Stocks
Last week, my seven-measure tracking group was up a strong 3.2%, on average. All components rose, with gains running in a range of 4.1% for the NASDAQ 100, to 2.8% for the NYSE Composite and the Wilshire 5000. That certainly represented better news for investors who had been beaten up by the lousy market of prior weeks.
However, if you would like to see the similarities between the 2002 and 2004 markets end, the current rally might not be a very positive development. Because ... it is about on schedule to lay a base for the poor June-July period I've been opining for a while now.
The CNBC crowd is out in force predicting stocks are now revving up for an assault on the year's earlier highs, then make decisive new ones. Maybe so, but I think not. Instead, the current strength is likely to fall well short of the prior highs, then lapse back into pronounced weakness. If so, the present up-leg will take on the appearance of yet another failed rally.
The market's behavior over the next week or two should prove critical in the overall process.
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ISM's Manufacturing Index ("PMI") for May
Yesterday, the Institute for Supply Management reported that its index measuring the economy's manufacturing activity during May came in at a reading of 62.8, a bit higher than April's 62.4 result. That's fine, because any reading above 50.0 indicates sector expansion.
Remaining nettlesome, however, was the index's price component. It came in at 86.0. This was a bit lower than April's 88.0, but April represented the highest number since late 1979, a period in which overall inflation in the US was high and rising. In addition, per this measure, May was the 27th consecutive month of increasing prices. (As recently as last October, this prices-paid component stood at a much lower 58.5.)
Moreover, ISM said that 74% of its survey respondents reported higher prices during the month, while only 2% reported lower ones. (The April results were 77%, 1% and 22%). Thus, May continued the major change in skew of prior months. In October 2003, the numbers were 26%/9%, versus May 2004's 74%/2%.
The following table examines the ISM prices-paid data over the eight months ended May. So you can see how the numbers have been trending, data for March, April and May 2003 are also included.
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICES-PAID COMPONENT
(Price Index Not Seasonally Adj.*)
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Paid ---------------------
Year Index Index Higher Lower Unch.
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05/04 62.8 86.0 74% 2% 24%
04/04 62.4 88.0 77% 1% 22%
03/04 62.5 86.0 73% 1% 26%
02/04 61.4 81.5 65% 2% 33%
01/04 63.6 75.5 54% 3% 43%
12/03 66.2 66.0 37% 5% 58%
11/03 62.8 64.0 33% 5% 62%
10/03 57.0 58.5 26% 9% 65%
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05/03 50.0 51.5 21% 18% 61%
04/03 46.2 63.5 37% 10% 53%
03/03 46.6 70.0 47% 7% 46%
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Tomorrow, ISM will report its index that covers activity in the economy's non-manufacturing sector. In recent months, this measure's price component also has shown some disquieting results.
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INSTITUTE FOR SUPPLY MANAGEMENT
NON-MANUFACTURING INDEX -- TOTAL
INDEX AND PRICES-PAID COMPONENT
(Price Index Is Seasonally Adj.)
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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04/04 68.4 68.6 53% 3% 44%
03/04 65.8 65.7 43% 3% 54%
02/04 60.8 57.3 31% 9% 60%
01/04 65.7 59.7 26% 4% 70%
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