NOTIFICATIONS
Close
Chat 2100
+
6 months ago
Source

COVID-19 Hits US Manufacturing Sector

SAD

With the US economy having entered recession, investors were braced for weak manufacturing data today. The report released this morning at 10am ET clearly showed the pandemic has negatively impacted the sector, but the headline number was actually quite a bit better than economists had forecast.

The Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) for manufacturing dipped to 49.1 in March, down from 50.1 in February, as shown in the chart below. The reading is consistent with only modestly slower manufacturing activity, and is well above the low 40s levels historically consistent with recession-type levels of activity.

There are several big caveats here. One is that the forward-looking new orders component, at 42.2, did fall to recessionary levels. Two, part of the strength was a quirky increase in supplier delivery times. Clearly, supply chain bottlenecks cannot be directly translated into manufacturing strength in the current environment, though they may support wholesale prices. Third, many respondent to the survey replied during the first part of the month. Clearly, conditions changed rapidly over the past week or two as stay-at-home and social distancing orders broadened.

The manufacturing sector does not represent as big of a piece of the US economy as it did decades ago, but it has historically been a good signal for corporate profits, which is why we pay close attention to it. Recessions historically bring 15-20% downside risk to earnings, certainly a reasonable prediction at this point.

“S&P 500 earnings per share in 2020 could potentially come in 20% below last year’s $163 figure, if not lower, based on the average historical haircuts to earnings during recessions,” noted LPL Financial Equity Strategist Jeffrey Buchbinder. “Even though today’s headline manufacturing data surprised to the upside, much of our services-led economy has grinded to a halt, which significantly impairs the near-term outlook for corporate profits.”

The market’s focus will next turn again to the job market, with another unfortunate multi-million surge in jobless claims likely coming tomorrow, followed by March payrolls data on Friday which will almost certainly end the longest-ever streak of monthly job gains. More on that later this week.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

If your representative is located at a bank or credit union,  please note that the bank/credit union is not registered as a broker-dealer or investment advisor.  Registered representatives of LPL may also be employees of the bank/credit union.

These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union.  Securities and insurance offered through LPL or its affiliates are:

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use | Tracking # 1-975846

7 months ago
1609 Views
Comments

Your email address will not be published. Required fields are marked *