Closer To The Point Of No Return

Oppenheimer Chief Strategist John Stoltzfus, on Bloomberg discussing this morning’s disappointing (to put it mildly) release of the Institute for Supply Management (ISM) September Manufacturing Survey, says it’s all about the trade war:

“We really do believe that if we get a trade deal all of this goes 180 degrees in a different direction, and people will be worried about when the Fed will raise again. This is artificial overhang.”

I absolutely believe that most traders are absolutely in Mr. Stoltzfus’s camp, in fact, from start to finish during what turned out to be the worst correction of this now record-long bull market (at the end of last year) I was very much camping there as well.

But like I said way back in February: 

“If the Administration keeps this conflict alive too long, general conditions will deteriorate in accelerated fashion, risking the possibility that even the ending of the trade war will not avert the next bear market.”

Speaking of “way back in February”, three days after I penned the above our proprietary macro index scored a +38.37, with 49% of its 80+ data points scoring positive, 10% negative, and 41% neutral. 

Well, alas, this week’s showing suggests general conditions are moving closer to the present bull market’s point of no return; i.e., with or without a trade deal:

Macro Score: +2.33
Indicators Positive: 36%
Indicators Negative: 34%
Indicators Neutral: 30%  

Here’s straight from this morning’s ISM report (issued by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee):   note: below 50 denotes recessionary conditions…

PMI® at 47.8%

New Orders, Production, and Employment Contracting

Supplier Deliveries Slowing at a Slower Rate; Backlog Contracting

Raw Materials Inventories Contracting; Customers’ Inventories Too Low

Prices Decreasing; Exports and Imports Contracting

“Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth,” says Fiore.


“Second month in a row in which shipments have outpaced new orders.” (Computer & Electronic Products)

“Continued softening in the global automotive market. Trade-war impacts also have localized effects, particularly in select export markets. Seeing warehouses filling again after what appeared to be a short reduction of demand.” (Chemical Products)

“Business outlook remains cautious. Orders seem to be decreasing, but luckily not as sharp of a decrease as we were expecting.” (Transportation Equipment)

“Chinese tariffs going up are hurting our business. Most of the materials are not made in the U.S. and made only in China.” (Food, Beverage & Tobacco Products)

“General market is slowing even more than a normal fourth-quarter slowdown.” (Fabricated Metal Products)

“Demand softening on some product lines, backlogs have reduced, and dealer inventories are growing.” (Machinery)

“Business has been flat for us. Year-over-year growth has slowed dramatically.” (Miscellaneous Manufacturing)

“We have seen a reduction in sales orders and, therefore, a lower demand for products we order. We have also reduced our workforce by 10 percent.” (Plastics & Rubber Products)

“Incoming sales are sluggish for this time of year.” (Furniture & Related Products)

“Economy seems to be softening. The tariffs have caused much confusion in the industry.” (Electrical Equipment, Appliances & Components)

Note: Past the macro point of no return or not, I still expect to see a quick burst to all time highs for the major averages on news of a U.S./China trade deal. For us to fully engage, however, such a move would have to be followed by a marked improvement in the underlying fundamentals…


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