Research

Investment Strategy
by Larry Adam

Weekly Headings

May 17, 2019

Despite the ongoing ratcheting up of tariffs between the U.S. and China, we remain in a negotiating window before those tariffs actually take effect. Assuming the approximate three-week transit time between goods leaving China (via ships) and arriving in the U.S., and China’s stated June 1 implementation of tariffs on $60 billion worth of U.S. imports, the clock is ticking as these increases become unavoidable around June 1. Outside of the long-run structural benefits of establishing a fair trade agreement between the two largest economies in the world, there are two other short-term dynamics that could accelerate the progress of an eventual deal: the stock market and the economy.

Bottom Line: Our base case remains that some form of a deal will ultimately be signed as the “no deal” negative consequences to the equity market and economy are too dire, given that both are important to President Trump’s re-election bid. However, the ebb and flow between “deal” and “no deal” are likely to keep markets on edge. As we wrote in our publication Tariff Tug-of War (May 13), levels of the market are important. Given that our earnings estimates ($166 in 2019 earnings) and economic forecasts (very low probability of recession) remain unaltered as of now by this trade friction, we remain confident in our year-end target of 2946. As a result, at levels near 2950, the risk/reward is less attractive. However, at 2800 (5% upside) and 2700 (~10% upside) or below, the S&P 500 is more attractively valued and presents better buying opportunities.

Economy
U.S. Equity
Fixed Income
International

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