Fed Considering Rate Cuts As Early As June

The Fed sees trade tensions as a risk to the U.S. economy. This is giving them pause in their current policy of holding rates steady. There are now signs of a weakening U.S. economy as well. As a result of these new developments, the Fed has begun deliberating the possibility of a rate cut as early as their June or July meetings.

The economy still remains strong, but as we have been saying in our Commentary and economic reports, the U.S. economy is fragile. The Fed has revised down its expectations for economic growth for this year to 2% from the 3% growth of last year. The Fed currently does not expect inflation to hit its 2% target this year.

Economic and Investment Highlights

Last Week

Tariffs and trade tensions are increasingly hurting U.S. industries in both higher costs to manufacturers and lower demand for U.S. products. Factories are on track for their weakest performance since 2016. Manufacturing job growth has slowed since late 2018. Manufacturing output has declined in three of the past four months. Manufacturing accounts for 11% of U.S. gross domestic product, down from 16% twenty years ago. The HIS Market survey of sentiment among U.S. purchasing managers hit a three-year low in May; while a survey of the Institute for Supply Management was at its lowest point since October 2016 in April.

Kevin Hassett, the chairman of the Council of Economic Advisors, is leaving his post. While he is leaving on good terms with the White House, it nonetheless may create some instability in U.S. economic policy, especially during the transition to his successor.

The Nasdaq dropped 1.6% on Monday, putting it in a correction.

The World Bank lowered its global growth forecast for 2019 to 2.6% from 2.9% in January.

U.S. crude futures declined into a bear market over worries of global growth and fears of an oil glut.

Central banks around the world have begun considering rate reductions over concerns of global economic slowing.

U.S. hiring slowed in May as companies are starting to have concerns about trade tensions, slowing global economic growth, and emerging strains on the U.S. economy.

Bond yields across the globe continued falling, reflecting concerns that global economic growth is slowing. The yield on the 10-year treasury came very close to 2% last week.

The. U.S. and Mexico resolved their dispute on immigration and the tariffs on Mexican imports were averted. Trump had threatened a 5% tariff on Mexican goods out of an apparent frustration with Mexico’s lack of action in stemming the flow of Central American asylum seekers.

The Dow Jones Industrial Average reversed back up and posted its best weekly results in over six months. Both the S&P 500 and the Nasdaq rose for the week, 1% for the S&P 500 and 1.7% for the Nasdaq.

The Week Ahead

This link takes you to Econoday’s Economic Calendar and Economic Events and Analysis which shows the upcoming economic reporting events scheduled in the week and months ahead.


Note: The comments that follow are derived from the economic indicators referenced in the Resources section of this newsletter and other sources in this report.

The Aruoba-Diebold-Scotti Business Conditions Index (ALS) has been trending up the last several weeks and is now very close to the zero line. The ALS Index advanced slightly again this past week. This is a very positive indicator for the economy on a short-term basis.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.4 percent on June 7, down from 1.5 percent on June 6. This slight adjustment continues to support the ALS model assessment of an improving short-term economic environment.

The New York Fed Staff Nowcast stands at 1.0% for 2019:Q2 and 1.3% for 2019:Q3.

The Chicago Fed National Activity Index (CFNAI) showed a decline in economic activity in April. The Chicago Fed National Activity Index (CFNAI) was –0.45 in April, down from +0.05 in March.

All told, these short-term economic indicators are a neutral to positive analysis for the economy, at least on a short-term basis.

Expectations that stock prices will rise over the next six months is at 22.5%, an unusually low level, in the latest AAII Sentiment Survey. The historical average is 38.5% for the survey. Please see the AAII Sentiment Survey for the complete results.

The latest Gross output (GO) reading suggests slow economic growth as we enter 2019.

On a longer-term basis, the forecasters in the Philadelphia Fed’s Survey of Professional Forecasters (as of May 10, 2019) predict real GDP will grow at an annual rate of 1.9 percent this quarter and 2.1 percent next quarter. On an annual-average over annual-average basis, the forecasters predict real GDP to grow 2.6 percent in 2019, 2.0 percent in 2020, 1.9 percent in 2021 and 2.3 percent in 2022. The forecasters predict the unemployment rate will average 3.7 percent in 2019, 3.6 percent in 2020, 3.7 percent in 2021, and 3.9 percent in 2022.

