Last month, ISM’s headline manufacturing number saw a slight rebound rising from the April low of 41.5 to 43.1.  That indicated that activity was still worsening in May albeit at a slower pace than April.  Fast forward to June’s reading released this morning and ISM’s manufacturing report showed a huge rebound in activity with the headline index rising 9.5 percentage points to 52.6. That is the headline index’s highest reading since March of last year and was also the first back to back increases since June 2018. A reading above 50 also indicates the first expansionary reading in the manufacturing sector since February.  Lastly, perhaps most notable about today’s report was that the 9.5 point m/m increase was also the third-largest on record behind a 10.5 point increase in August of 1980 and a 12.1 point jump all the way back in August of 1952.

Respondent commentary reinforced the rebound with most making some mention of demand or production improving in June.  Important to note, while they point to improved conditions from the past few months, that is not to say activity has necessarily returned to pre-COVID levels. In fact, one comment out of the Chemical Products industry reported that it ha been a “slow recovery” and the Petroleum & Coal Products industry mentioned that things are still “below normal volumes”. Regardless, as the commentary from a Plastics & Rubber Products respondent put it, things are still “trending toward normal”. In other words, things are back on the right track, but activity has not fully recovered.

Taking a look across the various sub-indices of the report, the headline number was not alone in terms of historic monthly rebounds. Outside of the inventories index, every indices’ MoM rise was in the upper 90th percentiles of all readings.  Now 6 of the 11 indices are showing expansionary readings compared to just two last month.

As previously mentioned, production has been ramping back up with the index rising to 57.3, its highest level since November of 2018. The only larger one month jump in production was in August of 1952 when the index rose 46.8 percentage points. Meanwhile, New Orders saw its largest one month increase on record. Granted that only leaves it in the dead middle of its historic range while backlog of orders are still in contraction for a fourth consecutive month.  One interesting point of the data recently has been the index for Supplier Deliveries. Recent months have seen very elevated readings indicating longer delivery times meaning supply chains have appeared to have been disrupted. While this month’s reading of 56.9 still indicates longer delivery times, it is a much healthier reading pointing to at least some stabilization. The MoM decline of 11.1 percentage points was also the largest decline since May of 1979.

One final note on this month’s report concerns the commodities survey where businesses report price increases and decreases.  As could be expected in a pandemic environment, protective equipment remains in short supply and up in price.  Meanwhile, many cyclical products are also seeing higher prices indicating strengthened demand.  For example, cyclical metals like copper and steel are up in price in addition to various fuels.  That further reinforces the overall uptick in economic activity. Click here to view Bespoke’s premium membership options for our best research available.

At the start of each month, we send members our seasonality report that highlights the historical performance of the US stock market by month.  In our July report published yesterday, we highlighted the chart below which shows the Dow’s average change by month over the last 100, 50, and 20 years.  One notable trend is that over the last 20 years, the Dow has actually averaged declines in half of all months.  The summer months have been particularly negative, but July is the one month that stands out on the bullish side.  As shown in the table, July is the only month from May through September that has averaged gains over the last 20 years, and the average gain has been quite strong at 1.32%.  Click here to view Bespoke’s premium membership options for our best research available.

Unless we’re talking about long-term US treasuries which were modestly lower in Q2, just about every other asset class was higher.  Among those, bitcoin was no exception. During Q2 alone, bitcoin was up slightly more than 40%, which is impressive even for a volatile asset class like cryptocurrencies.  While bitcoin’s performance was very strong, though, closing out the quarter, there was a feeling of disappointment that it didn’t finish off the quarter even stronger.

Two things left bitcoin ‘hodlers’ looking for more.  First, while the price briefly eclipsed $10,000 during the quarter, it wasn’t quite enough to take out the highs from February.  Second, from a longer-term perspective, the intraday high of ~$10,400 on June 4th coincided nearly perfectly with bitcoin’s downtrend line from its record high back in late 2017 when crypto was all the rage.  Until bitcoin can take out either its downtrend or make new highs for the year, investors may be best served to wait on the sidelines. Click here to view Bespoke’s premium membership options for our best research available.

Last week we compared the recent performance of the Nasdaq to the small-cap Russell 2,000.  Below is a look at the relative strength between the Nasdaq 100 and the Russell 2,000.  The chart shows the ratio of the Nasdaq 100 to the Russell 2,000 since 1985.  In the late 90s, the Nasdaq soared versus the Russell, with the ratio rising from 1:1 in the mid-80s up to 8+ at the peak of the Dot Com bubble.  The ratio came crashing back down to the low 2s in the mid-2000s, but it has been on a steep upward trajectory for the last 12 years.

Over the first two months of 2020, with small-caps underperforming and the Nasdaq outperforming, the ratio spiked more than two points from ~5 up to 7.5 at its recent peak.  We’d note, however, that since the Covid Crisis hit, we’ve seen the ratio trade sideways in what looks to be a peak for the time being.  One day small-caps will have their day in the sun again, it’s just a matter of how long it takes for that to happen.  Click here to view Bespoke’s premium membership options for our best research available.

Please click the image below to view our July 2020 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three research levels.