The ISM Service survey expanded in May by the most in nine months, exceeding all forecasts in a Blomberg survey of economists. The ISM business activity index—which parallels the group’s factory output gauge—had the largest monthly advance since March 2021 and is at the highest level since November 2022.
The majority of respondents stated “employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses.” The respondents also indicated current interest rates are an “impediment to improving business conditions.”
Data recently has been weaker than expected. Is this a one-off event?
Both equities and Treasuries rallied on the statistics as the price paid sub index was nominally lower than expected albeit is still “quite elevated.”
The equity advance was led by the mega caps and according to Ned Davis Research the top ten stocks now account for 35.7% of the S & P 500 Index’s market cap—a record since at least 1972 if not before. The firm stated the obvious that the amount of money concentrated in a handful of stocks presents a “dangerous environment,” referencing the implosion of the “nifty fifty of 1973-74,” where buyers where entirely absent that drove valuations to extreme lows.
The nifty fifty was the last era where value was completely abandoned for growth, perhaps a partial comparison to today.
Bloomberg writes “the Bloomberg Intelligence Market Pulse Index, a sentiment gauge that acts as a contrarian signal, advanced within striking distance of manic territory, a rare sign that has typically tempered future returns.”
Tomorrow is the release of the BLS labor report. Next week is a Fed meeting. No action is expected however the focus will be around a new “Summary of Economic Projections”….aka the dot plot.
It is widely expected the “dots” are likely to cluster on one or two interest rates cuts this year.
What will happen today?
Last night the foreign markets were up. London was up 0.38%, Paris up 0.51% and Frankfurt up 0.77%. China was down 0.54%, Japan up 0.55% and Hanf Seng up 0.28%.
Futures are flat. The 10-year is off 4/32 to yield 4.29%.
