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2ND QUARTER EQUITIES

U.S. stock indexes in the second quarter moved into slightly positive territory after the declines incurred in the first quarter. Nonetheless, the booming market seen in 2017 is clearly over. Investors have many concerns. While the U.S. outlook is good, the global economy is slowing. The Eurozone is wracked with political uncertainty. But the biggest concern is the escalating trade tensions.  The U.S. is now engaged in tariff actions against all of its major trading partners – and those partners are fighting back. This situation has unpredictable economic consequences. U.S. stock indexes in the second quarter moved into slightly positive territory after the declines incurred in the first quarter. Nonetheless, the booming market seen in 2017 is clearly over. Investors have many concerns. While the U.S. outlook is good, the global economy is slowing. The Eurozone is wracked with political uncertainty. But the biggest concern is the escalating trade tensions.  The U.S. is now engaged in tariff actions against all of its major trading partners – and those partners are fighting back. This situation has unpredictable economic consequences.  

The Dow Jones Industrial Average was ahead 0.52% for the quarter, but still down 0.91% for the year. The S&P 500 was ahead 2.9% for the quarter and 1.7% for the year.  The strong performer was the Nasdaq Composite with a quarterly gain of 6.3% and a year-to-date gain of 8.8%.  Despite some of the issues in technology, investors clearly favored the sector because it is less affected by the tariff battles. The same advantage existed in the Russell 2000 index of small stocks which was ahead 7.4% for the quarter and 7.0% for the year.

We expect the market to have modest growth this year of about 5%. It may also enjoy similar expansion in 2019. But we accept the Barron’s view that a slowing economy finally will turn the market bearish by 2020.

A major wild card in this prognosis is the tensions over international trade.   Should the current situation escalate into a more full-scale trade war, investors will be nervous and spooked. Sustained conflict over trade would likely cause the market to go negative faster and sooner.

Preferred Equities: We remain focused on large cap companies with strong balance sheets, sustainable cash flows, and credible business models. Companies that pay attractive dividends are central to our strategy.  Some of the sectors getting our attention:  
TECHNOLOGY: We are cautious about this sector – especially given how rich the stocks have grown – but areas such as bio technology and semi- conductors have our interest. 
FINANCIALS: Rising interest rates will make banks more attractive – and our focus is upon regional banks. Prices are reasonable for many of these bank stocks. 
ENERGY: Productive capacity will be in high demand as increased energy supplies come to market.
HEALTH CARE:  Medical devices are an interesting area of opportunity.

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