More Questions than Answers

It feels like we are entering a period of time that will be challenging for investors due to trade issues and spotty economic data in the economy. Last week, the new trade threat to Mexico by the administration has raised the bar that investors need to jump over in order to stay constructive on long term investments. Adding Mexico to the list of countries the Trump administration is willing to raise tariffs on is providing a large disincentive for global growth for now and will likely cause a large rethink and possibly negative deployment of capital for U.S. based international companies. This will be closely monitored next month when we enter a new round of quarterly forecasts.

Some markets are not waiting for clarification and are pointing to worsening global conditions. Fixed income traders, economists (my favorite occupation, not), and global policymakers are pointing to a need for the Federal Reserve to cut interest rates possibly by September because of economic weakness in Europe and lack of constructive trade talks. The change of mindset is remarkable from consensus four months ago and points to the uneasiness this global chess match is creating.

A long followed trading axiom is that price follows sentiment and there is no doubt sentiment is eroding. We need to see and hear a change of attitude from the White House in order to stave off a difficult summer investment environment. The view that President Trump treats the stock market as his prime indicator of effectiveness will likely be tested in June as pressure builds on trade issues.

For the time being it seems that domestically focused businesses along with interest sensitive investments including housing, DYI retailers, telecom, utilities, and other higher yielding securities will likely continue to work as we watch the Federal Reserve and the Trump administration for changes in attitude. For long term investors, valuations are becoming more attractive with the recent correction and are providing some enticing opportunities. I plan to take advantage of attractive prices in stocks of companies providing technologies and services that are growing far above the GDP rate of growth.

Have a great week,

Roger N. Steed

June 3, 2019

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