Today's Blog

Main content

Wednesday, April 26, 2017
Projected market volatility spikes in times of crisis then drops as fears subside. Current levels are below average, but the Fed’s path to normalization of rates may lead to more typical volatility levels.

“Relief rally Europe” doesn’t quite capture the seeming euphoria that surrounded the French presidential primary outcome. The French establishments of the left and right are closing ranks hard and fast behind Emmanuel Macron. The implied probabilities are flashing a 90% likelihood of his winning. The relief rally can be seen in traditional hedges as well as global equity markets. Gold prices are down by $20/oz. The Euro has rallied by nearly 2%. The VIX is down to 10.8 from 16 two weeks ago. This is good for the global economy and the outlook.
And so developments in France, Germany, the Netherlands and even the USA have supporters of the current international system breathing a sigh of relief. A Le Pen victory in France is highly unlikely. German polls are showing that the nationalist AfD party is slipped to 10% public support, with its leadership in turmoil. The Dutch and now French elections have shown support, but not enough to govern, for nationalists. And there has been a seeming turn to a somewhat less hostile stance internationally from the Trump Administration. Perhaps unsurprisingly, President Trump came out against a stronger dollar. And importantly, he seems to have put aside some of his antagonistic standing with China as he ruled out naming it as a currency manipulator. Throw in the potential for a pro-growth global tax cutting competition kicked off by the US, the global economy is beginning to gather together what looks like a synchronous growth phase which will continue to support risk assets globally. Please review page 24 of the Global Perspectives™ book - Special Guest Blogger: Tim Kearney

Tuesday, April 25, 2017
The excess of M2 over M1 money supply data shows record levels of cash on the sidelines, while equity mutual fund flows show extreme swings that highlight investors’ reactions to stock market performance.

The world breathed a sigh of relief after the first round of French elections and polling that actually seemed to get it right, the Nasdaq powered to an all-time high breaking the 6000 level and S&P 500 earnings growth, with 25 percent of companies reporting for Q1 is now forecasting double digit growth. Oh wait, there’s more. Bond yields have reversed their downward doom and gloom trajectory and are ticking up. Oh wait, there’s more. Despite all of the trade war talk, world trade volumes for the three months of December to February are 2.7% higher than during the three months before, the strongest growth in the 3-month moving average since 2010. And if that wasn’t enough to sate investors there is now even more. President Trump is proposing a corporate tax rate cut from 35% to 15% to boost economic growth. Yet equity flows have been predominantly negative this year and there is roughly $10 trillion in cash on the sidelines earning nothing. Many skeptical investors are dismissing the market’s rise like a late night infomercial. While it is always advisable to have cash for emergencies, ten trillion seems a little excessive. Please watch fund flows on page 83 of the Global Perspectives™ book.

Friday, April 21, 2017
Returns for a globally diversified strategy over the last 10 years refute the notion of a “lost decade”.

The Eurozone flash PMI of 56.7 is a six year high and indicates robust expansion of economic activity, but investors are more concerned about the first round of French elections to be held on Sunday. Recent polling indicates the top four candidates are in a tight race with about 20% each. The top two will move on to the next round. A victory by the far left candidate, Melenchon or the far right candidate, LePen would be a shock to markets and would likely spark a European stock selloff. Center right candidate Fillon and center left candidate Macron are campaigning on labor reforms and corporate tax cuts both of which are badly needed in France. France has been one of the slowest growing economies in the Eurozone, growing only 1.1% in 2016. It also has an unemployment rate above 10%. The world is watching the election closely after the BREXIT and U.S. presidential election surprises. Please see page 4 of the Global Perspectives™ book for a globally diversified portfolio. Diversification can help smooth the bumps when markets get volatile.

Thursday, April 20, 2017

We have had a firehose of positive economic data and after a few weaker data points the bearish economists parade out their Armageddon scenarios. I don't buy it. Today's Leading Indicator report, not usually a market mover, made headlines with an all-time record of 126.7. Add to this President Trump signing executive orders to help the U.S steel Industry, along with a photo-op with steel CEOs and steel union labor, and that was enough to make the market jump. Please review the Global Perspectives™ First Quarter Review and Outlook for my insight into the drivers of the market.

Wednesday, April 19, 2017

There has been a widening spread between soft (expectations) and hard (actual) data for the US in Q1, in part due to the strong jump in expectations (aka animal spirits). Consider the data published in the past week or so. The University of Michigan Sentiment Index is up 8% YoY in April, and the Expectations Index has risen by 12%. Despite rising mortgage rates, the NAHB – Homebuilders Index rose by 17% YoY in April. The NFIB Small Business Optimism Index jumped 13% YoY in March. Consumer Confidence from the Conference board is up a smart 30.7% YoY in March. The hard data are a few steps behind. The Blue Chip Consensus marked Q1 GDP to a meager 1.3%, with their Q2 GDP estimate remaining at 2.4%. Additionally, retail sales have been softer, manufacturing fell in March and Auto sales at 16.5mn is off the 18mn (annual rate) seen in late-2016. But, contrary to this, corporate earnings are accelerating and we expect record level of earnings in 2017. Economic data may be mixed but there is little question that the growth and reflation trade is not only intact but is broadening overseas too. Please refer to the Voya Global Perspectives™ book to follow these statistics along with the latest market results in the Voya Global Perspectives™ weekly. - Special Guest Blogger: Tim Kearney

