US Macro: PMI March 2017
If you’ve been following the news during the past couple of months there is been a huge debate about the latest market rally. Some people suggest that it was just an “unjustified Trump rally”. However, some other people believe that it’s totally justified. The economy is growing and when the economy is growing expensive simply becomes more expensive.
So then the question turned to be: “Is the economy really going to grow?” Some people argued that because of the strong reading in PMI and NMI that’s what we should all expected. But they were accused of using “soft data”. This is data that is not really representative, I guess.
They are right that PMI is not actually “hard data”, a strong PMI doesn’t mean strong growth (As we saw in our last post, here). But they are missing the point for two main reasons:
-PMI/NMI are LEADING indicators. This means that strong readings in this indicators tend to LEAD to strong readings in durable good orders, GDP growth, etc.
-When you trade the stock market you are trying to ANTICIPATE the economy. If you wait for the “Hard data” you are just late.
The correct “macro strategy” is to get bullish on strong PMI, get more bullish on strong NMI, consumer sentiment, etc. Then become even more bullish on durable good orders, unemployment data, etc. And finally, SELL on GDP data. You can NOT wait for GDP data in order to buy the market. Because if you do so, you will not only be arriving late to the party, but you will be arriving when there is no party left.
So now let’s take a look at the graph and the information provided in the ISM PMI report for March. (here)
As you can see both PMI and the New Orders of the PMI, remain extremely strong. This is suggesting that we should expect GROWTH in the following months, and therefore we should remain bullish. This will obviously end sooner or later (The cycle guys… the cycle) but for now bullish is the correct way to feel.
And if someone suggests PMI is not “hard data” then ask them to read “what respondents are saying…” and think again. Every industry in has positive outlooks, they are probably going to beat expectations, be bullish.
Nuño Pérez del Barrio