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Weakening Economy?

CAMS Weekly View from the Corner – Week ending 2/1/2019

February 4, 2019

The Institute of Supply Management (ISM) is the largest private not-for-profit entity that advances the practice of supply management on a global basis.  Having been around for decades their membership is large and broad in regards to the numerous industries their membership represents.

The ISM has been surveying said membership regularly for decades and simultaneously has published their ISM Manufacturing Report on Business.  Their monthly report has become an established economic indicator.  A key measure within this report is the Purchasing Managers Index which is made up of various measures of activity.

A number above 50 for the PMI represents growth and below 50 represents contraction.  Moving further away from 50 in either direction represents enhanced strength or weakness.

This past Friday the PMI for Manufacturing in January came in at nearly 57 representing growth at an accelerating rate.  In addition, New Orders and Production which are important forward looking components of the overall Index posted strength that also is accelerating.

Manufacturing At A Glance - 2.4.19
Overall Economy - 2.4.19

The above table highlights the aforementioned key areas from Friday’s release of the ISM Report.  As depicted we can see the economic backdrop remains quite constructive.  Add to this Friday’s employment report from the Bureau of Labor Statistics (BLS) where results of 304,000 new jobs created nearly doubled consensus expectations and we can reason the economy is far from imminent recession.

This harkens back to late 2018 whereby collective market participants seemingly became overwhelmed with concerns of the economic backdrop deteriorating rapidly to the point of near-term recession.  That developed view led stocks to a harsh downturn as 2018 closed.

As the economic data continues to flow in positively economic concerns are receding and the stock market continues to rebound thus far in 2019.

The key observation point at this stage is whether the stock market will be able to climb back to the previous high points attained in September.

This will be answered in the following weeks-to-months and from there an actual uptrend question can be entertained.  Continued solid economic results will go a long way in laying the foundation for the market to reclaim its former strength.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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