US Investors Reassess Stock Market Following ISM PMI Decline

US Investors Reassess Stock Market Following ISM PMI Decline

This marked a significant change in trading patterns, as US investors appeared to pull out of the stock market entirely in April. The ISM PMI was released today, and it dropped significantly. This decline led to fears from market participants over the direction of the economy moving forward. With May data in, investors watched intently, waiting for their chance to capitalize on whichever trend presented the best opportunity. Chris Beauchamp, Chief Market Analyst at online trading platform IG, recently tweeted this encouraging information.

When the ISM PMI number for April came in showing a contraction in manufacturing activity, it was a surprise to many investors and observers. Many investors started re-positioning. Against this backdrop, the May data offered a new lens. More importantly, it provided investors their first opportunity to judge the market’s reaction to this new economic environment. Beauchamp noted a first major retreat in April. Yet investors were quick to pile back in to “buy the dip,” a sign of an underlying new bullishness towards the US stock market.

Although this doesn’t necessarily have a huge impact on the Fed, Beauchamp noted that the stock market shot up when May’s numbers were announced. Yet, we should not discount the drop in the ISM PMI. He pointed out that this drop might be a harbinger of worse things to come in future economic reports. Investors received conflicting guidance and were caught in a vise grip. They struggled with the choice of remaining on the sidelines as this strong market recovery—one of their promised “super spikes”—occurred.

Traders were riding a wave of optimism following the May report. Remember, they had previously brushed off the March and April data as too early and too tentative to make any conclusions about the US economy. The market response was exuberant. This gives cover for investors to downplay the broader signal of the ISM PMI drop and look to better outlooks instead. Beauchamp said that the mood among investors right now is one of warmed-over optimism, as they think about coming back to the table.

This recent rally of US stocks raises questions as to how sustainable that can be. Retail investors are still trying to gauge the risk of getting back into a market that has proven to be unpredictable over the past few months. Other analysts are more concerned with overvaluation and the coming economic storm. For many, what’s referred to as “mid-February levels” valuations are seen as favorable buying points.

As discussions about future economic indicators intensify, many market participants remain hesitant but intrigued by the possibilities within the stock market. They understand that when they move carefully, they can achieve the best outcomes while crossing into new and unexplored territories. From a climate perspective, Beauchamp explained how long this rebound lasts is what’s mainly in question. Yet still, he views the prospect of investors re-entering the market as a glimmer of hope.

Tags