Seek Risk as Earnings and Valuations Trump Trade Risks

An array of cross-currents confront global markets, but on balance they appear positive. While trade-related risks have risen, valuations have reset, financial conditions remain accommodative, and China has provided a growth backstop. We remain constructive on global markets, with a generally bullish stance over the intermediate term.

Last month, good news came in the form of earnings that continue to confirm broad global momentum, with exceptional US strength and weaker, yet still healthy, earnings growth outside the US. Trade tensions have weakened confidence in pockets of Asia and Europe, yet not in the US. China, in a reversal of its deleveraging stance, now supports tariffs, currency weakness, and monetary and fiscal thrusts. Domestic growth has become a priority to build a buffer against trade, yet re-leveraging China is risky and cannot go on for long given the high degree of existing leverage. Heightened US-China trade tensions, while providing a respite in US relations with the European Union and Mexico, are a negative.

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