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Wednesday, January 18, 2017
The 10-Year U.S. Treasury yield has historically tracked closely to the change in nominal U.S. GDP.

Following better expectations data, expectations about inflation are changing. While the Fed Five-year Forward Breakeven has stabilized at about 1.9%, other indicators are moving higher. The University of Michigan 1-year inflation rate bounced to 2.6% from 2.2% in December. That follows a bounce in ISM Prices Paid in December. Higher inflation is likely to push bond yields a bit higher. But the main driver still missing is a sense of just how higher growth is likely to go. Forecasters are beginning to look at higher growth in coming years. This week the International Monetary Fund raised its US growth outlook – despite what it sees as uncertainty in what sort of policies will in the end be on tap. It is this uncertainty about growth that I see holding bond yields down at this point. To get to 3% on the 10-year will likely require progress on policy, which I expect to see and what will lead to higher yields globally. The spread between UST and Bunds has come in from the wides of December, but are still up 40bp from before the election. I expect that this spread will widen, as US growth will move up more quickly than in Germany and that this pull back in the spread (and the dollar) argue for going underweight Euro-bonds relative to US Treasuries. Please review our Growth and Reflation slide on page 33 of the Voya Global Perspectives™ book. - Special Guest Blogger: Tim Kearney

Friday, January 13, 2017

As President-Elect Trump is set to take the oval office next week, some 46 million baby-boomers in particular may be questioning what this new administration means for their retirement portfolio. When it comes to Obamacare, the Trump Administration has consistently reiterated that a repeal is imminent, which if put into effect, could have drastic changes on the cost of living of many retirees. Retirees are worried that the out of pocket costs of Medicare will increase. Near retirees, not eligible for Medicare and not covered by an employer plan, are concerned about available coverage options. Although a full repeal of the Affordable Care Act would be an enormous challenge and has yet to be seen it’s always a good idea to channel your inner Boy Scout and “Be Prepared". Having a steady reliable investment plan in place to continue to build wealth over time is a solid foundation. A pro-growth, pro-business agenda should be constructive for risk assets. Earnings season for Q4 2016 has just begun and initial company reports in the important financial sector are generally beating expectations and are supportive of the markets climb higher. Retail sales increased .6% in December to all time high of $469 billion for the month, indicating continued economic growth. Growth in your portfolio and the economy can help cushion the blow of higher healthcare costs even for retirees. Take a look at the 2017 outlook in the Voya Global Perspectives 2017 Forecast - A New Path: The Growth and Reflation Trade.

Thursday, January 12, 2017

2017 out of the gate has been very, very good to MSCI Emerging Markets Equity, so far up 4.75% versus the laggard S&P 500 up a meager 1.20%. Well, reflation is not just rising rates, reflation is rising oil prices, rising copper, rising aluminum and other growth inspired commodities. Reflation aka “good inflation” especially helps Emerging Markets and is a signal that China’s demand is stabilizing and maybe ticking higher as evidence by its rising PMI manufacturing number earlier this week. Tomorrow important Producer Prices (PPI) will be a good indicator of how reflation is progressing, along with the all import consumer Retail Sales report. Please review the Voya Global Perspectives 2017 Forecast “A New Path: The Growth and Reflation Trade”. You can also see yesterday's CNBC Worldwide Exchange interview with Doug Coté.

Wednesday, January 11, 2017
Taxes matter. High U.S. corporate income taxes have spawned a recent wave of tax inversion deals.

The Republican Senate is gearing up to have the new Administration up and running post-inauguration. This is as it always is, and given the importance of policy changes that are expected. The expression ‘personnel is policy’ is especially important when big changes are in the offing. It seems the first order of business will be to reduce the corporate tax rate, which is about the highest among developed countries at approximately 26%. Assuming a cut in the effective tax rate to 20% and a rise in the discount rate by 100bp, that would imply a (back of the envelope) rise in the S&P just from this after tax effect of 7%. Along with probable policy changes like lower tax rates on individuals, repatriation of foreign earnings and stronger growth (a better top line) there is room for equities to perform well in 2017.
There are risks to that outlook, of course. One important risk factor is the timing and implementation of tax rate changes. Concerns over the impact of a larger deficit from tax rate cuts could mean Congress might reduce the size of the policy package. It bears noting that the Trump team understands that tax cuts do not pay for themselves. That is, in the short run there is an effect on the deficit. However, as Dr. Art Laffer himself helpfully notes “tax rate cuts will always lead to more growth, employment, and income for citizens, which are desirable outcomes leading to greater prosperity and opportunity. There is, after all, more to fiscal policy than simply maximizing government revenue.” That can lead to a stronger economy, better consumer spending and room to expand the top line, all of which can lead to better earnings in the coming years. Please review our Corporate Income Tax Rates slide on page 70 of the Voya Global Perspectives™ book. - Special Guest Blogger: Tim Kearney

Tuesday, January 10, 2017

First there was Brexit, then Trump and now an even bigger upset as Clemson beats Alabama to take the National Football Championship trophy. ‘Bama storms to an early lead; miraculously Clemson gets the go-ahead touchdown with minutes to go in the game; ‘Bama responds in-kind, and with one second to go Clemson upsets Alabama (Bama). Not to be outdone, the National Federation of Independent Businesses (NFIB) small business survey reacts to Trump victory by piling on with a 12-year record positive expectations reading in the closing days of 2016. This may be just the start. Please read Voya Global Perspectives™ 2017 Forecast for our views on more to come.

