Manufacturers Signal U.S. Stock Rally to Fade: Chart of the Day
U.S. manufacturers are signaling that a two-year surge in stocks may give way to smaller gains, according to Jeffrey Kleintop, chief market strategist at LPL Financial Corp.
The CHART OF THE DAY compares the Institute for Supply Management’s manufacturing index, based on a monthly survey of corporate purchasing managers, with the year-to-year percentage change in the Standard & Poor’s 500 Index.
February’s ISM reading of 61.4 matched its peak in May 2004, which in turn was the highest level since 1983. The March figure will be published on April 1, and economists surveyed by Bloomberg anticipate a drop to 61 on average. Readings of more than 50 signal growth.
“With momentum in the ISM at or near a peak, stock-market performance is likely to soften,” Kleintop wrote yesterday in a report. He cited the S&P 500’s performance before and after nine highs in the manufacturing gauge since 1976.
In the first six months after the ISM topped out, the S&P 500 rose by an average of 1.3 percent. The comparable 12-month figure was 5.2 percent, far from the 18 percent average during the preceding 12 months.
“It would be (April) foolish to expect the powerful pace of gains over the past two years to continue,” Kleintop wrote. At yesterday’s close, the S&P 500 was 94 percent higher than its March 2009 low. High-yield bonds and commodities may be more rewarding than stocks “in the near future,” he added.
To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net
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