What key PMI indicators mean for stocks and investors


Dec. 4 2020, Updated 10:53 a.m. ET

U.S. manufacturing Purchasing Managers Index (PMI) readings paint mixed picture

Last week, the Institute for Supply Management (or ISM) and Markit both released their reports on the Purchasing Managers Index (or PMI). The ISM’s report gave its strongest reading since February, with 2011 coming in at 59, matching August’s level. Markit’s release, however, showed that manufacturing growth has slowed slightly. The headline Index reading fell to 55.9 in October, from 57.5 in September.

This was due primarily to the key new orders component that declined for Markit’s sample. This element, along with the production sub-index, was at 65 levels in ISM’s report, a pace showing accelerating momentum. But due to the appreciating dollar, both reports reported a slowdown in exports.

U.S. services PMI readings indicate slowing growth

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The ISM and Markit also released their reports on the services sector PMI last week. Both reported that the U.S. services sector was growing but at a slower pace in October. However, it must be noted that the indices pointed to a blistering pace of services sector growth in the earlier months. Several key components were at 60 levels. The pace of growth was unsustainable, and the slowdown in activity is only to be expected.

Investor impact

Upbeat PMI numbers are likely to be bullish for stocks (SPY) (IVV) (IWM) and exchange-traded funds (or ETFs) such as the Industrial Select Sector Standard and Poors depositary receipt (or SPDR) (XLI) and the SPDR Dow Jones Industrial Average ETF (DIA). The next two sections will cover key employment reports released last week.


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