification on page 5 of the Voya Global Perspectives™ book.

Thursday, February 19, 2015

Oil is consistently in the headlines because it is a key economic driver of the global economy. But in the future water may be the new oil. Many investors are not aware of the severe drought conditions here in the U.S. – not just other parts of the the world. California's current 4-year drought has resulted in the worst conditions in 1,200 years. The quest for water has driven some California cities to explore desalination techniques in order to use the ocean water as a potential supply (see WSJ 2/18/15 page A3.) This process is expensive but ongoing technological advances should bring cost down. The need for usable water is prevalent across all business sectors, not just agricultural concerns. Technology firms, for example, need substantial quantities of water to keep their servers cool. The fracking process which has spurred a U.S. energy revolution is also extremely water intensive. And not to mention, it takes 8 gallons of water to make one gallon of beer. Please see the Voya Global Perspectives™ 2015 Forecast where we introduce the tectonic shift to water.

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