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Friday, May 12, 2017
Global household consumption of goods and services has increased 100% in the last decade but 95% of consumers reside outside the U.S.  China is now the largest auto market in the world.

Amid this week’s negative retail earnings news, a bright spot. Retail sales rose .4% in April to an all-time record high of $475 billion, bolstering the case for an economic GDP pickup in Q2. Non store retailers (internet merchants) and building materials and garden supply stores were the standouts while the brick and mortar vendors are still struggling. Consumer sentiment continues to be strong with the latest index reading of 97.7%. In addition, core inflation (CPI) which excludes food and energy was up, but only by .1%, lighter than expected. This muted inflation figure jives with the Fed’s plan for gradual rate increases. Investors may be distracted by all of the Washington tweets but the economic picture remains solid, #EconomicGrowth #DontTryToWashingtonProofPortfolio. Please watch retail sales and consumer spending on page 12 of the Global Perspectives™ book.

Thursday, May 11, 2017
Crude oil prices have rebounded to over $50/barrel, and gasoline prices have followed suit. Nevertheless, oil consumed per unit of GDP in the U.S. (oil intensity) has declined for many years.

Oil prices have been robustly rebounding after a steep decline, but are still hovering in the high $40’s, a far cry from the $53 level achieved a month ago on 4/11/17. We know there is a supply glut of oil and we know that the most agile U.S. shale producers have been able to use technology to get the breakeven price of oil down to around $30/barrel. The EIA forecasts an increase in U.S. production in 2017 citing technological advances, which will increase U.S. drilling further, comparatively higher prices than in 2016 and Trump energy policies. However, global demand is increasing by an estimated 1.2 mb/d over the next five years and with the global economy surprising on the upside, it might be demand that is the wildcard not supply. Global Perspectives forecasts prices will hover in the $50’s. Meanwhile, the market is taking a breather today, digesting some particularly bad earnings data regarding some of the brick and mortar retailers in what has otherwise been a very bright Q1 earnings season. Please follow the price of oil on page 61 of the Global Perspectives™ Book

Wednesday, May 10, 2017
The 10-Year U.S. Treasury yield has historically tracked closely to the change in nominal U.S. GDP.

Last Wednesday, the Fed noted that the recent weakness was ‘transitory’. The NFP report underscored that their assessment seems about right, and so solidified a Fed rate hike at the June meeting. Given the problems with Q1 GDP seasonals for a decade, it’s a reasonable expectation that Q2 will be stronger. The NFP report was solid all around, though wage pressures remain muted. April payrolls rose by 211k vs 190k expected, although average hourly earnings rose 2.5% from a (revised lower) 2.6% in March and 2.9% at end-2016.

Understandably, the market remains in a ‘show me’ state over the outlook. As the Fed statement alluded, business investment has firmed and the FOMC expects the economy to grow at a moderate rate. That’s in line with the consensus for a 2.1% growth rate in 2017 followed by 2.4% in 2018. That’s strong enough for the Fed to slowly keep reducing the amount of accommodation, while still leaving monetary policy accommodative. It’s strong enough to keep the unemployment rate moving lower. However, in order to break the moderate growth log-jam will require progress not only on deregulation (a major plus already) but also the promised tax reform of lower rates/wider base.

Stronger growth will expand earnings through the top line, raise wages and raise the growth rate. And it’s a stronger growth rate that will ultimately move bond yields higher. The current low levels of bond yields appear to be the result of low real yields, as bonds have been following inflation higher. A productivity revival is part of the key to generating higher bond yields. Of course, higher growth will accompany higher productivity. Please review page 33 of the Global Perspectives™ Book. - Special Guest Blogger: Tim Kearney

Tuesday, May 9, 2017
Projected market volatility spikes in times of crisis then drops as fears subside. Current levels are below average, but the Fed’s path to normalization of rates may lead to more typical volatility levels.

The VIX measure of volatility dropped below 10 yesterday, the lowest level in 10 years. Meanwhile major stock indices are reaching record highs. Yes, earnings support this bull market and yes, the economic data is signaling better times ahead. Even the reluctant 10-year bond yield has moved up to over 2.4%. But risks are still present in the market. The French elections are behind us, but the European concerns regarding the execution of Brexit and the north/south growth divide are not. China has been stable lately, but April imports dropped 11% and worries about the property bubble and recent monetary tightening measures linger. In addition, there are still geopolitical hot spots looming in the background. Investors should be participating in this bull market but when markets are all going up it’s easy to forget about risk. Bonds can help balance risk. They will be there when you need them most, so don’t bail on bonds. Please follow the VIX, also known as the fear gauge, on page 24 of the Global Perspectives™ book.

Friday, May 5, 2017
Wide swings in markets over short time periods illustrate the need to stay invested in equities through difficult periods.

