Stocks » S&P 500 hits 6-week low

S&P 500 hits 6-week low

The S&P 500 index is testing a 6-week low as the ISM Manufacturing PMI shows that price pressure remains. The price sub-index rose to 51.3 in February from 44.5 in January, indicating producers are paying more for inputs.

Key points to remember:

  • An ISM survey of the US Manufacturing PMI recorded 47.7 in February, up slightly from 47.4 in January, marking the fourth straight month of contraction in the manufacturing sector.
  • However, the study showed signs of stabilizing as the new orders sub-index improved to 47.0 from 42.5 in January and backlogs improved, although backlogs remained low.
  • Producer price index rose to 51.3 in February from 44.5 in January, indicating potential inflationary pressures. Meanwhile, the employment index fell to 49.1 from 50.6 in January.

The Institute of Supply Management (ISM) recently published the Purchasing Managers Index (PMI) for US manufacturing.

The data show that the US manufacturing sector contracted for the fourth month in a row in February. However, there are indications that the industry may be stabilizing as sub-components of the report including new orders, production, employment, supplier shipments and prices show a mixed picture.

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The overall PMI was flat at 47.7, slightly up from 47.4 in January and below Reuters’ forecast of 48.0. A PMI below 50 indicates contraction in the manufacturing sector, which accounts for about 11.3% of the US economy. Despite the weak PMI data, the industry could stabilize as manufacturing rebounded in January, according to the Federal Reserve.

The new orders sub-index, which measures demand for goods, showed some improvement, climbing to 47.0 last month from 42.5 in January. However, the order book remained weak, indicating relatively weak demand. The manufacturing sub-index, which measures output, fell to 47.3 in February from 48.0 in January. The decline suggests that manufacturers are slowing down production, likely due to weak demand.

The jobs sub-index fell to 49.1 in February from 50.6 in January, indicating a slowdown in factory job growth. However, the correlation between the employment sub-index and the manufacturing wage bill in the closely monitored government employment report was weak. The wage bill has generally increased at a steady pace.

The supplier sub-index was flat at 45.2 in February, indicating that suppliers are still delivering goods to factories faster than usual. The price sub-index rose to 51.3 in February from 44.5 in January, indicating producers are paying more for inputs.

Inflation could remain elevated for some time given the price sub-index recovery and continued supply chain disruptions. Despite improving supply and slowing demand, inflation flared up, with consumer and producer prices posting significant monthly gains in January.

S&P 500 Technical Analysis (US 500)

U.S. indices slipped in early trading on Wednesday after the ISM manufacturing PMI report as traders rate interest rates “higher and longer” from the Federal Reserve. As shown in the chart below, the S&P 500 is testing Friday’s intraday low near 3950, a level that is also the lowest price since January 20.

Source: StoneX, Tradingview

Now with prices clearly below the 50-day moving average EMA, the near-term trend has reversed in favor of the bears, with a confirmed break potentially exposing mid-January lows around 3880 followed by December lows around 3780.

Bulls will want to see a bounce off the current support level and a return above the 50-day moving average EMA around 4010 before they have more confidence to continue up.

Matt Weller, CFA, CMT, » Official site stock exchange FOMC

Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.

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