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Friday, January 9, 2015

First the good news. The U.S. added 252K jobs in December, the 11th straight month of plus 200K job growth - the longest streak in almost 20 years. Additionally, November’s stellar report was revised up to 353K and October was also revised up to 261K.As a result, the U.S. unemployment rate fell to 5.6 percent, the lowest level since June 2008. In 2014 a total of 2.95 million jobs were created, the most since 1999. However, there was some bad news in today’s non-farm payroll report. The labor participation rate ticked down slightly and average hourly wages actually fell. The overall wage gain in the last year has only been 1.7 percent and since 2010 has only averaged 2 percent. Without wage gains, inflation is likely to remain below the Fed’s target and may temper the Fed’s plans to raise interest rates mid-year.Please follow job creation on page 56 of the Global Perspectives book.

Thursday, January 8, 2015

Deflation fears significantly raised the prospect for the European Central Bank (ECB) to announce or initiate quantitative easing (QE) at their January 22nd meeting. This initiated a global market rally as expectations increased for a massive bazooka-style monetary stimulus injection. The catalyst was Wednesday’s announcement by the European statistics office of deflation in December for the 18-country Eurozone. Headline prices were 0.2 percent lower than a year ago, the first deflation reading since October 2009. In 2015 Central Bank actions on rates continue to be an important driver to markets. Please see Global Perspectives 2015 Forecast on rates.

Wednesday, January 7, 2015

The labor market is the center of the economy. If consumers have jobs the rest falls into place, so the December ADP private payroll report was welcome good news this morning. Private-sector employment gains accelerated in December. Non-government employers added 241,000 jobs and November’s prior estimate of 208,000 jobs was revised up to 227,000 jobs. We know that one out of four jobs added since the recession has been related to energy, but so far the drop in oil prices and projected pull back in that sector has not yet translated into slower jobs growth. This positive ADP report bodes well for the more encompassing nonfarm payroll report due on Friday and may help settle recent volatility in markets. Please follow market volatility as measured by the VIX on page 35 of the Global Perspectives book.

Tuesday, January 6, 2015

Collapsing oil with no bottom in sight is spilling into the financial markets. The magnitude and speed of the drop in oil prices suggests a steep supply and demand curve which means a little oversupply can send prices plummeting; but keep in mind it works both ways and the prices can reverse just as fast. No, we are not saying they will go back to the highs, but we are saying that oil prices could reverse quickly on any news that suggests a scaling back of production or a surprise increase in demand. Low oil prices have also been a positive price shock for consumers and manufacturers around the world especially in high consuming nations like the U.S. Markets reward investors not speculators and this too shall pass. Please see the Global Perspectives 2015 forecast that details the resilience and sustainability drivers in the markets.

Tuesday, December 30, 2014

Well, the markets sure delivered a Santa Claus rally. Those sleigh bells were ringing big for small cap stocks up 4 percent for the month and an astounding 11 percent for the quarter! The rally carried some coal in the stocking as fourth quarter corporate earnings estimates were slashed from 9 percent to 2.6 percent, led by carnage in the energy sector. Fundamentals drive markets so we advise investors to be effectively diversified going into 2015. Please see Global Perspectives Effective Diversification on page 5 of the Global Perspectives book.

Tuesday, December 23, 2014

Santa sure delivered on GDP. The US economy grew at a 5 percent real annual rate in the third quarter, up significantly from the estimate of 3.9 percent. This third quarter rate is the highest pace of US growth in 11 years and was due to an unexpectedly strong revision in consumer spending. Business spending also kicked in and was revised higher with fixed nonresidential investment in structures up 4.8 percent pace in the third quarter and contributing 1.1 percentage points to the quarterly growth rate.

Another reason not to pout – after the latest rally the fourth quarter market returns are now the best of the year. As of 12/22 the S&P500 is up 5.9 percent for the quarter and 14.7 percent for the year. The season looks merry and bright. Ho Ho Ho!

Happy Holidays from Voya Global Perspectives!

Friday, December 19, 2014

“U.S. Will Restore Full Relations With Cuba, Erasing Last Trace of Cold War Hostility,” headlines today’s New York Times. Well, it’s about time! President Obama rightly pointed out other countries with which we formerly had issues, such as Vietnam and China, and we now have normalized relations. Why not Cuba too? They are practically our next door neighbors. In fact, a friend from Cuba who now lives in the good ole U.S.A graduated from the Air Force Academy and just returned from flying missions over Afghanistan to defend our country. Protectionist politicians will find themselves on the wrong side of history in this matter. Conventional wisdom would expect the Republicans to favor free and open trade and to welcome normalization of relations with Cuba in their new position of control over Congress. On the other hand, Marco Rubio, Republican Senator from Florida, expressed an outdated view on the why the U.S. should continue the Cuban Trade Embargo. Perhaps influencing his opinion, it appears the Florida sugar lobby is not happy about the prospect of cheap Cuban sugar cane reaching our shores, a potential threat to its monopoly. Please see Global Perspectives view on Global Trade in our 2015 Forecast: Sustainable Global Expansion Driven by Tectonic Shifts.

Wednesday, December 17, 2014

U.S. inflation dropped more than the consensus expectation last month, down to 1.3 percent year-over-year.Whether the Fed focuses more on PCE inflation or core inflation at tonight’s FOMC meeting, these inflation figures suggest no change is likely in Fed outlook for monetary policy.But it is still a close call. For our part, we believe any rate change is unlikely until third quarter 2015 at the earliest.Turmoil over the Russian ruble as well as other currency relationships, growth trajectories, safe haven investments and the drop in oil prices will assuredly keep market volatility at the forefront of U.S. investors’ minds. In any event, maintaining effectively diversified portfolios is always fraught with challenges that are best overcome by an unshakeable investment philosophy. Follow U.S. monetary policy trends on page 45 of the Global Perspectives book.

Tuesday, December 16, 2014

Oil, a risk factor, is in a severe correction. A risk factor’s influence is pervasive to the markets such as interest rates. Oil’s pervasive influence is its dual role in the real economy and the financial markets. In the real economy, sustained high oil prices has created extraordinary incentive to undertake mammoth oil projects along with being a significant contribution to global trade. In the financial markets, oil is an alternative currency for oil producing nations. That means a barrel of oil is readily converted to cash, which is essential to servicing the debt of these nations. The markets are perplexed with the rapidity of the oil free fall and are hoping this might be temporary until OPEC acts in a reasonable way to come in to once again support prices. Don’t bet on it. "High Oil" is now "Low Oil" and the impacts have not been discounted but the signs are there. The Financial Times headlines “Plunging crude prices threaten the axe for $1 TN of energy projects" and "Rout in Russian markets triggers rouble’s biggest decline since 1998." This would be a good time to seek broad global diversification in equity and fixed income. Please see page 5 of the Voya Global Perspectives book; "Effective Diversification."

Also, if you missed Karyn Cavanaugh's Dec. 16 appearance on CNBC's Squawk Box, watch it here:

Friday, December 12, 2014

Retail sales soared in November, up 0.7 percent, significantly higher than expected. All retail sectors showed positive increases with the exception of gas of course - oil prices have plummeted 40 percent since June. It’s estimated that these lower gas prices translate into an average tax cut of $1,100 per family, which will drive disposable spending on other retail goods. Consumer sentiment also surprised on the upside rising in December to mark the highest reading since January 2007 with a reading of 93.8. Worries that the low energy prices will derail the energy sector and the U.S. economy are exaggerated as energy investment accounts for only about 1 percent of U.S. growth, while consumer spending makes up 70 percent. Please follow U.S. GDP and its components on page 62 of the Global Perspectives book.

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