CURIOUS RESPONSE TO VERY NEGATIVE ISM SERVICES REPORT
The market was absolutely ecstatic after the ISM manufacturing report came in better than expected on Wednesday. More interesting, however, is that the market is showing little to no negative response to the ISM services report despite broad weakness. Make no mistake – the US economy is NOT a manufacturing economy any longer. This is a services economy, yet the market is apparently brushing off this report in favor of a meager job’s report.
The headline figure came in at 51.5 which was 1.5 points lower than expected – still expanding, but down sharply month on month. A look under the hood shows more alarming trends, however. Just like the manufacturing report on Wednesday the leading indicators in the services report were weaker than expected. New orders tanked 4.3 points to 52.4. Inventories and backlog also showed declines. The employment index, which includes government employees showed a contraction.
This is much more in-line with the regional reports and is likely a better representation of the US economy than the manufacturing index. If the regional reports hold true we should see further weakness going forward. The schizophrenic market likes what it sees for now, but make no mistake – the economic trend is down.
The market can ignore bad news for a while because 70% of the market is the algos trading with each other and the getting the heck out of Dodge. However Intel’s Qtr 3 earnings guidance is probably going to be just the first of many more lower adjusted earnings expectations. As earnings start to decline consistently so will stock prices.
It’s not just curious it’s absolutely ridiculous. Services are 70% of the US economy now. This report is infinitely more important than the manufacturing report yet it is being totally ignored. Talk about an irrational market.
Given that manufacturing is approx 10% of the economy these days, and non-manufacturing 90%, curious indeed.
Don’t fight your silicon overlords, it’ll just make you poorer.
Let’s wait and see how many more negative earnings reports we get this quarter. With the services sector slowing mightily my guess is that commentary is going to be most subdued for the majority of the firms reporting.
This market is very moementyum driven. Once moemntum starts, everyone piles on and its impossible to reverse. the good news came first, and everybody started scrumbling to cover and go long. the the ISm report was just a blip.
The PragCap wants to spoil the party by asking common sense questions and expecting rational behavior from market participants. This is funny!
Should we expect the market to go down each time there is subpar news or should we assume that the market has already priced in the news or worse and therefore stays flat or goes up? What should we expect the DOW and the S&P 500 indexes to be at based on the news received?