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Tuesday, June 16, 2015

The Fed and Greece are the two issues that continue to dominate the market’s attention. In tomorrow’s Fed press conference, Yellen is widely expected to make it clear that rate hikes are coming with most bets on September – unless something unusual happens. The Fed has stated that they will be data dependent. The employment data has been strong, but the latest industrial production report was weak. Although housing starts were down 11.1 percent, forward looking building permits were on fire, surging 11.8 percent, the fastest pace since 2007. Given the mixed (although improving) data picture, investors will be scrutinizing Chair Yellen’s comments and tome more than ever. As for Greece, the game of chicken will persist while Greece bargains for more latitude instead of instituting actual economic reforms. It is quite possible that they will play right until plans are drawn up to kick them out of euro before capitulating at the last minute. Investors should expect interim volatility. Good old high quality government backed securities like GNMA’s historically have done well in volatile markets and under a variety of interest rate environments.

Please follow the latest Global Perspectives Market commentary here.

Friday, June 12, 2015

Mutual fund flows show investor money moving out of domestic equity and in to foreign equity and bonds. In theory higher interest rates will ding U.S. stocks, now valued at a higher discount rate and bonds will lose value because when rates go up bond prices go down. Hold on. Higher rates predicated on more robust growth is good for company earnings and hence stock prices. Selling large stocks poised to go higher could be a mistake. Bonds are needed all the time to balance the portfolio and provide risk control, not just income. Interest rate hikes when they do happen are likely to be gradual. Diversification helps ride out volatility. Please follow mutual fund flows on page 69 of the Voya Global Perspectives book.

Doug Coté appeared on Fox Business’s “Mornings with Maria” this morning, where he discussed the outlook for the economy and markets. If you missed it, watch it here.

Thursday, June 11, 2015

It’s official. Consumers emerged from their winter hibernation and went shopping this spring. Retail sales jumped 1.2 percent in May, increasing for the third month in a row after a couple of months of decline during the harsh winter. In particular, auto sales – which comprise one fifth of retail sales – hit a post-recession high in May. Gas prices have recovered somewhat from their lows in March but are still a consumer boost. The jobs market is making solid gains. Housing is getting its groove back. And, believe it or not, a Greece deal could be coming together (maybe). No wonder the market is in rally mode. Please see the latest global perspective on the markets in the Voya Global Perspectives™ Commentary “Central Bankers Keep the Pedal to the Metal in May”.

Wednesday, June 10, 2015

Global bond yields are surging, most notably in Germany, with a near 1 percent move from 0.1 percent to 0.98 perecent, and the U.S. treasury 10-year yield up to nosebleed 2.47 percent. Yet, global equity markets are rallying. Crude Oil WTI has safely moved above $60, yet all sectors are rallying. China’s central bank (PBoC) just lowered their growth estimate for China down to 7 percent yet China’s market barely budged and is up 57 percent year-to-date. What investors are missing is that rising rates are a proxy for economic growth and high dividend paying asset classes, exposed to growth such as Global REITs, actually do well in a rising rate environment as long as there is growth. This means that “fundamentals drive markets” – not rising rates. Follow Senior Loans on page 38 of the Voya Global Perspectives™ book as a good example of an asset class that has performed well in a rising rate environment.

Friday, June 5, 2015

In May the U.S. economy added 280K jobs in what was an unequivocal solid jobs report released today. In addition, those stubborn wages are starting to make a move up. The average hourly pay rose sharply to a gain of 2.3 percent year-over-year, the biggest jump in almost two years. This healthy and robust employment market is encouraging more workers, on the sidelines, to get back into the game and the unemployment rate actually ticked up to 5.5 percent. (The U6 unemployment rate which includes those discouraged workers and involuntary part timers is still an elevated 10.8 percent.) The positive jobs report bolsters the case for a fall Fed rate hike and the market may not like that but, boo hiss to the market. Good news is good news so enjoy the weekend. Please follow non farm payrolls on page 54 of the Voya Global Perspectives™ book.

Thursday, June 4, 2015

The Fed is running out of reasons to delay an interest rate hike. Today’s initial unemployment claims of 276K was one of the lowest in 15 years. Inflation is still below target but fears of deflation are starting to recede. These are the two main focal points of the Fed. All that good news makes markets nervous. It looks like a September hike is a done deal, right? However, today the IMF’s Christine Lagarde added a monkey wrench to the mix and asked the Fed to hold off until 2016. The uncertainty may continue, but one thing that's for certain is that a broad globally diversified portfolio is the best defense against market volatility. Please see page 5 of the Voya Global Perspectives™ book for an example of a diversified portfolio and note that each year the best performing asset class fluctuates making it very tricky to predict the best.

Wednesday, June 3, 2015

Today’s economic data was two steps forward and one step back. First, the positive. Private ADP payrolls came in at 201K jobs added last month, right on target and better than the 169K added the prior month. The trade gap also was good news. The trade deficit declined 19 percent as the west coast ports reopened for business and this could help boost Q2 GDP. On the other hand the ISM non manufacturing data was a disappointment coming in at 55.7 percent, but this is hardly a weak number. Many investors are worried that this notoriously difficult month may be a June swoon, evidenced by equity mutual fund outflows. However, it may just turn into a summer sizzle. Please follow Non Manufacturing and Manufacturing ISM indices on page 9 of the Voya Global Perspectives™ book.

Tuesday, June 2, 2015

Don't underestimate the power of an M&A boom and what it signals about CEOs' confidence in the market outlook. Financial Times reports "US deal making smashes records set in dotcom and debt booms" with May setting an all-time record high in deals. Meanwhile, Greece has run out of options, and rope, and must agree to stringent terms to pay 300 million euros toward their debt by Friday. Please see the Voya Global Perspectives™ annual forecast on forecast for record deals.

Friday, May 29, 2015

If it looks like a bubble, talks like a bubble, walks like a bubble… The Chinese equity market’s Shenzhen Index is up more than 160 percent over a year ago. But, is that based on fundamentals or China’s easing initiatives? China’s economy has been cooling off, not heating up. Stocks listed on China’s Shenzhen exchange have an average P/E of 60 and it’s 64 for small and 80 for medium sized companies. That certainly looks bubbly. (The less bubbly Shanghai Index has an average P/E of 23.) Compare that to U.S. markets. The P/E on the S&P 500 is 17 (based on forward earnings). Speaking of earnings, 494 of the S&P 500 have reported. Expectations at the onset of earnings season were for -5 percent growth. However, the growth for Q1 over Q12014 is a positive 0.93 percent and that was accomplished with a 57 percent drop in energy sector earnings. Please follow price earnings valuations on page 24 of the Voya Global Perspectives™ book.

Thursday, May 28, 2015

I think we’ve see this movie before – “Looming Fed Rate Hike Roils Markets”. When the inevitable rate hike does occur will investors be too fatigued to even care? Meanwhile, the real economy continues to plod forward. The housing market, which has been sitting on the back burner, looks like it is starting to simmer if not boil. New home sales jumped 6.8 percent in April – the strongest move in seven years – and the forward looking pending home sales report was up 3.4 percent, the highest in nine years. Main Street consumers shopping for homes care little about the Fed and its rate hikes. Home shopping consumers need a stable job first and foremost. The employment market is the best in 15 years and even with a dreaded rate hike, interest rates are still near historic lows. Please follow the housing market on page 59 of the Voya Global Perspectives™ book.


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