Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategist for Morgan Stanley.

A lot of my colleagues bringing you a variety of perspectives I'll be talking about the

latest trends in the financial marketplace. We're recording this on Tuesday

May 28th at 9 a.m. Eastern so let's get after it. With all the attention

from investors on the US-China trade talks, many failed to acknowledge the significance of several negative economic data points last week.

First, core durable goods orders were much weaker than expected, coming in at negative 0.9% with a big downward

revision to the prior month as well. Capital spending also disappointed leading our economists

to reduce their second quarter US GDP forecast to just 0.6% growth,

the weakest since the fourth quarter of 2015 and the last time we had an earnings recession.

Finally, both the manufacturing and services

components of the market purchasing managers index were much weaker than

expected and these are leading indicators. This slowdown on capital spending

doesn't surprise me given the boom last year.

In fact, it's right in line with our call for 2019 to be a year of payback

due to the excesses on capital spending and inventory bill last year, the definition of an economic cycle.

I bring this up because many investors seem to think the recent slowdown has to do with the

re-escalation of US-China trade tensions, but all the data points I just mentioned were for the month of April,

which reflects economic activity before the trade tensions picked up in early May.

In other words, things were already slowing before the re-escalation on the trade tensions.

Such re-escalation will only make it worse.

I've been vocal about the likelihood of U.S. earnings in the economic cycle disappointing

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