Tuesday, April 18, 2017

Geopolitical risks have dominated headlines and now investors are worried about a few hard data “misses”, yet the data is actually very good. The U.S. manufacturing ISM index is over 55, household wealth continues to move higher, retail sales are near an all-time high, housing starts are up 9% year over year and unemployment is 4.5%. In addition, the international outlook is on the rise. The 2017 global economic forecast was just upgraded by the IMF to 3.5% growth, UK growth was upgraded to 2%, and China’s latest GDP surprised on the upside at 6.9%. Monthly data points will be volatile; the overall trend is up. Geopolitical fear distracts markets and clouds investor perceptions resulting in an exaggerated negative outlook. Fortunately, markets follow fundamentals. Please see the Q1 Global Perspectives™ commentary for the latest view on the economy and markets.

Thursday, April 13, 2017

It's show time for Q1 earnings. The big banks begin reporting today and the financial sector is anticipating 15% growth. The technology and materials sectors are also forecasting double digit growth. The energy sector earnings in Q1 a year ago were negative but are expected to contribute more than $5 billion to the S&P bottom line this quarter. All in all, this could be the best quarter since 2011. Fortunately, fundamentals drive markets, not the press or daily political banter. The dollar dropped after President Trump’s comments about the strong dollar yesterday but it was just a knee jerk temporary reaction. Bond yields dropped too. However, yields have been under pressure lately based on worries about geopolitical tensions and a push back of the agenda which would create actual sustainable economic growth. The market will move forward on better company earnings but economic growth will be stuck in subpar purgatory until we see cuts in taxes and cuts in regulations. Someone please send Washington a pair of scissors. Please review the latest Global Perspectives™ market update here.

A happy and safe holiday weekend to all.

Wednesday, April 12, 2017
The Fed funds target rate and Treasury yields remain historically low, even though the Fed increased the target rate in December 2016.

The headline NFP print of 98k disappointed. This result does beg the question if the big ADP figure of 263k will feed into April’s payrolls at all. However, average hourly earnings hit 2.7%, still running about the average of productivity plus inflation. This implies thus far, no breakout seen in wages beyond a basic economic equilibrium, and that should give the FOMC some pause. The unemployment rate dropping to 4.5% was a plus, as was the big rise in employment in the household survey – 472kk following 447k in February. Net/net, given the volatility of the payroll data, I read it as a decent report for the outlook longer term. Which brings us to the question of bond yields, with the 10 year breaking below 2.3%. I’d attribute some of this to the sudden global uncertainty over Syria/North Korea. Note that gold/commodity prices are up from mid-March lows, the dollar has ticked a bit higher and gold is up solidly. That shouldn’t happen if this were the reaction to rising inflation and/or an overly tight Fed. And looking at implied expectations, there has been a modest reduction in Fed hikes by December. Likewise, the Fed’s Five-Year Forward Breakeven Rate has also been flat. That implies that this bond move ultimately will be unwound. Please review page 31 of the Global Perspectives™ Book. - Special Guest Blogger: Tim Kearney

Tuesday, April 11, 2017
Although EPS growth rates have faltered, emerging market equities still offer competitive profitability and balance sheet strength with valuations at or below those of S&P 500 and EAFE stocks.

Despite heightened geopolitical risks, a few disappointing data points including auto sales and March non-farm payrolls, a significant speed bump in healthcare reform and a string of more down days than up days, the market is essentially flat over the last month. This classic honey badger behavior can be explained by fear of missing out (FOMO). Investors know that Q1 earnings season is about to begin and this quarter’s forecast of 8.4% growth is the best since 2011. Expectations have been ratcheted down lately, but only slightly. On the other hand, EAFE and Emerging Market index forecasts have been ticking up. Growth in corporate earnings in both of these markets is expected to be higher than in the S&P500, 35% for EAFE and 15% for EM. And valuations are notably more attractive in both EAFE and EM. Markets are driven by fundamentals and this is a synchronized economic growth story, not just the U.S. show. The honey badger needs to pack his bags and go global. Please review global stock fundamentals on page 55 of the Global Perspectives™ Book.

Friday, April 7, 2017

A miss on the non-farms payroll report and U.S. airstrikes on Syria are weighing on markets. The 98K jobs added in March was significantly lower than expected. The steep decline in construction jobs is easily explained by weather but the 30K plus drop in retail jobs is indicative of the secular downward spiral in brick and mortar retailers as we all much rather sit on the sofa and click “Pay Now”. There were a few bright spots in the report; the mining (energy oriented) sector jobs were up 11K, the unemployment rate dropped to 4.5%, the lowest level since May 2007, and the underemployment rate fell to 8.9% from 9.2% and 9.6% as recently as September. Investors may believe this report gives the Fed some wiggle room to pause on rate hikes but the labor participation rate has held steady, an indication that the slack in employment did contract. So, while investors may be struggling to find reasons to get into the market, they also realize the reasons to sell are limited, given the fact that the upcoming earnings season is expected to be the best since 2011. It’s hard to leave the table before the earnings feast is served. Please see the latest Global Perspectives™ article for a complete update on the forces driving markets.


Footer content