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Tuesday, February 7, 2017

Although the trade deficit grew by less than expected in December, the entire year’s trade gap of $502.3 billion, up .4% from 2015, was the biggest since 2012. The trade deficit is a subtraction from U.S. GDP, so the U.S. needs to boost exports to boost GDP. Yet a strong domestic economy increases consumption/demand for imports and also strengthens the dollar, which in turn makes exports less attractive to other countries. With so many players in the global arena, each with their own selfish agenda, achieving an intended goal is tricky to say the least. Fair and transparent trade agreements can help level the complex playing field. For 2016 the top trading U.S. partners were China, Canada and Mexico. Of the $502.3 billion U.S. trade deficit, $347 billion was not surprisingly attributable to China, $68.9 billion to Japan, $64.9 billion to Germany and $63.2 billion to Mexico. The lion’s share of trade with Mexico involves the automotive industry, so expect to see more political wrangling with automakers in the headlines. The U.S. does have trade surpluses - Hong Kong, Netherlands and United Arab Emirates are the top 3 countries that buy more from the U.S. than they export. Hong Kong buys gold and diamonds, Netherlands imports pharmaceuticals and United Arab Emirates is a huge purchaser of civilian aircraft. Many more interesting stats are available at the government website. Although trade is a concern, the market is moving forward. Watch Doug Coté on CNBC to see why the market is marching to all-time highs.

Friday, February 3, 2017

A week of political wrangling over trade and immigration has rattled investors. In addition, the President has ordered a review of the Labor Department’s key fiduciary rule requiring advisers on retirement accounts to work in the best interests of their clients. The fiduciary rule, which is set to take effect in April, will have an enormous impact on those preparing for retirement as it scrutinizes and aligns the interests of advisors and clients as well as steers clients away from high-risk or high cost investments that solely profit the broker. While Trump may or may not roll back this regulation, it still brings to light how those preparing for retirement need to be aware of potential changes (okay, that’s everyone). Keep in mind, on the economic front, the data has been solid. The latest non farms payrolls report shows a much better than expected 227K jobs were added in January and more workers came back into the workforce, although the average wage increase of .1% was disappointing. The market historically follows corporate earnings which are also doing well. So retirement savers need to put the political drama on the back burner and remember that accelerating economic growth can be a powerful elixir to all of the political bitterness. Please follow the investment weekly for all of the up to date facts and figures.

Thursday, February 2, 2017
Labor costs have climbed higher but productivity has lagged.

The good news is that productivity increased in the fourth quarter, up 1.3%. The bad news is that U.S. productivity has been rising by less than 1% annually for six years in a row. And what's worse is labor costs are moving up faster than worker output, putting a squeeze on company earnings. Some analysts contend that productivity is just measured incorrectly in our cyber oriented world. After all, I can now check my bank balances, pay some bills and snag a few online bargains, all while my boss is at lunch. Pretty darn productive. But measurement is only part of the puzzle. Businesses have been unusually reluctant post-recession to make the investments in equipment and technology that are needed to make workers more productive. The recent wave of pro-growth optimism could be the boost companies needed to make the long-term investments need for higher GDP growth. Please follow productivity gains on page 63 of the Global Perspectives Book.

Wednesday, February 1, 2017

Today we received the first message from the new Fed. The chances for a back/back hike were always poor, especially given that there are some new FOMC voters who tack to the more dovish side. My view is that a March hike is unlikely as well, given that tax policy will just be started to be discussed. The key from its statement is that the FOMC expects even with a gradual tightening “economic activity will expand at a moderate pace and, labor market conditions will strengthen somewhat further”. So we are facing the potential for a labor squeeze informing Fed decision-making. In the Fall, Chair Yellen noted that the FOMC should go slowly to see if in fact ‘discouraged’ workers can be brought back to the labor force; I think today’s statement underscores that point. Over the past 18 months, there has been an increase in the growth rate of earnings – though at 2.8% AHE is growing but slowly. I’d expect that the FOMC will keep the unemployment rate on a short-leash if wage pressures begin to build quicker than folks reenter the labor force. Consider the Atlanta Fed Wage Tracker as one look at the wage/employment nexus that the Fed follows. Special Guest Blogger: Tim Kearney

Friday, January 27, 2017

Trump’s first week in office contained no less drama than expected. Signing an executive order to begin the rollback of the Affordable Care Act, reiterating the necessity of a wall on our southern border, issuing a memorandum to demand all federal agencies to freeze any new or pending regulation in addition to ordering to “streamline and expedite” any current infrastructure projects, are just some of the many of moves Trump has made in his first days in the Oval Office. While a lot has changed politically over these past days, the strategy long term investors preparing for retirement has not. Those focused on building their nest egg and looking for consistent and reliable returns should not be swayed by the hype surrounding the new Presidential Administration. As always, stick to the course and avoid the folly of gaming diversification. Broad, global diversification focused on solid fundamentals remain the tried and true path to a successful retirement. Please review the Voya Global Perspectives 2017 Forecast – A New Path: The Growth and Reflation Trade, for a deeper look at the many factors at play in the investing world in 2017 and what they mean for your retirement portfolio.

