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Tuesday, February 3, 2015

The last couple days have been good for U.S. equity markets but while most U.S. markets are still down for the year, emerging markets have been quietly staging a revival. They are up almost 1 percent (MSCI EM Index) for the year. Worries of a strong dollar and low oil prices have not derailed these markets. Most emerging markets are net importers of oil. And emerging market valuations are compelling when compared to the valuations in U.S. markets. Please follow these fundamental valuations on page 53 of the Voya Global Perspectives™ book.

Friday, January 30, 2015

Fourth quarter Real GDP substantially missed expectation increasing at an annual rate of 2.6 percent versus consensus of 3.3 percent, reported the Bureau of Economic Analysis. Real personal consumption expenditures (PCE) increased 4.3 percent which was the standout for the report. We are starting to see the consumer benefit from lower oil prices in contrast with the lagging negative Retail Sales report. Also, as expected, we are seeing fixed investment decelerate and investment in equipment plunge compared to the previous quarter. In the fourth quarter compared to the third quarter, fixed investment dropped to +1.9 percent from +8.9 percent and investment in equipment dropped to -1.9 percent from +11.0 percent, wreaking havoc on corporate earnings in the energy sector as well as other sectors that derive a benefit from this important sector. Please see the Voya Global Perspectives GDP report.

Thursday, January 29, 2015

The Fed pointed to “solid pace” growth in the economy and “strong job gains” (i.e.: today’s initial unemployment claims report of 265K was the lowest in 14 years) and indicated a rise in rates was possible in June. This caused markets to turn tail. Consensus projections for the first rate hike had been the end of year or next. But as Global Perspectives has been saying, Janet Yellen may very well be a hawk in dove’s clothing and the equity market is starting to believe it despite below target inflation and a strong dollar. On the flip side, bond yields fell which seems to be counter intuitive. If the economy is so strong, bond yields should go up. However, global central banks are engaging in extraordinary stimulus which is driving demand and forcing rates down below what would be considered normal given the state of the U.S. economy. The Fed is keeping all options open and a 2015 rate hike is an option. Investors should remain diversified and keep their eye on corporate earnings. So far 40 percent of the companies on the S&P 500 have reported for Q4 and earnings growth is 4 percent. Please follow the fed funds rate on page 40 of the Voya Global Perspectives book.

Wednesday, January 28, 2015

We continue to expect this market to overcome obstacles and adversities with the bull market intact by year end. We call that the base case for 2015. But, what is the plan of action for investors when the unexpected happens that was truly unforeseeable and it triggers a bear market? I am sure the industry has a contingency plan now, especially since it was so unprepared throughout the Great Financial Crisis. Let’s review the Voya Global Perspectives plan. The plan is to pay attention to the “fundamentals." Fundamentals drive markets. If the key fundamental – quarterly corporate earnings growth – is positive then we stick to our base case of being fully invested. Should corporate earnings descend into negative growth then we move to our defensive positioning by cutting the equity allocation in half and rolling it into fixed income. The innovation is preparedness with a well-thought-out plan that can be reviewed with a client before bad things happen. Please review Voya Global Perspectives “Fundamentals Drive Markets” on page 6 to see the plan in action for the past 15 years.

Tuesday, January 27, 2015

Capital spending and manufacturing are being hit hard by collapsing oil prices and a stronger dollar. This is negatively impacting today’s bellwether corporate earnings reports and future earnings outlook along with a disastrous durable goods manufacturing report. New orders for manufactured durable goods in December decreased 3.4 percent defying consensus expectations for +0.4 percent rise, but to add insult to injury November’s initial -0.7% read was revised down to -2.1 percent. Corporate earnings expectations have had an unprecedented slashing of expectations for the fourth quarter 2014 from 9 percent as recently as September to slightly negative today. Please see Oil Price and Intensity on page 66 of the Voya Global Perspectives book.

Monday, January 26, 2015

The solid win by the leftist anti-austerity Syriza party in yesterday’s Greek elections may fuel worries that a Greek exit from the eurozone will be more likely. Undoubtedly there will be some tense bailout re-negotiations in the future but Greece is better off in the eurozone than out. Markets in Europe don’t seem too concerned and in fact are up today, mirroring the sentiment expressed over the weekend by Global Perspectives. As reported in the WSJ 1/25/2015“Douglas Coté, chief market strategist for Voya Investment Management, downplayed the impact of the vote, pointing out that Greece is just a tiny slice of the world economy and that fourth-quarter corporate earnings would have a bigger impact on stocks moving forward. “I’m watching it, but there’s no panic,” Mr. Coté said. “If there is a selloff, it’s an opportunity for investors to get in.”

Friday, January 23, 2015

What is going to be the next boost to the market? Accommodative Central Banks is great for asset prices and has been a vital prop to the markets but does not add to country and global GDP. We applaud the European Central Bank’s bazooka action yesterday but, what now? The pejorative word that we have recycled to describe Europe’s economic malaise is “Eurosclerosis." Europe is a welfare state with France as the poster child and the ECB has bought time for reforming these structural anti-growth policies. How have France’s policies been working for them? Well, France’s unemployment is 10.3 percent, GDP is hovering around zero, taxes for individuals are as high as 75 percent, and structural impediments on labor is legendary. It matters because France is the fifth largest country in the world and second largest in Europe ranked by GDP. Economic growth in France spurred by innovative pro-growth economic policies could spark other European nations, but France must take this gift from the ECB to act now. Please see Voya Global Perspectives 2015 Forecast on TRED: Rates regarding ECB action and Eurosclerosis.

Thursday, January 22, 2015

After starting the engine a countless number of times, ECB President Mario Draghi finally put the car in drive. The ECB launched a huge quantitative easing plan of €60bn a month of bond purchases to begin in March and to continue thru September for a €1.1 trillion total net purchases - but could be open ended if needed. The program was implemented to counter weaker than expected inflation in the euro-zone and heightened risks of a too prolonged period of low growth. While the stimulus bazooka was somewhat bigger than the market expected, investors are only cautiously optimistic because stimulus without structural reform will likely be ineffective. Please follow the ECB balance sheet on page 45 of the Global Perspectives book.

Wednesday, January 21, 2015

The entire U.S. market is down for the year and the bears are having a feast. Each passing year the bears look more and more like Charlie Brown, with Lucy and her football. The bears renewed expectation of a down market is likely to lead to disappointment once again. Is Charlie Brown…I mean the bears… going to fall for kicking that football again? Sure, it looks dangerous in the markets and there are plenty of things to worry about, but have the bruised bears seen the astounding resilience in the markets supported by tectonic shifts in energy, accommodative Central Banks and record levels of corporate earnings? Investors are being rewarded like never before for accepting normal risk and now dividends for the S&P 500 at 1.95 percent exceed the yield available from 10-year U.S. treasuries. For those grappling with the question of do I get into the market now, instead invest in a broadly globally diversified portfolio of stocks and bonds to both build wealth and manage downside risk. Please TRED with a Global Perspective using our 2015 Forecast.

Friday, January 16, 2015

Gasoline prices do matter. Today’s University of Michigan Consumer Sentiment Index was the best since January 2004 coming in at 98.2, far exceeding expectations of 94.4. Consumers are upbeat on what essentially has been a huge tax cut for them. Plunging oil prices also resulted in a steep drop in inflation. U.S. consumer prices fell 0.4 percent in December, the largest drop since the end of 2008. The market turned up on today’s economic data. Presumably because the fear of below target inflation may give the Fed pause in their quest to raise rates in 2015. Please follow oil prices on page 66 of the Global Perspectives book.


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