One-hour after the release of the US ISM Manufacturing index, the S&P 500 remained relatively unchanged despite the ISM manufacturing index declining to 47.2 from 48.1 and lower than the 49 projected.
Today’s reading was the lowest level in ten and a half years and the ISM Manufacturing Export orders, suggest that the ISM index is not going anywhere fast, according to Andreas Steno Larsen, Global FX and Fixed Income strategist at Nordea Markets.
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No reason to expect ISM back above 50 during Q1. 45-47 range most likely to remain in place. pic.twitter.com/m0dt8zvdBn
— AndreasStenoLarsen (@AndreasSteno) January 3, 2020
Typically, the US stock markets would decline on this news, but the focus of investors is on the rebound in PMI indices in places like China, but more significantly, the vast amount of liquidity the Federal Reserve has been pumping into the financial system over the last few months.
Investors, are assuming the Fed rate cuts of 2019 and stealth QE will turn the economy around, and the current rise in the stock markets is projecting an increase in the ISM to about 56 to 60. However, if the economy does not bounce back, then there is a risk that the S&P 500 would need to adjust lower to match the pace of the economy.
A sign of that happening is if the S&P 500 manages to establish itself below the December 31 low of 3212. If this were to happen, the stock index might seek itself to the next support level — the December 2 high of 3159.5.
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