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Tuesday, October 3, 2017
The U.S. manufacturing report has rebounded after a month of contraction; the latest eurozone and emerging markets reports also indicate expansion.

A “Bear Trap” is when investors are convinced that the market is poised to come crashing down when instead it relentlessly marches upward. Pity the poor bears overweight in cash – or worse short the market – betting that it will go down. Then add insult to injury with Monday's blockbuster factory orders (ISM Manufacturing) report at an astounding 60.8 reading, the second highest in 30 years, to the delight of the bulls and to the decimation of the bears. This reading was so good it corresponds to, that is, predictive of a 5.5% increase in real GDP annually. This bull market has been good to stocks, bonds, domestic, international, and Emerging Markets with all positive returns for both the third quarter and the year. That is what a pro-business environment is supposed to do, but we haven’t seen anything yet – until massive tax cuts arrive. Please see page 8 of the Global Perspectives™ Book - Global Manufacturing & Services.

Friday, September 29, 2017
Declining funding and sponsorship of pension plans is shifting the burden of retirement savings to participants in defined contribution plans.

The U.S. stock market is closing out the third quarter with what is shaping up to be the best September since 2013. When people think of who owns the stock market they usually think of rich Wall Street CEO’s, but according to, the biggest owner of stocks is retirement plans. As of 2015 retirement plans held 37% of all stocks. That includes 401K plans and pensions (defined benefit plans). Individual taxable accounts make up only 24% of the total stocks held. Other big players include foreign investors, insurance companies, and non-profits. So the stock market’s record highs are good news for retirement savers and the future economic landscape because we know that social security will be under pressure to service the burgeoning aging population. In addition, many guaranteed benefit plans are woefully underfunded and need a boost to meet their obligations to pensioners relying on them. The proposed tax reform will help corporate profits. Those profits pass through to the owners/shareholders – primarily retirement accounts. Please see page 88 of the Global Perspectives™ Book for a look at retirement funding.

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

A tax reform package has final been revealed. The proposed changes offer simplicity, a reduction in individual tax rates, and most importantly, a change in corporate taxes. U.S. businesses face one of the highest corporate income tax rates in the world, 35%. Compare that with business-friendly Ireland at 12.5%. Small businesses often pay taxes at the owner’s individual rate - as high as 39.6%. Corporations are also subject to the very unfavorable business model which requires them to not only pay taxes in the country where income is earned, but then pay another 35% on cash brought back to the U.S. This is truly a business buzz kill. Opponents of the new plan are lamenting a $2.2 trillion potential increase in the deficit and are calling for a revenue neutral plan. Where were all of the deficit hawks when more than $4 trillion was added to the deficit over the last 8 years resulting in very tepid growth? In addition, the calculations don’t account for a surge in business investment, productivity and GDP. While economists can’t be sure how much growth will ensue when the U.S. becomes a true competitor in the global market, one thing everyone agrees on is that the U.S. corporate rate is too high. Please compare corporate tax rates by country on page 73 of the Global Perspectives™ Book and watch Karyn Cavanaugh’s latest comments on the market.

Wednesday, September 27, 2017
The 10-Year U.S. Treasury yield has historically tracked closely to the change in nominal U.S. GDP.

The past week brought with it a few key political events worth mentioning:
• In Japan, Prime Minster Abe shocked the market by announcing he will dissolve the lower-house of parliament and called for a snap election on October 22nd, along with announcing an $18bn stimulus package.
• German elections saw Angela Merkel remain chancellor. However, at the same time, she ceded enough votes to the far-right Alternative for Germany party to give it seats in the lower house for the first time since 1953.
• In the U.S. the Administration renewed its push for tax-reform, with mentions of a corporate lower tax rate of 20%; pass-through tax rate of 25%; fewer individual tax brackets; and repatriation. Efforts to repeal Obamacare were extinguished.
Meanwhile, today bond yields are rising in concert with equity prices. Why not? It is what these markets both do on the prospect of higher economic growth due to tax cuts and Japanese stimulus. Please see page 33 of the Voya Global Perspectives™ Book: “Growth & Reflation”. - Special Guest Blogger: Pavel Dekhman

Tuesday, September 26, 2017
Since 1999, earnings for S&P 500 companies have grown more than 200% while the price level is now only 60% higher.

We have seen this movie before. No, it is not Friday the 13th coincidentally happening in two weeks. It is the overwhelming fear that any day this stock market is going to implode, which is exactly what investors have been bracing for – for the last decade. Who can blame them? The simple fact is that the economic statistics globally are gaining speed. Currently - not limited to the U.S. - we are in an economic backdrop of accelerating corporate earnings, broadening manufacturing, strengthening consumer and a pro-business U.S Administration. Meanwhile, U.S. stocks (S&P 500) are up over 11%; MSCI EAFE over 17% and MSCI Emerging Markets over 27% which should be more enticing than the near zero percent return from being in cash-like securities. Most investors don’t realize that these stellar returns are considered risk too but categorized as “upside risk”. Please see page 6 of the Voya Global Perspectives™ Book showing 2017 expected earnings to reach all time record highs.

