Welcome to 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, June 17th at 9 a.m. Eastern, so let's get after it.

As the week begins, investors remain keenly focused on trade tensions and the

Fed.

However, I continue to think such focus may prove to be a trap because it ignores what will determine if stocks can hold their strong year-to-date gains or not.

First, on trade, little progress seems to have been made on a real

deal between the US and China. However, Hope remains high for next week's G20 meeting

in Japan. At the same time, Hope also remains high that even in the absence of progress on trade talks,

the Fed can and will once again ride to the rescue of markets that have lately shown signs of stress.

We think these hopes are at risk of being dashed, mainly because we are seeing

more hard evidence that the economy and earnings are slowing more than most investors think.

More specifically, freight shipments, oil demand, capital spending have all been weaker than expected during the second quarter.

While retail sales bounce back in May, many retailing companies have reported weaker earnings due to cost pressures and bloated inventories, which we think are likely to weigh on growth in the second half of the year.

Most troubling, however, was the release of our proprietary Business Conditions Index for June last week.

This report is an amalgamation of our industry analyst's views about the state of things that the companies they cover.

Not only was this latest release week, but it was the second lowest reading on record and the single biggest monthly drop.

This is important because business confidence drives decisions that affect the broader

economy and explains why capital spending has weakened so much this quarter.

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