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Thursday, April 16, 2015

Global diversification works when you least expect it. Emerging markets have been underperforming the last few years, leading investors to shy away from them and stick with large company domestic equities. And, why not? The Fed’s taper increased volatility and caused a huge outflow of funds from these markets, emerging market currencies have been under pressure, and to top it all off global growth is slowing. Yet, the MSCI Emerging Market Index is up 9 percent so far this year. China, the biggest constituent in that index, is up 30 percent despite yesterday’s GDP report showing growth decelerating to 7 percent, the slowest since the recession ended. Global central bank stimulus and low oil prices are fueling the emerging market revelry. Investors herding into U.S. large caps have been rewarded with a comparatively puny 2.9 percent YTD. The tricky thing about putting all of your eggs into one basket is that it only works if you pick the right basket. Please review the latest Voya Global Perspectives™ market commentary.

Wednesday, April 15, 2015

Investors looking for firm economic footing won’t find any comfort in today’s manufacturing numbers. Industrial production dropped 0.6 percent for the month of March, the biggest decline since August 2012, and the first quarter was down 1 percent annualized, the first quarterly decline since the end of the recession. The Empire State manufacturing number was also a miss, falling sharply to negative 1.2 from 6.9 in March. However, the market responded positively so far today. Perhaps the recent round of soft data has investors thinking a June rate hike is now off the table. Please follow industrial production on page 11 of the Voya Global Perspectives™ book.

Tuesday, April 14, 2015

The latest report from the IMF attributes the collapse in oil prices to an increase in supply rather than a decline in demand. This is good economic news. Although demand for oil has softened the precipitous drop in oil is not due to widespread economic deterioration but to an abundance of new supplies resulting from fracking and shale drilling. However, the IMF did downgrade U.S. economic growth to 3.1% for 2015. (Still above the Fed target of 2.5%) The bad news regarding low oil is undoubtedly front loaded – energy companies are in the firing line with their top line sales and bottom line earnings taking a direct hit. The beneficiaries, the consumers, are slowly coming to the table. Retail sales for March finally reversed course after three months of declines and rose .9%. This is the strongest increase in a year. Economists were hoping for a slightly better rebound after a truly miserable winter but the trend is in line with improving expectations. Please join our wbeinar for a complete market update on Thursday, April 16th.

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Wednesday, April 8, 2015

Mergers & Acquisitions (M&A) are an enormously good sign, indicative of a healthy market. It means there are compelling values and synergistic combinations available to shareholders on both sides of the deal. Last year, finally, M&A made an astounding comeback coincident with strong global markets. Well, 2015 sure has its challenges: collapsing oil prices, the prospect of Iran with a nuclear weapon, plummeting expectations for quarterly corporate profits, and a seemingly weakening consumer. But, M&A and megadeals out of the gate in 2015 are surging to all time record highs. Some recent notable deals include 3G Capital’s bid for Kraft to merge with Heinz, sending Kraft shares up 38 percent in one day, as well as yesterday’s FedEx bid for Dutch package delivery firm TNT Express, sending TNT shares up 30 percent in early trading. Today’s monster deal of Anglo-Dutch oil and gas giant Royal Dutch Shell buying Britain’s BG Group for $70 billion in cash and stock – creating an enormous European energy giant, sending BG up over 30 percent on the day – is one of the biggest deals for the sector in over a decade. Risk is also missing opportunity. Sure, cash is safe, but by being out of the equity market investors are exposed to locking in near zero returns for an entire year instead of participating in these handsome returns simply by being in the global equity markets. Please review the Voya Global Perspectives™ 2015 Forecast, “Global Deal Activity Catalysts for Markets in 2015.”

Tuesday, April 7, 2015

First quarter earnings season kicks off this week and it looks like this will be a nail biter. Estimates are for negative growth over the same quarter last year at this time but we have seen this movie before. At the beginning of Q4 2014 earnings season, forecasts were for negative growth but U.S. corporations pulled a rabbit out of their hat and reported earnings that were 4.5% higher. The pessimism pendulum may have swung too far, ignoring a consumer that is considerably stronger than anticipated given the robust employment market and significantly lower oil prices. Please watch Voya Chief Market Strategist, Doug Cote’ discuss the expectations for Q1 earnings season on Fox Business News Opening Bell with Maria Bartiromo.

