Published August 5th 2022

Daily Brief - Here comes the slowdown: negative PMIs for 2 months in a row

TLDR

New low for ISM New Orders PMI confirms the slowdown is accelerating. Equity holders beware.

ism pmis

The chart of the week

ISM’s leading survey of New Order PMIs has made a new low to 48 (from 49.6 last month).

The survey asks companies if new business is better or worse than last month. When the indicator is below 50, the majority of companies are seeing business worse than last month.

Those cases when the indicator stays below 50 for several months are usually associated with an economic slowdown (you can see all past cases since 1988 in the chart above).

It’s fair to expect SPX earnings to follow suit.

So why is the market rallying?

Large short positions are being squeezed, especially since the Fed came out less hawkish than expected. Furthermore investors are loading again into oversold Tech stocks.

What does the TOGGLE Market Checklist have to say?

The good: Positioning is squarely negative in futures, making a new low at -30%. We think we already have had a bit of a squeeze, but as long as positioning is short we at least be safe from risks of sharp drawdowns due to overcrowded longs.

The bad: a) New Order PMIs are in negative territory for two quarters in a row. b) SPX earnings appear to be retreating. c) SPX P/E is back at 17.28x (so much for our hope to see it fall towards 12x!). And d) seasonality is fairly neutral from August to October.

Upcoming: You know the drill by now. First PMIs, then CPI. Inflation comes out on Aug 10th. Stay tuned.

Idea Spotlight: JPMorgan

Technical Analysis indicators for Credit Suisse reached a recent low and historically, this led to a median increase in JPMorgan price of 16.27% over the following 6M. TOGGLE analyzed 13 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

JPMorgan Chase & Co.’s Marko Kolanovic is emerging as one of the very few bulls among Wall Street’s top strategists saying US stocks will rally in the second half.

jpmorgan price history

Daily Brief - Here comes the slowdown: negative PMIs for 2 months in a row

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