Stocks posted modest gains on Friday with the NASDAQ hitting another new all-time high.

There are only a smattering of earnings reports this morning, none that should have broad market influence. The news today will be dominated by a focus on the meeting between President Trump and Vladimir Putin.

Despite all the hoopla in the media over the weekend, it is unlikely that today’s session will result in any direct impact statement. Rather, what is most likely is that both will lay out their agenda items and each will be trying to assess the other both for points of weakness and focus points where progress can be made. Both are disruptors; that is how each move forward. President Trump has labeled Mr. Putin a competitor. It is hard to compete and both sides win. Mr. Putin clearly wants to be a bigger player on the world stage but as an instigator and disruptor, he hasn’t been well received. Indeed, the resultant sanctions are an obvious sore point and he will probe Mr. Trump to try to determine what steps are necessary to obtain sanction relief. For his part, Mr. Trump is unlike to offer any major concessions.

The politics of all this is clearly intriguing but mostly irrelevant to the financial markets. What markets are concerned about right now is trade and Russia isn’t a major factor in world trade except for energy. Mr. Trump has already criticized Germany for agreeing to a large contract to purchase Russian natural gas. While the Germans and the media may not have liked his assertive stance, in the context of today’s meeting, it demonstrated another level he might try to pull to disadvantage the Russians on the world economic stage. But what might be more a factor in Trump’s playbook is his ability, if any to limit the rise in energy prices. The U.S., Saudi Arabia, and Russia together produce more than one-third of daily oil production. Given our free enterprise system, Trump has limited ability to directly affect U.S. oil production. Imposing tariffs, whether done by him or by another country like China, would only serve to limit production or raise prices. That is contrary to his goal. He has already tried to push the Saudis to raise production with only limited success. He will see if he has any leverage to influence Putin. It is worth noting that oil prices are down 2% this morning before the summit talks begin. Other than energy, Russia simply isn’t a world economic power today and, therefore, today’s meeting, while interesting from a political standpoint, is unlikely to be market moving.

Switching to the markets, the performance of equities over the past few weeks is impressive in the absence of any particular news during a period when corporation are in a silence period where most cannot execute stock buyback programs. The economic backdrop continues positive. This morning’s data, highlighted by solid June retail sales plus a strong positive revision to May’s numbers, underscores the current economy’s strength. Tariffs imposed to date are modest and may knock a tenth of a percentage point or two off of third quarter GDP growth. But second quarter numbers will be the best in years and clearly the economy can deal with the modest headwind of tariffs so far. The real fears come if tariffs escalate in the months ahead. The sabre rattling suggests that might happen but we all know by now that Mr. Trump likes to make extreme assertive threats and then walk them back. Just harken back to the situation in the U.K. this weekend when he blasted Theresa May and her time in a press interview timed to his landing in London only to walk his negative remarks back almost 100% by the time he and Ms. May held a joint news conference. It is very hard to ignore Trump’s words but it is his actions that matter. 2

The strong economic backdrop leading into earnings might actually be ready to get even better if you listen to purchasing managers. Inventories are extremely lean, in some cases almost to the point of leading to supply chain disruptions. The only solution to that is to increase manufacturing. The industrial sector has been weak for several months as it is perceived to be the most disadvantaged by a trade war. But a trade war of words and lean inventories could lead to a nice upside surprise if the worst tariff fears are not realized.

Former NFL great Barry Sanders is 50 today. Will Ferrell is 51.

James M. Meyer, CFA 610-260-2220

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