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Weekly Headings »» U.S. Equities, Fixed Income, Energy
By: Raymond James Financial | May 24, 2019

• All eyes remain on U.S.-China trade relations, where the momentum has become more negative in recent weeks. Growing trade tensions as both sides jockey for position lowers the odds for much progress being made before the G-20 meeting. For this reason, we feel that equities offer an unfavorable risk vs. reward over the next month, unless the negotiations shift to the positive.

• From a global perspective, the U.S. equity market has held up better than most areas around the world (and is also exhibiting better fundamentals). On the flip side, China has been a global laggard since the re-escalation in early May (falling ~12% since then and giving up all of its YTD gains). The sharp pullback has led to oversold conditions, and we would not be surprised to see a short-term “relief” bounce. However, intermediate-term trends likely hinge on trade negotiations and whether escalation continues past June.

• In the U.S., S&P 500 companies with less revenue exposure overseas have held up much better through the volatility. For example, S&P 500 companies with over 50% of their revenues from the U.S. have pulled back -2.3% since May 3, while those with over 50% of revenues outside the U.S. have pulled back -6.1%.

• The differential in performance between companies with mostly U.S. exposure vs. those with more global exposure is clear within the Technology sector. Tech companies with over 50% of their revenues from overseas have pulled back -9.4% on average vs. -1.3% for companies with over 50% of their revenues from the U.S.

• Focus of the Week: The outlook for trade will continue to be the dominating factor for the market moving forward as the current tariffs will negatively impact global growth and corporate margins if they go into effect.

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