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Current Views

May Markets Trump Along Despite Trade Talks and Italian Politics

Market Overview:

Despite turbulence in trade negotiations and Italian politics, US stocks enjoyed a strong May, with the S&P 500 advancing 2.2%. With seemingly improved economic activity following a subpar first quarter of 2018, we expect corporate profits will remain strong and we maintain our positive outlook on the market.

Trade remains a focal point for investors. US aluminum and steel tariff exemptions expired for the EU, Canada, and Mexico, and the Trump administration announced tariffs would be imposed on certain imported Chinese products starting on July 1st. Meanwhile, the failure to make progress with NAFTA negotiations has dimmed the prospect of reaching a deal by year end. Although we are seeing retaliatory tariffs imposed on US exports, we do not believe that these actions will have a materially adverse impact on US economic growth. However, the uncertainty of Trump’s rhetoric and capricious negotiating tactics may create a challenging environment for corporate management to make long-term capital investment decisions.

Trade related headwinds aside, US stocks have been quite resilient. In our view, a strong economy and positive corporate earnings have created a buffer against negative trade headlines. We believe that investors are viewing most of the White House’s rhetoric as means of negotiation, and that the President’s positions may suddenly change. Therefore, we think markets are reacting less to policy announcements and are waiting on concrete policy action.

Italian politics briefly rattled capital markets after President Mattarella vetoed the 5 Star and League party’s choice for Minister of Economy and Finance. Amid the uncertainty of whether Italy would be able to form a coalition government, Italian 2-year government bonds had their worst day since 1989 (when Thompson Reuters began tracking the data), as yields jumped more than 150 basis points to close at 2.4%. Upon reaching a compromise that keeps the coalition government intact and avoids the potential for snap elections, Italian bonds recovered as 2-year yields retraced nearly half of the advance from the previous day.

We believe that the odds of an Italian exit from the Eurozone are low and we will continue to monitor the situation, but we are not overly concerned by the dramatic headlines. Another potential issue to consider is whether the country’s bonds might have to be restructured, although we view this as unlikely over the near- to intermediate-term. Moreover, we would not expect US capital markets to be directly impacted in the event of a restructuring, since the majority of Italian government bonds are held by Italian citizens and European banks. However, we are cognizant that some degree of contagion might transpire.


We continue to hold a positive view on the market and expect that a healthy economy will help to sustain strong corporate profits. In recent years, economic growth has slowed during the first quarter, and recent data suggests that growth is progressing. Regional Federal Reserve surveys aimed at capturing economic activity in various parts of the US have been robust, and forecasts for second quarter GDP growth are in the 3-4% range. Additionally, while we have yet to see a meaningful impact from the recent tax reform, we expect that it will soon give a boost to both corporate investments and consumer spending.

A key risk for markets in our view is trade, as we see the tariff announcements as potentially increasing trade friction with multiple countries. As noted, we think that capital markets can continue to show resilience despite these risks, given a healthy economy and strong profits. However, if the situation were to escalate, we expect that markets would price in weaker fundamental conditions, putting stock prices at risk. We are also keeping close tabs on inflation, as a sharp pick-up could compel the Fed to raise interest rates at a faster pace than markets are currently expecting. This could curtail GDP growth, leaving the economy more vulnerable to exogenous shocks, such as the aforementioned potential trade negotiations. Fortunately we are not yet seeing any signs that inflation is rising to levels that would force the Fed’s hand in this regard.



This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.


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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages equity, fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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