Thursday, January 4, 2024

Morning Note: When (if it's going to) Will the Services Sector Follow Manufacturing Into Recession?

While the sentiment among survey respondents wasn't all bad, yesterday's release of the December ISM Manufacturing Index says the US manufacturing sector remains in recession.

Here's from the report:  

“The only manufacturing industry to report growth in December is Primary Metals. The 16 industries reporting contraction in December — in the following order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Textile Mills; Petroleum & Coal Products; Paper Products; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Miscellaneous Manufacturing; Furniture & Related Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products." 

Per the following, the ISM Manufacturing read (white) tends to lead that of the ISM Services report (yellow). Below 50 means contraction, red-shaded areas highlight past recessions:

This of course jibes with our view that last year's economic resilience stemmed from consumers still spending their "pandemic savings" on life experiences, as opposed to stuff... Suffice to say that those savings will ultimately dwindle to a level that will draw into question the earnings sustainability of the recipients of all that spending, as well as the overall health of the economy.

Now, when will said savings (in the pockets of those who move the economic needle) become depleted? Well, depends on whom you talk to -- our sources say by the end of Q1 or early Q2.

Stay tuned...

Asian equities traded down overnight, with 9 of the 16 markets we track closing lower.

Europe, however, is mostly green so far this morning, with 14 of the 19 bourses we follow trading up as I type.

US equity averages are mixed to start the session: Dow up 116 (0.31%), SP500 up 0.04%, SP500 Equal Weight up 0.12%, Nasdaq 100 down 0.28%, Nasdaq Comp down 0.24%, Russell 2000 up 0.16%.

As for yesterday’s session, US equities closed lower: Dow by 0.5%, SP500 down 0.8%, SP500 Equal Weight down 1.5%, Nasdaq 100 down 1.1%, Nasdaq Comp down 1.2%, Russell 2000 down 1.5%.

This morning the VIX sits at 14.06.

Oil futures are down 0.01%, nat gas futures are up 4.57%, gold's down 0.15%, silver's down 0.98%, copper futures are down 0.96% and the ag complex (DBA) is down 2.7%.

The 10-year treasury is down (yield up) and the dollar is up 0.02%.

Among our 32 core positions (excluding options hedges, cash and money market funds), 13 -- led by XLF (financial stocks), FEZ (Eurozone equities), XLV (healthcare stocks), XLE (energy stocks) and Johnson & Johnson -- are in the green so far this morning... The losers are being led lower by REMX (rare earth miners), Dutch Bros, TLT (long-term treasuries), LTPZ (long-term tips) and SLV (silver).

"...there are no secrets to trading, only knowledge, skill, experience, and psychology. And even if I share all my knowledge, skill, and experience, the psychology bit is by far the hardest part. You can master all the skills, tactics, and strategies and you will still fail if you cannot control yourself."  --Brent Donnelly

Have a great day!

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