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Capital Markets Review & Commentary

Trade talk dominated headlines in June. Generally speaking, escalation and new tariffs pushed markets down while conciliatory comments raised the tide. The overall outcome was asymmetric, with US stocks finishing Q2 with gains in each month while international stocks were hit, especially emerging markets which lost nearly 5% in June. China’s Shanghai composite index entered bear market territory this month, facing duel concerns of tariffs and government efforts to deleverage the financial system.

The Trump administration has proven to be very difficult to predict, and especially on trade. In a negotiation, which we believe is how the president views this, that can be a benefit. We don’t think any country has desire to exchange increases in trade costs just for the sake of doing so. So we expect the world will most likely be able to avoid multiple cycles of damaging tariffs, but this is far from certain.

Steel and aluminum tariffs went in effect in March and as of July 6, the US is imposed tariffs up to 25% on $34 billion of Chinese goods. China is implementing retaliatory tariffs expected to be of equal scale. For perspective, 25% of $34 billion is under $9 billion, which is about 1% of the value of Apple. So the global economy can absorb this, but real costs are starting to accumulate and there is evidence some companies are taking a wait and see approach to new investment.

Bigger picture, scary things that feel like they will derail the global economy happen frequently. Some of them do, but most don’t because of the sheer magnitude that requires. This bull market has featured numerous events and story lines that have been just as scary, or scarier, than tariffs. At this stage in the market cycle, investors should be confident they are in a long term strategic allocation that is appropriate for their risk tolerance and growth needs. If not, they should adjust, but attempting to market time around headlines is dangerous and should generally be avoided.

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