US Stocks have regained their footing as predicted in our first quarter newsletter. We believed equities would get back on track after first-quarter earnings reports and economic data that we expected to be quite positive. This is exactly what happened in the second quarter. The leadership centered on domestic equities with NASDAQ and small cap stocks at the top of the list.  Foreign markets tumbled as expectations for growth in the globe receded given the current environment for trade and impending tariffs. Emerging markets and China suffered the most with Europe closely behind in the freefall.  This downturn came and pushed money into the US markets as the US economy stands strong in the trade war. In anticipation of this MACM exited all of its investments in emerging markets in Europe toward the end of Q1 and repositioned the portfolio in domestic equities leveraged to consumption themes present in America.

Gold and most soft commodities tumbled as inflation expectations declined with economic weakness in Europe and Asia.

Fixed income markets had a lackluster quarter.  The selloff that began in the last quarter paused but no reversal is on the horizon with US economic growth now accelerating.

The rebound in REITs that began in the first quarter continued in the second quarter with some REITs pushing toward new all-time highs.

Economic Data Strong and Accelerating

It certainly hasn’t paid to be a Trump hater.  The US economy is doing quite well and much of it can be tied to the changes that have been made by the Trump administration and the increased consumer confidence that has been born as a result.  The tax cut is at the top of the list and has brought US corporations to the consumption table.  Corporate America is spending on productivity and people seemingly believing that America’s confidence that is at an all-time high will translate into better consumption.  Thus far that has been a good bet as there has been notable improvements in consumption across-the-board from the consumer.  That data is seconded by improving consumption by corporate America and foreign consumption of US products.  US total exports have accelerated this year to 145 billion per month from the 126 billion per month level recorded in in January 2018.  While the media quips about a dismal outlook for global trade for America the data is telling an entirely different story and so are the markets.

The Trade War

The trade war will be painful for the non-American globe.  America is the economic superpower of the world and the US is the gorilla in the room when it comes to global consumption.  Our financial system is sound and our political room is being cleaned.  The second largest economy is China which is still politically unstable and communistic at its roots.  China is not trusted in the globe and it will be decades before the world thinks about changing the dollar and letting the yuan become the reserve currency for global consumption.  Europe is still asleep and not aware of the war that is being  waged against socialism.  Capitalism has been revived in America and as a result America has strong growth ahead and renewed leadership and dominance in the world.

The Tariffs

Thus far tariffs have caused some higher prices for foreign imports of American companies and consumers.  Relief has already been seen however as US-based businesses have quickly brought on new capacity to absorb demand that was being met by foreign manufacturers previously.  This is most clearly illustrated in industries like aluminum.  Prices for foreign aluminum increased 20% or more in early Q2 due to the tariffs, however domestic producers have now increased capacity to produce raw aluminum and prices have fallen back close to pre-tariff levels.


Prior to the Trump election acts of terror in the globe were almost a weekly event with hundreds if not thousands of lives lost in each of the last several years.  The news was painful to read.  However ISIS has been destroyed by the Trump administration and global terrorism has been on a steady decline.  The top news in the media has been about the conflict in Congress which is much more palatable then seeing catastrophic terrorist acts. As a result travel and leisure are abounding and companies like Royal Caribbean and Princess Cruises are making record profits.

Interest Rates and Inflation

The Inflationary environment has remained benign despite an acceleration in the US economy. It is likely due to further gains in productivity and softness globally. Gold fell 5.6% in the quarter and is now down 4% for the year, further evidence that inflation continues to remain calm in the globe. As a result, long-term treasuries had a modest rally in the second quarter from oversold conditions that occurred in the first quarter. The path for interest rates and inflation is undoubtedly higher but the path has only a modest tilt upward.

The Outlook for the Economy and Markets

The acceleration in the US economy is exciting and America is now taking a strong step into a period of sustainable growth that could last for a few years as the growth and optimism feeds upon itself.  It would appear that this cycle will now end in a traditional bust rather than the more uncommon deceleration in consumption, that leads the globe back into recession.  This has been feared for several years.

Trump is positioning the US economy to compete better in the globe creating a bright outlook for US growth.

We remain optimistic and believe equities are the asset class of choice for the near term.