Welcome and thoughts on the market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety

of perspectives, I'll be talking about the latest trends in the financial marketplace.

It's Monday, July 1st at 9 a.m. Eastern, so let's get after it.

For the past several months I've been adamant about our view that slowing economic and earnings growth

is more a function of a tiring U.S.

business cycle than simply a reaction to rising trade tensions as others seem to believe.

To reiterate, we think the tax cuts in 2017 were poorly timed given the US economy had finally reached

escape velocity after a long but anemic recovery from the financial crisis.

At the end of 2017 we had full employment and companies were finally using their cash flow for capital

expenditures rather than just share buybacks and acquisitions, a necessary ingredient for

sustainably higher productivity and real GDP.

In a nutshell, the tax cuts led to a boom last year,

during which the US economy ran well above its potential growth rate.

This created excesses in the real economy,

most notably in supply chains and labor markets.

It also led to excessive capital spending that was unsustainable and difficult for the

economy to absorb. The tariffs exacerbated these excesses and resulted in extraordinary inventories.

Finally it also forced the Fed to tighten monetary policy more rapidly than they would have otherwise.

Importantly, Fed policy works with a 12 to 18 month lag on the economy, which is another reason things are slowing rapidly in 2019.

I've been writing about these excesses and how they would likely lead to corporate margin pressures in 2019 for the past nine months.

Indeed, corporate margins have been under pressure since the fourth quarter of 2018 and earnings

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