In its latest meeting the Fed declared that the slowdown in activity seen in the first quarter is “transitory”. Indeed. The nonfarm payrolls report showed that a much higher than expected 211,000 jobs were added to the U.S. economy in April. The unemployment rate inched down to 4.4% and the comprehensive U-6 measure of all unemployed, discouraged and marginally attached workers moved down to 8.6%. This report almost guarantees an interest rate hike in June. In fact, the implied probability of a hike in June soared from 67.1% on Tuesday to 93.8% on Thursday to 100% today. However, all eyes will be on the French elections this weekend. Pro euro candidate Emmanuel Macron is significantly ahead in the polls but if Marine LePen, the anti-Eurozone or “Frexit” candidate, manages to win there will be rampant uncertainty. Markets will react accordingly with a selloff in Europe that will likely extend to U.S. investors running for the exit. This is not a likely occurrence but risk does not always make an appointment and show up when expected. As always, global diversification helps smooth the bumps along the way. Please see page 25 of the Global Perspectives™ book and note that missing just the 30 best days of the stock market over the last 50 years resulted in 40% less return.

Thursday, May 4, 2017
Since 1999, earnings for S&P 500 companies have grown  more than 200% while the price level is now only 60% higher.

Earnings season is 80% complete and in usual fashion, earnings have taken the focus off of geopolitical risks and put it back where it belongs – on the fundamentals. After a commodities bust and earnings recession in 2015/2016 corporate earnings are back on track. Q4 earnings growth was 5% and Q1 is shaping up to be about 13% growth over last year’s Q1. Accelerating earnings growth is the result of broadening manufacturing conditions global wide and consumers happily doing their share of spending, secure and confident in the strength of the housing and employment markets. President Trump’s pro-growth policies have yet to materialize, let alone filter down to corporate profits. So for now give credit where credit is due – the fundamental earnings. Please watch earnings and the S&P500 price on page 6 of the Global Perspectives™ book.

Wednesday, May 3, 2017

Transitory means a temporary blip in an otherwise positive economic backdrop. The Fed’s preferred measure of inflation is the core - PCE Price Index which ticked down to 1.6% after a steady string of readings with a 1.8% handle. Consumer spending was also weak in the preliminary GDP report for Q1 2017 to which Chair Yellen said was also transitory. Positive information from the FOMC statement included: “job gains were solid”, “Business Fixed Investment firmed”, “economic activity will expand at a moderate pace” and “near term risks to the economic outlook appear roughly balanced”. Net, net - no rate hike as expected, but the ten yield U.S. treasury ticked higher with little reaction from equities today. Meanwhile, President Trump avoided a government shutdown, where of course, both republicans and democrats declared victory on the outcome of the bill. Please see Voya Global Perspectives™ Weekly for insights into global market returns.

Tuesday, May 2, 2017

S&P 500 earnings are on track for the highest quarterly growth in over five years (according to FactSet). The Energy sector is on track to be the biggest driver of earnings growth for the S&P 500 at $8.5 billion in Q1 2017 verses -$1.5 billion in Q1 2016. The Industrial, Financials and Technology sectors are also exceeding expectations for the quarter. Topline sales is on track to be the highest revenue growth at 7.5% since Q4 2011. This is the first time the index has seen sales growth for three consecutive quarters since 2014. Ten of the eleven sectors reported growth in revenues led by Energy with a 32.7% growth rate. Meanwhile, U.K. April manufacturing smashed expectations rising to a three year high at 57.3 as the Eurozone, U.S. and Japanese manufacturing PMIs continued to indicate a healthy expansion. Global manufacturing success bodes well for future earnings growth strength. Please see Voya Global Perspectives™: Fundamentals and Confidence Join Forces.

Friday, April 28, 2017
Taxes matter. High U.S. corporate income taxes have spawned a recent wave of tax inversion deals.

First quarter U.S. GDP increased by just .7%. This is not a surprise. Q1 has been notoriously weak in the last several years. However, consumer spending has usually been the one driving the economic bus. This quarter, there was a twist. The bulk of economic growth was shouldered by business spending. Fixed business investment increased 10.4% compared with consumer spending, up a measly .3%. Given the high level optimism and recent wage gains, consumers should step up spending in Q2. And the fact that companies are spending more on structures and equipment is a positive for sustainable long term growth. But, no matter how you slice or dice it, U.S. GDP has been below long term trend throughout the entire recovery. The Federal Reserve cannot create long term growth through interest rate policy alone. Businesses have been the missing piece of that puzzle. That is why corporate tax rates are so important. Please follow corporate tax rates on page 72 of the Global Perspectives™ book.

Thursday, April 27, 2017
Capital expenditures are on the upswing, and the average age of equipment has climbed to the highest level in 15 years.

Why do car buyers kick the tires? The tires will tell very little about a high tech engine but kicking them is symbolic of analysis and thoughtful inspection before purchase. Investors will be kicking the tires on the proposed Trump tax cuts in the coming weeks and the markets may experience some ups and downs as a result. As of now, the details are sparse, the timeline is unclear and implementation via Congress may be more difficult than rebuilding your transmission. These headwinds are reflected in the ever cautious bond yields (UST 10 YR) which have ticked up only slightly to 2.3%. Bonds are well aware that GDP is expected to show only a 1% gain in Q1 (watch for the release tomorrow) and are waiting for some concrete evidence before lurching forward. However, looking down the road economic growth is looking stronger even without the Trump tax plan. Durable goods orders were up .7% in March, the third consecutive month of increases, reflecting a much needed recovery in business spending and new home sales were the highest in 8 years as consumers are confident and employed. Most importantly, earnings, the true driver of equity markets are coming in better than expected and being guided up for the remainder of 2017. Fundamentals are clearly indicating this is not the time to kick the market to the curb. Please follow capital expenditures on page 9 of the Global Perspectives™ book.


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