Manufacturing PMI Hits 37-year High, Small-Caps ‘Dethrone’ Nasdaq 100, and Markets Anticipate Rate Hikes
April 5, 2021 | FIRESIDE CHARTS
In yet more evidence of the economic recovery gaining momentum, the ISM Manufacturing PMI jumped to 64.7 in March—its highest level in nearly 40 years. While good news for the U.S. economy—of which manufacturing comprises 11.9%—could the implications be less-than-rosy for large-cap equities? The S&P 500® Index is already lagging small- and mid-caps year-to-date, despite wrapping up last week with another record high. In fact, the S&P 600’s 95.33% annualized return helped it sail past the long-reigning Nasdaq 100 to close out March. Despite this significant rotation, volatility is also at a one-year low as the VIX closes below 17.5 for the first time since the onset of the pandemic. Could it mark the beginning of a new low-volatility era? Meanwhile, the market is bracing itself for rising rates and has priced in a 50%+ chance of two rate hikes next year, despite Chairman Powell’s assurances. What does it all mean for standard 60/40 portfolios?
1. The PMI is at its highest level in almost 40 years:
Source: The Chart Store, from 4/5/21
2. Is it possible that the PMI is too strong?
Source: The Daily Shot, from 4/5/21
3. The market leadership battle continues:
Source: The Chart Store, from 4/5/21
4. Small-cap’s surge in the first quarter helped “dethrone” the NASDAQ 100’s leadership for the first time in years:
Source: The Chart Store, from 4/5/21
5. Will the markets produce another ultra-low volatility environment?
Source: The Daily Shot, from 4/5/21
6. Fighting the FED? The markets have priced in a 25 bps increase in the Fed funds rate and are now pushing up the odds for 50 bps by the end of next year…
Source: The Daily Shot, from 4/5/21
7. Long-duration bonds got hurt by rising rates. Are your 60/40 type portfolios depending on bonds contributing similar returns as the last five or ten years?
Source: The Chart Store, from 4/5/21
8. The bond sell-off looks extended and may be due for a rest:
Source: The Chart Store, from 4/5/21
9. Most commodity prices also turned positive for the year as the home renovation and industrial recoveries continue. Please remember one year ago was the pandemic low for just about everything:
Source: The Chart Store, from 4/5/21
10. Rising U.S. interest rates have helped put a bid under the USD. Did a double bottom just form around $89?
Source: The Chart Store, from 4/5/21
11. Rising interest rates in Q1 was a global phenomenon:
Source: The Daily Shot, from 4/5/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.