The ISM Manufacturing PMI is very high right now. This is another sign of U.S. economic strength.
60 is about as high as the Manufacturing PMI gets since the mid-1970s. The PMI is hovering around 60 right now.
What did the U.S. stock market do after Manufacturing PMI reached 60? Here are the historical cases since the mid-1970s. (The Manufacturing PMI used to be a more volatile indicator before the 1970s).
*Keep in mind that the ISM Manufacturing PMI is always released after the month is over. For example January’s data will be released in February.
The S&P continued its massive rally until March 2004, when it made a 8.8% small correction until August 2004. This small correction was very long (5 months).
The Manufacturing PMI reached 60 when the S&P was beginning a significant correction (the crash of 1987). This data was released on early-October 1987, a few days before the S&P started to crash in mid-October.
The PMI reached 60 when the S&P was in the midst of a 7.6% small correction. After making a marginal new high, the S&P began a “significant correction” in October 1983. Our Medium-Long Term Model was able to predict this significant correction.
The Manufacturing PMI surged while the S&P was climbing out of a significant correction. After the PMI hit 60, the S&P made 2 back-to-back corrections in 1978: a 8.1% correction and a 15.1% correction.
After the PMI hit 60, the S&P began a 6.3% small correction in April 1976. Then it began a 20.4% significant correction in September 1976.
The conclusion is simple. When ISM Manufacturing PMI hits 60, the S&P faces a very rough year ahead. The S&P either makes a “significant correction” or makes a very long “small correction”.
The Manufacturing PMI reached 60 in September 2017. This coincides with other studies, which all hint that 2018 will be much choppier than 2017 (Click here, here, here, and here).
- I think the S&P will make a small and quick 6%+ correction in the first half of 2018, followed by a longer correction in the second half of 2018.
- Based on current data, the Medium-Long Term Model doesn’t foresee a significant correction in 2018.