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Thursday, June 25, 2015

As expected, the Greek drama is going down to the wire. Yet another creditor deadline is looming on Friday. If the entire Greece situation goes south, will it roil global markets? Of course. But Greece is a small economy, smaller than Dallas or Boston or Philadelphia, and the true economic impact is minor. However, investors will likely panic in the short term, head for the exits, and forgo opportunities. Global markets are never smooth sailing. That's why investors need a diversified portfolio which includes both stocks and bonds to ride this roller coaster without losing their lunch. See how Greece stacks up to other euro economies on page 46 of the Voya Global Perspectives™ book.

Wednesday, June 24, 2015

Bipartisan is practically an oxymoron but Republicans got it done for President Obama by delivering fast track authority on Trans-Pacific Partnership (TPP). The TPP will link 40 percent of the world's economy in the Pacific region and has a real chance to become a law with this increased negotiating leverage for the president. So chalk one up for the politicians but the proof is in the pudding and the President must now deliver his purported signature TPP trade deal. Please read more on the importance of global trade in Voya's Global Perspectives™ 2015 Forecast.

Tuesday, June 23, 2015

The MSCI EAFE Index (Europe, Australasia, Far East) is up big this year (10.4 percent as of 6/22), more than double the S&P500. Like clockwork, these high-flying returns are prompting investors to pile into this asset class and out of U.S. domestic equities. According to ICI, there were $3.8 billion in domestic equity outflows for the week of 6/10 compared to $3.6 billion in inflows to world equity, just when the U.S. economic picture is getting brighter. The consumer is the main driver of the U.S. economy. We know the jobs market is doing just fine – the best in 15 years. That’s good news for the consumer’s wage growth. Now the latest housing news is reaffirming a strong consumer foundation. According to Action Economics, new home sales have risen 102 percent from the 273k record-low in February of 2011, while pending home sales have risen 47 percent from a low in June of 2010, and existing home sales have risen 55 percent from a low in July of 2010. Today’s new home sales report of 546K was the fastest pace since February 2008. It may seem like the U.S. bull market is a little long in the tooth, but markets follow corporate earnings, not the clock, and a stronger consumer will boost earnings. Market timing works almost never. Please follow global market returns on page 38 of the Voya Global Perspectives™ book.

Friday, June 19, 2015

It looks like a positive week for the market. Greece and the Fed have been in the spotlight all week and investors may have missed an important development in the Trans Pacific Partnership trade deal. The fast track option narrowly passed in the House and is headed to the Senate. Why is this trade deal important? These Pacific countries represent 40 percent of global economic output. Opponents are worried about a loss in manufacturing jobs but nixing the trade deal will not bring back the manufacturing jobs lost to increases in productivity (worker output has quadrupled from 1970 to 2010), advanced technology and automation over the last several decades. Ninety-five percent of consumers reside outside of the U.S. so trade matters. Please follow trade with the potential TPP partners on page 42 of the Global Perspectives book.

Thursday, June 18, 2015

Wait and see. Wait and see what the Fed is going to do about interest rates. That has been a common investment theme in 2015. Meanwhile, investors waiting in cash are seeing (but missing) markets touching all-time highs. The latest economic news is also pointing higher- CPI inflation moving up .4 percent in May, leading indicators higher than expected increasing .7 percent, initial jobless claims lower, and the Philly Fed manufacturing business index coming in at 15.2 – almost double expectations. ‘Wait and See’ might not be the best approach. Please follow leading indicators on page 59 of the Voya Global Perspectives™ book.

Wednesday, June 17, 2015

Despite the highest level of corporate earnings ever, valuations are near historic normal levels. The S&P P/E of around 17 is not quite the bargain it was a few years ago, but is certainly not frothy. Fear and pessimism have been an investor’s best friend in this bull market, keeping a lid on runaway valuations. So why are investors flowing out of domestic equities in 2015, six years after the recession ended? More fear and pessimism. Investors are worried about the looming rate hike and the possibility of a Greek exit from the euro zone. Corporate earnings are on track to move higher in an economy that is continuing to show improvement. Sounds to me like an opportunity for large cap growth stocks. Please follow corporate earnings growth on page 8 of the Voya Global Perspectives™ book.

Tuesday, June 16, 2015

The Fed and Greece are the two issues that continue to dominate the market’s attention. In tomorrow’s Fed press conference, Yellen is widely expected to make it clear that rate hikes are coming with most bets on September – unless something unusual happens. The Fed has stated that they will be data dependent. The employment data has been strong, but the latest industrial production report was weak. Although housing starts were down 11.1 percent, forward looking building permits were on fire, surging 11.8 percent, the fastest pace since 2007. Given the mixed (although improving) data picture, investors will be scrutinizing Chair Yellen’s comments and tome more than ever. As for Greece, the game of chicken will persist while Greece bargains for more latitude instead of instituting actual economic reforms. It is quite possible that they will play right until plans are drawn up to kick them out of euro before capitulating at the last minute. Investors should expect interim volatility. Good old high quality government backed securities like GNMA’s historically have done well in volatile markets and under a variety of interest rate environments.

Please follow the latest Global Perspectives Market commentary here.

Friday, June 12, 2015

Mutual fund flows show investor money moving out of domestic equity and in to foreign equity and bonds. In theory higher interest rates will ding U.S. stocks, now valued at a higher discount rate and bonds will lose value because when rates go up bond prices go down. Hold on. Higher rates predicated on more robust growth is good for company earnings and hence stock prices. Selling large stocks poised to go higher could be a mistake. Bonds are needed all the time to balance the portfolio and provide risk control, not just income. Interest rate hikes when they do happen are likely to be gradual. Diversification helps ride out volatility. Please follow mutual fund flows on page 69 of the Voya Global Perspectives book.


Doug Coté appeared on Fox Business’s “Mornings with Maria” this morning, where he discussed the outlook for the economy and markets. If you missed it, watch it here.

Thursday, June 11, 2015

It’s official. Consumers emerged from their winter hibernation and went shopping this spring. Retail sales jumped 1.2 percent in May, increasing for the third month in a row after a couple of months of decline during the harsh winter. In particular, auto sales – which comprise one fifth of retail sales – hit a post-recession high in May. Gas prices have recovered somewhat from their lows in March but are still a consumer boost. The jobs market is making solid gains. Housing is getting its groove back. And, believe it or not, a Greece deal could be coming together (maybe). No wonder the market is in rally mode. Please see the latest global perspective on the markets in the Voya Global Perspectives™ Commentary “Central Bankers Keep the Pedal to the Metal in May”.

Wednesday, June 10, 2015

Global bond yields are surging, most notably in Germany, with a near 1 percent move from 0.1 percent to 0.98 perecent, and the U.S. treasury 10-year yield up to nosebleed 2.47 percent. Yet, global equity markets are rallying. Crude Oil WTI has safely moved above $60, yet all sectors are rallying. China’s central bank (PBoC) just lowered their growth estimate for China down to 7 percent yet China’s market barely budged and is up 57 percent year-to-date. What investors are missing is that rising rates are a proxy for economic growth and high dividend paying asset classes, exposed to growth such as Global REITs, actually do well in a rising rate environment as long as there is growth. This means that “fundamentals drive markets” – not rising rates. Follow Senior Loans on page 38 of the Voya Global Perspectives™ book as a good example of an asset class that has performed well in a rising rate environment.

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