Market Reaction To Chicago PMI Shows Bullish Sentiment

It is not often that we get a stark example of the power of market sentiment, but the reaction to the Chicago PMI report was just such an instance.

The report not only showed overall economic weakness, it also indicated the employment situation continued to deteriorate and new orders continued to fall. Not a pretty economic picture and not a good preview of the ISM manufacturing index due to be released Monday morning. Yet, it appears that month end window dressing and hope for green shoots fueled the bulls.

An alternate, and more grounded, explanation is that the Chicago PMI is a narrow measure of economic activity. Additionally, the ISM index rose in April and showed an increase in new orders.

The new orders index for April was 47.2, just shy of the 48.8 level that indicates economic expansion. As well, the backlog diffusion index showed improvement. The combination of these developments could result in a positive, or “less bad”, ISM index. With the bullish market sentiment any green shoot is met with buying.

Disclosures: None

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