Thursday, January 26, 2017

We finally reached the Dow 20k milestone. But the Dow is only 30 stocks and 20K is just a number. What are the implications for the broader market? Well, the 20k hullabaloo may help to increase investor optimism and finally get some retail investors back into the market. However, in addition to the headline milestone, there is something bigger going on here. The global economy is improving and marching forward in synchronization. And global economic growth is good for corporate earnings here in the U.S. and abroad. Global indices are reflecting this improvement and in fact Emerging Markets and EAFE are besting U.S. large caps so far this year. Expanding corporate profits are the foundation of this rally, pro-business policies will be additive. Please see the latest investment weekly for all the latest global return information.

Wednesday, January 25, 2017

The trend towards higher US inflation seems here and is likely to push bond yields a bit higher, as can be seen in the break-out of US 5-year Treasury breakevens. And inflation trends are moving higher beyond the U.S. with various inflation measures moving higher. Since summer 2016, Germany 2-year breakevens are up by some 70bp. Since the Brexit vote in June, UK 5-year breakevens are up by 100bp. In Japan, the year-over-year PPI has moved up by 300bp in just six months. As noted last week, the IMF began what can become a trend of analysts marking up the growth outlook – in the US but also beyond. This is a very important and welcome development. So what bond markets globally are facing is good old bottom-up pressure from inflation/growth pushing yields higher, with rising US yields pulling up global yields as well. My reading of Janet Yellen’s recent speech is that she is in the three-hikes-in 2017 camp, which should be another underpinning for US higher bond yields in 2017. The good news - perhaps counterintuitive good new - is that higher yields would actually be supportive of riskier asset values over time. Why? Because reflation or “good inflation” is a positive reflection of a better macroeconomic performance driven by President Trump’s pro-growth policies. - Special Guest Blogger: Tim Kearney

Tuesday, January 24, 2017
The U.S. dollar surged in 2014 against major currencies on the underlying strength of the U.S. economy and is up 7.7% in 2015.

Last year at this time the focus was on oil. This year it is on the dollar, the strong dollar. The dollar has appreciated about 25% against a basket of other currencies since the lows of June 2014 and about 3% since the election. A strong dollar makes sense. It is due to a comparatively better U.S. economic climate and the divergence in central bank policies and interest rates from other economies. The latest burst of strength is being attributed to Trumps pro-growth policy agenda. A strong currency helps and hurts economies. The cost of imported goods goes down, thereby helping domestic companies, but it is more difficult to export goods. Since most of the U.S. companies do business overseas, investors are worried the dollar’s move up will slow sales and impact earnings. But as of now, the U.S. economy is still stuck in the 2% range and there have been no actually policy changes yet. In addition, the companies selling overseas often have operations overseas and are not necessarily converting profits back to dollars. Finally a significantly better U.S. economy will lift global growth, helping to mute the dollar’s rise. So while the recent run up in the dollar is not unexpected, the magnitude of the increase in anticipation of future growth may be putting the horse before the cart. Please review our our G4 Currencies slide on page 52 of the Voya Global Perspectives™ book.

Friday, January 20, 2017

Today marks a new U.S. president and a new path towards growth and reflation. Spurred by widespread longing for change, many Americans are hopeful that the economy will continue to strengthen and the stock market rally will be sustained. The breadth of recovery in global activity is expanding. Most emerging markets are growing, the euro zone is steadily ticking up and even recession plagued economies such as Russia and Brazil are heading towards growth in 2017.
Many investors have been conditioned over the past few years to equate the market with the economy. A good market must mean a good economy but be careful with that. Over the past several years U.S. GDP never popped its head up over three percent and global GDP has been near the lowest in its history; over the past six quarters corporate earnings were negative five of those times; yields in the U.S. continued to go lower and globally went negative. In this low growth, low yield backdrop the global equity markets surged on perplexing low volatility. The Trump administration’s new path conversely is focused on an acceleration in economic growth and jobs as a first priority. The good news is the “A” team that he is assembling has so much credibility that inflation expectations jumped as did many measures of consumer and business confidence raising yields and raising the U.S. dollar. As good as this is higher interest rates and a higher U.S. dollar can be a headwind in the short term to markets but ultimately true organic growth and tax cuts will bolster earnings and raise asset valuation.
President Trump first 100 days will be closely followed with progress measured daily - literally by the world. What we will be monitoring is his progress on his “pro-business” path led by lower taxes and lower regulation with the expectation of a shift upwards in growth and reflation. We expect an increase in volatility as being normal especially as Central Banks who have overstayed their welcome over time go back to the sidelines. In the meantime, we advocate for broad global diversification position for growth. Please review our 2017 Forecast: A New Path: The Growth & Reflation Trade.

Thursday, January 19, 2017

Small business optimism (NFIB) is at its highest level since 2004, consumer confidence is at its highest level since 2001 and the homebuilders index (NAHB) is at its highest level since 2005. But despite all the enthusiasm, investors are worried. How long can animal spirits sustain a market before it needs some meat and potatoes? Well, here’s a buffet of tasty morsels just released today. Housing starts surged 11% to 1.22 million in December to the second highest level since the recession, initial jobless claims came in at 234k for the previous week, close to historically rock bottom levels and the Philly Fed manufacturing index jumped to 23.6 in January after an already elevated 19.7 in December. More importantly, corporate earnings are coming in even better than expected and will likely surpass year over year growth of the currently estimated 3.2%. Sure there are risks, but that’s when your bonds come to the table. So don’t be too afraid to pull up a chair and dig in. Please see the themes that will continue to dominate the outlook for 2017 here: Voya Global Perspectives 2017 Forecast.


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