Richmond Reversal

In addition to weaker than expected preliminary S&P Global (formerly Markit) PMIs, another weak regional Fed manufacturing index hit the tape this morning.  The Richmond Fed’s Manufacturing Composite dropped into contraction in May as the index hit its lowest level in two years. The 23-point month-over-month drop was also the second-largest decline on record behind the 49-point drop in April 2020.

Richmond Fed Manufacturing Index

Each regional Fed’s headline manufacturing number differs slightly in composition and the Richmond reading is made using shipments, new orders, and employment as inputs.  As shown below, each of those indices experienced historic declines this month causing the massive drop in the composite.  Breadth elsewhere in the report was not much better though. Other categories like capacity utilization, order backlogs, and average workweek also pulled back sharply. Meanwhile, expectations for several categories are in the bottom few percentile of their historical ranges going back to the start of the data in the 1990s. Overall, this month’s report showed a massive slowdown in activity that is consistent with other surveys that have come out this month.

Richmond Fed Report

Two of the inputs to the composite that also fell into contraction this month were new orders and shipments.  New Orders have seen a small handful of larger declines with September of last year being the most recent one.  New Orders were also much lower after that decline last fall.  As for Shipments, the 31-point month-over-month decline ranks as the second-largest on record next to April 2020 when the index fell a whopping 77 points. While it does not necessarily outweigh the rapid deterioration in demand, one silver lining of the report was a further huge improvement in supply chains. The reading on Vendor Lead Times was sliced in half as the index remains below pre-pandemic levels.

Supply Chain Data

Again, Employment is the third input to the composite and it was the sole input to remain in expansion in May. That being said, it too fell sharply versus the prior month.  While that reading indicates lower mid-Atlantic manufacturers are currently net taking on more workers, expectations saw a record decline meaning hiring plans are likely to decelerate significantly in the near future. That is as wage growth has stalled out and the length of the average workweek has been cut.

Labor market data

Finally, in spite of supply chain improvements and weaker demand, prices have continued to rise unabated.  Prices paid hit fresh record highs across both current conditions and expectations.  Prices received are off-peak but the reading did tick up slightly in May. Click here to learn more about Bespoke’s premium stock market research service.

Inflation Data

S&P 500 Up 2% At Noon

After a tumultuous week, the S&P 500 gapped higher this morning and continued to rip throughout the morning. As of noon, the S&P 500 was up 2.2%, a much-needed rally after a week of pain. Since the start of 1983, the S&P 500 has been up by 2%+ at noon 110 different times, 22 of which have occurred in the pandemic era. There has been only one occurrence this year (3/9) and two in 2021 (3/1/21 and 12/7/21). On a median basis, the S&P 500 averages a noon-to-close gain of 54 basis points (bps) when it rallies 2%+ in the morning, which is over ten times the median of all periods (5 bps). However, looking at just Friday occurrences, the S&P 500 has had a median drawdown of 9 bps from noon to the close, which is 11 bps weaker than that of all periods. Additionally, Friday was the only weekday with median noon-to-close returns below that of all periods when the index had gained at least 2% by noon.

S&P 500 up 2% at noon

Friday is also the only day of the week with lower than average positivity rates following 2%+ morning rallies. Thursday is the strongest with a positivity rate of 83%. Overall, the index has performed positively from noon to close 70% of the time following these occurrences. click here to become a Bespoke premium member today!

S&P 500 up 2% at noon