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Friday, March 27, 2015

Oil Price and Intensity

One of the biggest concerns this year has been the crashing oil prices wreaking carnage on the energy sector. But, in the last couple of weeks oil prices have increased to above $50 on geopolitical concerns and a weaker U.S. dollar. During these two weeks the energy sector, S&P 500, surged nearly 3.5 percent bringing a needed boost to this decimated sector. Maybe the negative 60 percent earnings growth expected for the first quarter in energy is excessively pessimistic which would bode well for our future outlook. Corporate earnings in this bull market have shown astounding resilience and this time may be no different. Meanwhile, 4th quarter 2014 GDP – 3rd revision – stayed at 2.2 percent but, the consumer seems to be benefiting from these low oil prices which is another positive offset for this quarter’s coming earnings season. Please see “Oil Price & Intensity” on page 66 of the Voya Global Perspectives™ book.

Next week, Doug Coté will speak at the Factset 2015 Investment Process Symposiu in Washington, D.C., where the Keynote speaker will be former Federal Reserve Chairman Ben Bernanke.

Thursday, March 26, 2015

Commodities Prices

Geopolitical risks are hard to quantify because they are always part of the global landscape. However, the most recent conflict in Yemen and concerns of supply disruptions immediately sent the price of oil above $50/barrel. Yemen is not a huge producer of oil but any unanticipated conflict in the middle east affects U.S. markets because, despite ramped up production of domestic oil, the U.S. is still a net importer of oil. Most likely the surge will be short lived. Gold prices have also risen as a result of the turmoil. Before investors flock to gold as a safe haven from market swings they should note that it is barely up 1.7 percent this year and was down 4.5 percent last year and down 28 percent the year before as market predictions of economic doom and the dollar’s collapse never materialized. Please follow the price of gold, as well as the real inflation adjusted price of gold, on page 20 of the Voya Global Perspectives™ book.

Wednesday, March 25, 2015

In the 2015 Global Perspectives Forecast we noted that, "Global M&A was moribund for years after the Great Financial Crisis, but all that changed in 2014. We expect the trend to continue in 2015 and eclipse the 2007 record for deal volume." Sure enough Q1 2015’s $882 billion in deals is quickly approaching an all-time deal volume high as companies are finding attractive prospects to add value and boost growth. M&A activity is a catalyst for markets. Investors parked in cash, frightened by (normal) market volatility, are locking in an after inflation losing rate of return and missing potential opportunities. The latest merger deal sent one of the company’s stock price soaring 37 percent in one day. That’s a lot of macaroni and cheese. Please review the Voya Global Perspectives® 2015 Forecast.

Tuesday, March 24, 2015

The violent rise in the dollar has snapped back to “normal,” or what it was on average in the 15-year period ending in 2001. The Euro’s precipitous fall has been back to “normal,” or near where it was issued in 1999. The world is shocked, simply shocked, by the collapse in oil prices to back to – yes, you guessed right – “normal,” or the average price for the past 30 years. What is not normal are the low rates and low inflation, although we got a positive reading on CPI this morning. What is also not normal is the surprisingly low volatility, closer to single digits than its normal 20-handle. But the Fed is moving ever closer to normalizing rates and this will likely normalize volatility as well . The only wailing and gnashing of teeth is by the media that is struggling to make a story out of normal. The markets will continue to normalize and this likely means higher volatility but a more sanguine and sustainable economic backdrop. Please see Voya Global Perspectives® pages 51, 66 and 35 for currencies, oil prices, and volatility, respectively.

Wednesday, March 18, 2015

All eyes are on the Fed announcement today at 2 p.m. EDT. We forecast that the word "patient" gets removed, which is hawkish, but will be balanced by dovish outlook on the path of rates. Fed Chair Yellen has demonstrated her market savvy since she was appointed Fed Chair and this will be no different. Those expecting a "Fed Policy Mistake" will miss out on this bull market run that shows no signs of abating. Please see the Voya Global Perspectives ™ latest monthly commentary on the dangers of market whipsaw and "gaming diversification."