Friday, September 22, 2017
Lower personal savings rates and household net worth tend to increase the burden on future savings to fund retirement security; rising stock and housing markets have driven household net worth upwards.

The surging stock markets and continued housing price appreciation has brought household wealth to an all-time high of $96.2 trillion. This may be a good time for investors to think about how they are going to keep their standard of living in their retirement, which can frequently last more than 30 years. Many workers say their plan b is to just keep working until they drop. However, a recent survey by the Employee Benefits Research Institute found that although 38 percent of workers anticipate working after age 70, only 4 percent do. You may need a plan c. An effectively diversified portfolio can help investors stay in the market and help build wealth over the long term. Please see the history of household wealth on page 58 of the Voya Global Perspectives™ Book.

Thursday, September 21, 2017
Corporate earnings growth is the barometer for the health of the global economy.

Based on the latest Fed meeting, it seems like the Fed is bound and determined to raise rates. Indeed, the 10 year UST bond yields surpassed 2.25%, the U.S. dollar index ticked up, and the S&P is having its first down day in a week. There are plenty of predictions of an unhappy ending when the Fed begins its balance sheet unwind. Investors are not quite sure of the benefit that the massive bond buying had on the upside and are therefore not sure of the implications on the exit. It’s true that manipulating rates can lead to misallocation of capital and mispricing of assets. Perhaps the Fed’s interference actually suppressed economic growth by propping up weaker players. Maybe not everyone deserved a trophy. Normalization may get bumpy, but it is better for the long term economic growth outlook. Meanwhile, corporate earnings are the true driver of markets. If they can continue to move forward, the market tends to follow. Please follow corporate earnings growth on page 5 of the Voya Global Perspectives™ Book.

Wednesday, September 20, 2017

In a widely telegraphed approach, the FOMC today announced that it will begin balance sheet normalization in October. The plan was already circulated, and it calls for the Fed to allow up to $10bn to run off monthly, with that cap rising every quarter. It’s unchartered territory, but the Fed seems to want this to happen with as much transparency as possible and in a non-disruptive way.

More pertinently is the outlook for the Funds rate. Let’s start with changes to the economic outlook central tendencies, 2017/2018/19: GDP revised up. Unemployment flat – but down in 2019. PCE/Core PCE ticked down in 2017, reaching target in 2018. Funds rate: still looking for a hike in 2017, but revised down in 2018/19. They noted that the hurricane will not change the outlook over the medium term, implying that a step-increase in construction/auto/white good output will be looked through by the economy – and the committee.

Taken together, it’s limited changes and apparently not enough to change their thinking about December and hike rates. Hence, the data may be tough for market participants to read, but the Fed is giving its opinion about what it means – not much. The market has gone from a 45% likelihood of a rate hike in December to 62% currently, tempered by a downward move in the longer-run funds dot.

Don’t fight the Fed, which will hike absent another swoon in inflation. It’s a short-term adjustment, which is unlikely as currently set up to upend the economy.

A couple of longer-term wild cards come into play next year. We are looking towards an FOMC with up to six new members, including Chair and Vice Chair. And tax/regulatory/infrastructure policy is likely to be different; how much isn’t known. For more, please read the 2017 Forecast - A New Path: The Growth and Reflation Trade. - Special Guest Blogger: Tim Kearney

Tuesday, September 19, 2017
The major central banks will continue accommodative monetary policies, and even the European Central Bank has now embarked on a quantitative easing program.

Who cares about a shrinking balance sheet? Apparently not the market. The Fed is expected to announce its plans this week to shrink its $4.2 trillion portfolio of treasury bonds and government related mortgage bonds. Because the Fed is such a big player in these markets, this tightening action could affect markets. But as of now, investors are assuming the run down will be very gradual, slowly working up to a maximum of $50 billion per month. In addition, many are questioning why the Fed was involved in buying bonds in the first place as it deviated from their mandates around employment and price stability and are welcoming this road toward normalization. Meanwhile, other global central banks are still buying bonds and the backdrop of the global economy is looking brighter. So for now the market is not too concerned about the Fed’s balance sheet shrinkage. Please keep an eye on the Fed and other global central banks on page 38 of the Voya Global Perspectives™ Book.

Friday, September 15, 2017
Returns for a globally diversified strategy over the last 10 years refute the notion of a “lost decade”.

The market has been successfully shrugging off the geopolitical risks posed by North Korea. Today, the market is also facing a terror attack in London and some economic data misses. Both retail sales and industrial production were negative in August. Hurricane Harvey may be skewing the numbers, but it will take a couple months to shake out. On the other hand, the inflation data was a little better than expected, lifting the consumer price index to 1.9% YoY - just a shade away from the Fed’s 2% target. Investors may be getting a little complacent and should remember that the line-up is often not a straight line. Market corrections are inevitable. So make sure you are not performing without a net. By the way, those safety net long dated treasury bonds have returned 7.7% (YTD through 9/14). Please see an effectively diversified portfolio on page 4 of the Voya Global Perspectives™ Book.


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