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Illustration: Lazaro Gamio/Axios
The CEOs of IBM, JPMorgan and Cummins, the major engine manufacturer, have a gloomy outlook on what’s ahead for U.S. business if President Trump doesn’t back down on tariffs, Axios' Courtenay Brown reports.
Why it matters: The executives said at a Business Roundtable event Wednesday that conflict with China is prompting decisions with long-term consequences — like how to shift supply chains — and the effects may show up in the economy, as companies rein in plans for spending and hiring.
Details: Cummins has already sacrificed business because of trade tensions between the U.S. and China, plus the company is reeling from uncertainty as the USMCA — the proposed replacement for NAFTA — hangs in the balance.
The backdrop: The trade war is ramping up at a time when the juice from the tax cuts look to be fading and the economic cycle is feared to be nearing an end.
What they're saying:
What's next? The CEOs are not looking to the G20 Summit in Japan in late June as a watershed moment.
Ratings agencies S&P Global is now joining the market chorus — it expects at least 1 interest rate cut from the Fed this year, citing "increasing headwinds."
Earlier this year S&P predicted the Fed would hold rates steady through 2019, but said Wednesday it expects the overwhelmingly negative impacts from tariffs to put enough stress on the U.S. economy that the Fed will be forced to act.
What's happening: "[T]he winds have shifted, with the Trump Administration fighting trade battles on more than one front, which we think could disrupt global supply chains and weigh on business and consumer confidence," analysts at the agency said in a statement.
Between the lines: The "deceptively strong" GDP reading in the first quarter masked a number of weakening signals on the economy, analysts said, while May's "disappointing" jobs report could be warning of a natural pullback for the economy.
A warning: "The Fed may want to move sooner and more quickly than it has in the past."
Hedge fund returns fell last month after 4 straight months of positive results to start the year, but managed to outperform the broader U.S. stock market — posting much slimmer losses.
Be smart: The data from market research firm eVestment found nearly all hedge fund categories outperformed the S&P 500 in May. Equity strategies had the worst performance among primary markets hedge funds, but still outpaced the S&P by more than 400 basis points, with quantitative directional strategies delivering overall positive returns for clients during the month.
The big picture: Hedge funds have seen significant redemptions and declining popularity as they have dragged well behind the overall market's returns for more than a decade. Year-to-date, hedge funds still trail the S&P, but May's stock market swoon showed hedge funds remain a solid alternative for investors to offset risk and may help redeem the industry.
Reality check: Hedge funds were comparable to a benchmark fund of 50% global stocks and 50% global bonds in reducing losses during the month, measured by the mix of MSCI's all-world stock index and Citi's world government bond index.
Axios' Bob Herman writes: The collective stock prices of the largest health care companies have recovered pretty much all of their losses from April, when analysts and algorithms soured on the industry over fears of "Medicare for All" and other looming changes.
The bottom line: The health care industry is still extremely profitable, and Wall Street has the attention span of a gnat.
Trading volume for emerging market credit default swaps (CDS) rose to their second highest level on record in the first quarter, a new survey of major global dealers found.
What it means: While market analysts and fund managers expressed confidence on emerging market debt and equities during much of the period, the spike in CDS volumes showed they were also buying insurance on the EM countries and companies defaulting on their obligations at a heightened rate.
Details: The largest CDS volumes were reported on Brazil ($61 billion), Mexico ($49 billion) and China ($45 billion).