Tuesday, March 17, 2015

Equity Volatility (VIX)

Will they or won’t they? This week is all about the Fed and whether or not they will remove the patient language from the forward guidance policy regarding interest rates during Wednesday’s FOMC statement. Consensus is that the Fed is impatient with the patient language and it will be eliminated despite the surging dollar and below target inflation. However, this does not mean that a June lift off is certain. What is certain is that investors should be prepared for market volatility. Please follow the VIX as a measure of market volatility on page 35 of the Voya Global Perspectives™ book.

Friday, March 13, 2015

In February domestic equity markets staged an astounding reversal from January, bringing major indexes well into positive territory for the year and whipsawing many who sold into the softness. In March markets reversed course and most major U.S. indices are now posting negative returns so far this month. So January was down and investors got scared and sold.  February was up big and investors who missed out bought.  Now March is down. What do you think investors will do?  Hmm, I think you get the drift and this doesn’t sound like the best-laid plan.  Meanwhile, international markets have continued to outperform, suggesting to us that 2015 might be particularly painful for those blind to the “folly of gaming diversification.”   Please see the latest Global Perspectives Monthly Commentary, “Market Whipsaw Sheared Bears Like Sheep in February”.

Thursday, March 12, 2015

Consumer as Game Changer

Still waiting. Still waiting for the consumer to pick up the pace of spending. It didn’t happen in February. Retail sales were expected to rebound but actually declined 0.6 percent last month (the third straight month of declines) and the year over year increase is a paltry 1.7 percent. Internet sales were up 2.2 percent in February and 8.6 percent year-over-year, lending credibility to the harsh winter weather/dog ate my homework excuse. The consumer just can’t seem to believe that lower gas prices are not a temporary fluke. However, increasing supplies, slower global demand, and a strong dollar are all conspiring to keep oil prices well below the high prices we became familiar with in the last few years. In addition, the latest jobs report shows that job openings climbed 2.5 percent in January to reach 5 million, the highest level since 2001. Good jobs market, low gas prices - get to the mall. March retail sales should reverse this trend but the subdued consumer spending thus far will hinder the GDP print in Q1. Please follow retail sales on page 13 of the Voya Global Perspectives™ book.

Wednesday, March 11, 2015

China Hard Landing

China’s latest economic data is not good. Industrial production increased at its slowest pace since 2008, rising 6.8 percent in the first two months of the year compared with a year ago. Retail sales also slowed, increasing 10.7 percent in the first two months of 2015 compared to 11.9 percent in December. The downturn in the overheated Chinese housing market is apparently taking its toll on domestic demand. Chinese officials lowered the official GDP growth target for this year to about 7 percent, the slowest expansion in a 25 years. The IMF forecasts this rate will be 6.8 percent in 2015 and 6.5 percent in 2016 – lower than India’s projected growth rate. Despite these indications of a slowdown, Chinese markets are rallying. Investors should realize by now that bad news is often good news because it means more stimulus. China has already cut rates twice this year but the latest round of economic data suggests more aggressive policy action is forthcoming to stem the downturn. China is a key piece in the economic growth puzzle so please keep an eye on China’s economic metrics on page 19 of the Voya Global Perspectives™ book.

Tuesday, March 10, 2015

Fed Funds Target Rates and U.S. Treasury Yields

Weak global rates are working to push U.S. rates down. But, on the flip side, a surging dollar and ever improving U.S. economy have significantly moved rates up from the ultra-low rates we saw just a month ago, thereby pushing prices down. The U.S. 10-Year treasury yield was 1.67 percent at the start of February; now it is 2.12 percent. March has been negative so far across the board for both stocks and bonds. Investors may be tempted to head for the hills of cash. But, hold your horses. Yes, the strong dollar is causing issues with U.S corporate earnings estimates and in many emerging markets. Yes, the Fed may remove the word “patient” from their rhetoric. But the U.S. economy and the U.S. job market are looking better than they have since the recession. And global central banks are fully committed to keeping the global liquidity party going. First quarter earnings reports set to begin in mid-April will be the true litmus test of the market’s future direction. Keep calm and stay diversified. Please follow U.S. Treasury rates on page 40 of the Voya Global Perspectives™ book.

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