For a more in-depth review and analysis of the economy, please see our mini-book on economic analysis and forecasting entitled: Simple and Effective Economic Forecasting.

Stock Market Valuations

Our estimates of the market valuations for two stock market indices, the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500), can be found in the file below:


We continue to believe the economy is in a stable but now more vulnerable state. Recent economic reports have been showing signs of weakening. Nonetheless, the economy has remained fairly strong. In fact, the extremely strong first quarter GDP showing and the strong labor market conditions still give us confidence that the economy, now in its tenth year of expansion, can continue to grow. But we are cautious on this outlook! Please see our complete Economic and Investment Review in the Winter 2019 quarterly issue of the Intrinsic Value Wealth Report Newsletter.

With the market rebound this past week, the broad market remains overvalued, although the Dow Jones Industrial Average looks more fairly valued than the broad market. But that does not mean that a market correction is imminent. Markets can and do stay overvalued for long periods of time. As discussed above and in the Economic and Investment Highlights section of this Commentary, we believe the economy is in a stable but vulnerable state that is showing signs of weakening. If the economy remains strong, the markets will likely remain strong. If the economy deteriorates, the markets may well correct. There are other events that could trigger a market correction, of course, but economic conditions are the most likely and foreseeable events that could make that happen.

We believe it is important to maintain a long-term view toward investing. This means that you should continue building your investment portfolio using the Cassandra Stock Selection Model to select individual securities that offer growth and value opportunities.

Chart for Review and Thought

Interest Rates 1934 to 2019


We have been researching the use of crowdsourcing for investment ideas. We will be sending a survey out in the next few weeks to get your input on the economy and the markets; and to get any investment ideas that you would like to share. We will compile this input and distribute the results to you and our other subscribers.

Dr. Wendee will be speaking at the Las Vegas Investment Club on June 24th.  He will be speaking on the topic of his popular Forbes article, Nine of the Best Ways to Build Wealth. Please contact Mike Lathigee at mike@mikelathigee.com if you would like to attend.

Dr. Wendee will be speaking at FreedomFest during its annual conference in Las Vegas, July 17 – 20, 2019.

Dr. Wendee will be a judge at the FundingPost June PitchFest Event on June 11, 2019 in San Diego. Click on this link for details on the event: 

Business 539 – Financial Management – On May 9, 2019, Dr. Wendee started teachingBusiness 539 – Financial Management at California Baptist University (CBU). Dr. Wendee teaches courses in Finance and Economics at CBU.

Management 3080 – Business Responsibility in Society – Dr. Wendee will be teaching Management 3080 – Business Responsibility in Society at California State University, Los Angeles (CSULA) starting August 22, 2019. Dr. Wendee teaches courses in Management at CSULA.

Dr. Wendee will be presenting a paper on enterprise value creation at the International Leadership Association’s annual global conference which is being held in Ottawa, Canada this Fall.

Intrinsic Value Wealth Creation pyramid

We always conclude our commentary with a discussion of the Intrinsic Value Wealth Creation Pyramid. The Intrinsic Value Wealth Creation Pyramid is designed to show some of the major categories for building wealth. It is the result of many years of study of the wealth building process; experience working with clients who have built considerable wealth; and my own personal experience building wealth. Newsletter subscribers should consult the Intrinsic Value Wealth Creation Pyramid as one of many useful investment tools while considering their investment plans.

The chart in this section is an expanded version of the Intrinsic Value Wealth Creation Pyramid Chart referenced in the Forbes.com article entitled, Nine Of The Best Ways To Build Wealth


See our Resources section for links to economic and other resources used in the preparation of this Commentary.

This entry was posted in Economic & Business Chart Room, Economic Outlook, Entrepreneurship, Focus List, Investment Recommendations, Investments, Notes From The Field, Special Situations, Uncategorized, VDI/REEP, Visionary Ideas and tagged , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.