Thursday, April 2, 2015

The strong dollar reduced exports and low oil prices slashed import figures resulting in a U.S. trade deficit that plunged 17 percent in February to the lowest level since 2009. This much bigger than anticipated drop in the trade deficit will help the first quarter GDP report but, it also illustrates the headwinds companies are facing in order to compete globally. Exports to China alone fell 15 percent. The upcoming earnings season will be interesting as many of the negative implications of low oil and the strong dollar are already impacting corporate bottom lines, while the positive implications of a stronger domestic consumer are taking their own sweet time to work through the economy. Please follow the trade deficit on page 41 of the Voya Global Perspectives™ book.

Wednesday, April 1, 2015

The recent trend of decent, but not so spectacular, economic news continued today with a lower than expected private sector ADP payroll report and a manufacturing report that showed manufacturing expanding but at the lowest rate since last May 2013. The ADP report showed that 189K jobs were added last month. No surprise – large companies showed the weakest growth compared to mid and small, as large companies are more exposed to international markets and hence the headwind caused by a strong dollar. Manufacturing also failed to impress, coming in with and ISM PMI reading of 51.5. Anything over 50 is considered expansion but low oil and the strong dollar are inevitably chipping away at some of the strong manufacturing capital developments that were spawned from the shale energy renaissance we have been enjoying over the last five years. The good news is that the first quarter is behind us and the economy is expected to reaccelerate in the coming quarters. Please follow ISM manufacturing on page 9 of the Voya Global Perspectives™ book.

Tuesday, March 31, 2015

The last day of the quarter started on a negative note after a huge rally yesterday. This has been the story of the quarter – U.S. large cap markets have essentially been treading water. A strong dollar, low oil, downgraded profit expectations, and the ever present speculation over the Fed’s next moves have weighed on markets, paring substantial moves forward. The S&P looks like it will post a modest gain of around 1 percent for the quarter while EAFE, Global REITs and US midcaps will be asset classes in the plus 5 percent club, generously rewarding investors who have embraced global diversification. Additionally, in the first quarter of 2015 sector performance dispersion was the widest in 3 years giving stock pickers and active management a leg up. In fact, over 50 percent of the S&P500 active managers are beating their benchmarks for the first time in years. Please review the correlations among major asset classes on page 70 of the Voya Global Perspectives™ book, noting that combining assets with low correlations offers the best diversification benefits.

Friday, March 27, 2015

One of the biggest concerns this year has been the crashing oil prices wreaking carnage on the energy sector. But, in the last couple of weeks oil prices have increased to above $50 on geopolitical concerns and a weaker U.S. dollar. During these two weeks the energy sector, S&P 500, surged nearly 3.5 percent bringing a needed boost to this decimated sector. Maybe the negative 60 percent earnings growth expected for the first quarter in energy is excessively pessimistic which would bode well for our future outlook. Corporate earnings in this bull market have shown astounding resilience and this time may be no different. Meanwhile, 4th quarter 2014 GDP – 3rd revision – stayed at 2.2 percent but, the consumer seems to be benefiting from these low oil prices which is another positive offset for this quarter’s coming earnings season. Please see “Oil Price & Intensity” on page 66 of the Voya Global Perspectives™ book.

Thursday, March 26, 2015

Geopolitical risks are hard to quantify because they are always part of the global landscape. However, the most recent conflict in Yemen and concerns of supply disruptions immediately sent the price of oil above $50/barrel. Yemen is not a huge producer of oil but any unanticipated conflict in the middle east affects U.S. markets because, despite ramped up production of domestic oil, the U.S. is still a net importer of oil. Most likely the surge will be short lived. Gold prices have also risen as a result of the turmoil. Before investors flock to gold as a safe haven from market swings they should note that it is barely up 1.7 percent this year and was down 4.5 percent last year and down 28 percent the year before as market predictions of economic doom and the dollar’s collapse never materialized. Please follow the price of gold, as well as the real inflation adjusted price of gold, on page 53 of the Voya Global Perspectives™ book.

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