Welcome to the 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.

We're recording this on Monday, June 3rd at 9 a.m. Eastern.

So let's get after it.

Last week was another difficult one for equity markets with the S&P 500 making new lows for this

recent correction and even breaking its 200-day moving average an important

technical support level. Meanwhile Treasury bonds continue to rally as they play their role of diversifier within an asset allocation framework.

It looks like our decision to reduce equity allocations and increased Treasury holdings in mid-April is proving to be well-timed.

Of course, the question now is, when will this correction be over?

When we decided to reduce risk in April, our concern was centered on what we deemed to be excessive

valuations in the face of what we viewed as weakening fundamentals.

Since then, trade tensions have escalated not only with China, but now with Mexico and possibly

others.

Meanwhile, recent economic and earnings data has come in weaker than most were expecting.

In fact, some of these data were even weaker than I was expecting.

Most importantly, these data were for periods unaffected by the recent rise in trade tensions,

meaning they provide evidence for my view

that trade is not the primary risk for the U.S. economy and companies.

Instead, I believe the U.S. suffers from three excesses created by the tax cuts and tariffs implemented in 2018.

First, there was excessive capital spending last year's every company had more after-tax profits,

...