The Madison Mosaic

The Madison Mosaic - May 2019

The Macro Pieces

President Trump escalated trade war hostilities with China; put Mexico & India on notice

  • Tariff rate on $200 billion of Chinese goods increased from 10% to 25%.
  • Threat of new tariffs on an additional $325 billion of goods.
  • China responded with additional tariffs on $60 billion of US imports.
  • Trump administration threated 5% tariffs on all Mexican imports ($350B), rising to 25% until the Mexican government stops the flow of illegal immigrants into the US.
  • Plans to revoke India’s status as a “developing nation” for not giving the US “equitable and reasonable access to its markets”. >$5 billion of Indian goods will no longer be exempt from US tariffs.

Beyond tariffs, clear and present risks/disruptions to global supply chains have emerged. Globalization has been a key driver of expanding US corporate profit margins for the past 30 years. Recalibrating supply chains and sourcing inputs would negatively impact future earnings.

Needless to say; the capital markets were not anticipating the escalation (all figures for May):

  • S&P 500 dropped -6.4%; China -13.1% (MSCI China Index, USD).
  • High impact trade war sectors/industries were hit hard. US technology sector -8.7% (S&P 500 Information Technology Sector Index); semiconductor industry (PHLX Semiconductor Index) -16.5%.
  • 10 Year US Treasury declined 0.37% to 2.14%.
  • US high yield corporates -1.2% (Bloomberg Barclays US Corporate High Yield Bond Index); US long Treasuries +6.5%.

On the Brightside:

  • US financial conditions remain easy relative to the market turbulence.
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  • “Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC, and Madison Investment Advisors, LLC, which also includes the Madison Scottsdale office.  Madison Funds are distributed by MFD Distributor, LLC.  Madison is registered as an investment adviser with the U.S. Securities and Exchange Commission.  MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer, and is a member firm of the Financial Industry Regulatory Authority. 

    Madison Investments shares all personnel and resources at their Madison, Wisconsin location. Statistical data is for the consolidated Madison organization. The Madison organization consists of its holding company, Madison Investment Holdings, Inc. and its affiliates: Madison Asset Management, LLC; Madison Investment Advisors, LLC; and Hansberger Growth Investors, LP. Asset information presented includes non-discretionary assets. Refer to each entity’s Disclosure Brochure for more information.