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A Bird's Eye View Blog

Fireside Charts: FED Has Room to Cut Interest Rates, Fair Pricing of Market is Questionable, the Consequences of Tariffs

By:BCM Investment Team | Date:Jun12, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

According to our first chart today, the U.S. Federal Reserve has exceptionally more room to cut rates compared to its developed market peers. U.S. firms better show robust earnings in the coming quarters because there isn't a great deal of room for multiple expansion. This begs the question, are stocks fairly priced? The trade war has nasty consequences, such as slowing of growth in manufacturing payrolls. The PPI was a bit softer than expected in May. In China, the PPI also slowed. 

 

1. While U.S. interest rates have been historically higher than other DM, the delta is pronounced.

Source: Topdown Charts, as of 6/11/19

 

 

2. Are stocks fairly priced? It takes two sides to make a market...
 

6.12 chart 1 

Source: Alpine Macro, as of 6/11/19

  

 

3. So far the weakness has been somewhat constrained to manufacturing. However, the service sector's trend in 2019 has taken a downturn...

 

 

Source: BLS, Census Bureau, as of 6/11/19

 

4. Will both FED models be right or wrong?

 

Source: WSJ Daily Shot, as of 6/10/19


 

5. Do tariffs have a nasty unintended consequence? The trend is not looking good...

 Source: Bureau of Labor Statistics, as of 6/11/19

     

 

6. The full Producer Price Increase in May came in light at 1.8%, the Core PPI retreated closer to the 2% "target" for overall inflation.

 Source: WSJ Daily Shot, as of 6/11/19

 

 

7. Mexico has joined Canada in manufacturing recession...

 Source: WSJ Daily Shot, as of 6/11/19

  

 

8. Will China be able to spend its way back to solid growth?

 

Source: TS Lombard, as of 6/11/19

 

 

9. China's PPI was also soft...

 Source: WSJ Daily Shot, as of 6/11/19

 

 

 

In our opinion, volatility stems from a lack of consensus among investors. As advisors and analysts, we tend to make it complicated but at its core, its a very simple idea! Volatility is a useful tool to help us determine when we are more likely to realize good investment outcomes and less likely to realize bad ones.


Our Assistant Portfolio Manager Denis Rezendes speaks more to "Our Take on Volatility" in our latest thought-leadership piece. 

 

Our Take on Volatility: When You Are More Likely   to Realize Good Investment Outcomes

 

Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.