The Picton Report

The ongoing trade war and policy uncertainty continues to weigh on markets and business activity as the Fed awaits further data on the economic impacts before making monetary policy decisions. While increased inflation expectations, weakness in the housing market and an increasingly tapped out U.S. consumer points to elevated recession risk.

The bounce back in U.S. equity markets from the lows in April could mean continued strength in the short term, but rich valuations with elevated price-to-earnings levels still warrant caution. The potential impact of rising U.S. protectionism could impact corporate earnings and profit margins in the second half of the year.

The U.S. policy of disengagement from the rest of the world is impacting global trade, the strength of the U.S. dollar and appetite for U.S. Treasuries. Second and third order effects like reduced tourism and re-routing trade flow will likely also have economic impacts. The result is increasingly attractive opportunities for investors in international markets.