Friday, January 6, 2017

As we close out the first week of 2017, let’s face it, your New Year’s resolutions are likely already falling by the wayside. But it’s not too late to make some retirement resolutions for 2017. A 2016 Transamerica survey of workers reported that 77% of workers are concerned that Social Security won’t be there when they are ready to retire. Maybe that’s why the number of people still working over age 65 has soared from 11% in 1985 to 19% in 2015. With so much uncertainty surrounding social security, it’s necessary to build a retirement nest egg of your own. A new path of pro-growth policies is likely to be positive for markets. Potential reforms in the tax code could put more money in your pocket and higher interest rates could help savers. The latest nonfarm payroll report showed the economy is still adding jobs (up 156K in December) and wages moved up to a seven year high of 2.9% YoY. Use 2017 to beef up your retirement. You may find that putting a little extra away each month is easier than sweating at the gym every day. Now drop and give me 10 and please review the Voya Global Perspectives™ 2017 Forecast - A New Path: Growth and Reflation Trade for deeper insight into the trends influencing the 2017 global economy and how these key themes could affect your retirement strategy.

Thursday, January 5, 2017

Just when it looks like the Dow will reach the 20,000 milestone it teases us and pulls back again. Be patient, the index will get there eventually. It’s just a number. Recent economic data has been good. Auto sales in December were a blowout capping the strongest year of auto sales ever at 17.55 million. The ISM nonmanufacturing index came in at 57.2, same as last month matching a 12 month high. And the ADP report shows that 153K private sector jobs were added to the economy in December. Although this was short of expectations, keep in mind we are nearing full employment so expect a downward trend. But today the market is looking at oil prices, the dollar and treasury yields all of which went down. Financials tend to pout when yields go decline but there was also some negative news in the consumer sector with reports of many brick and mortar retailers struggling. So no 20K today. Remember what your Mom told you when other kids were teasing you – Just ignore it. Please watch the latest Global Perspectives comments by Karyn Cavanaugh.

Wednesday, January 4, 2017

Here’s to a prosperous and successful 2017! Global markets and economies ended the year on a welcome up note after a rocky beginning. Data for December are now rolling in, led by manufacturing PMI. So far they have been strong almost across the board globally. With the Eurozone, US, Japan and UK running strongly, it’s clear that the world economy should continue to pick up from here. Notably, India has dipped as it is in the midst of a baffling forced de-monetization of the economy. The Indian economy has a large ‘cash’ component, and the withdrawal from circulation of some cash denominations has paralyzed some sectors and consumers. India slipped below 50 to the lowest level since 2015. What had been shaping up to be the new star EM performer appears to be taking a step back. Looking ahead, the US Trade Representative nominee, Robert Lighthizer, is an interesting pick. The nominee was deputy trade rep in the Reagan Administration who has focused on trade issues in the private sector. A Bloomberg report helpfully noted that Pres. Reagan did pressure Japan quite a bit with quotas for example. Note there has been some weakness in the CNY which could keep China as a tempting target for the new Administration. However, the Yuan is down 2.5% since the election, but what has happened is a period of dollar strength. For example, the Euro is down 4.2% while the Yen is down 10.4%. - Special Guest Blogger: Tim Kearney

Thursday, December 29, 2016
Returns for a globally diversified strategy over the last 10 years refute the notion of a “lost decade”.

What a year it has been! The year began with a global selloff but reversed course and the S&P 500 is now up 12.5% for the year (as of 12/28). The S&P 500 has produced positive returns every year since 2009. Small-caps, mid-caps and high yield bonds have been even more lucrative for intrepid investors but every major asset class is up for the year including long US treasury bonds, the most sensitive to interest rates, which have been rising since August. The economic backdrop is better this year than the same time last year and corporate earnings have resumed a positive growth trajectory. In addition, optimism and confidence is surging. However, the market is not without risks. The surging dollar immediately comes to mind. But there may also come a time when the optimism and enthusiasm will need a little something to bite into, and the roll out of the pro-growth agenda is still far from a done deal. The new year certainly looks positive but remember that the path up is rarely straight. Global diversification can help smooth the ride. Please follow a globally diversified portfolio on page 5 of the Global Perspectives book.
Happy New Year!

Wednesday, December 28, 2016

It was the great economist John Maynard Keynes who used the term ‘animal spirits’ to describe the importance of expectations for consumers and producers to take on risks. Economics is not a physical science; changes in expectations can drive the economy for better or worse. Since the US election, there has been a spate of reports that express the belief that the outlook will be better. That includes the University of Michigan Expectations survey, NFIB Small Business Optimism Index, various regional Fed surveys and the PMI indices. While the November surveys registered upticks, the Philadelphia, Dallas, Richmond and KC Fed surveys all powered higher in December, as did the U of Michigan survey.

Importantly, the Conference Board Consumer Confidence survey outperformed expectations and the November survey was revised upwardly. Following a two-year period of stagnation, confidence has decisively broken out to the upside and we now sit at a 15 year high. Economic theory and practice show that consumers spend out of what they consider their lifetime incomes. That is, when they believe that their situation is improving, they are more prone to spend as well as take risks and start businesses. Data released last week showed that household net worth rose to $90 trillion in Q3 2016. Taken together, and with a tax rate coming and unemployment trending lower, it’s no surprise that consumers have a bounce in their steps.

- Special Guest Blogger: Tim Kearney


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