I don’t always comment on economic indicators, but when I do, it’s a trend like ISM Manufacturing Index

The ISM Manufacturing Index monitors changes in production levels from month to month and is considered an important economic indicator by many global macro investment managers. Some of them consider a level above 50 as an indicator of a growing manufacturing sector.

However, the current level is now down to 47.30, down from 49.50 last month and down from 63.90 one year ago. This is a change of -4.44% from last month and -25.98% from one year ago.

Global Macro traders and investors who rely on economic indicators monitor the ISM Manufacturing Index to observe US economic trends and conditions. When the index is rising, they expect a bullish stock market in reaction to higher corporate earnings. Looking at the past year, the level is in a downtrend. As such, this downtrend may be bearish for the economy and stock market.

In fact, there seems to be a trend here as I broaded out the time horizon to see the bigger picture. ISM Manufacturing Index is also in a downtrend over the past three years.

We can say the same about the past five years. This economic indicator is trending down and in a downtrend.

Next is the 10-year trend. Over the past 10 years, the recent trend is notable.

Looking back over the full period I have data, which is before 1950, the historical trend suggests it could get worse, but it’s also at the lower range it has reached before it does.

So, this economic indicator suggests as investors, we had better be prepared and aware of the situation as tactical risk management is likely to be more obviously necessary for the near future. This is potentially negative for stocks from this point.

What about bonds?

The opposite is the case for bonds. Bonds may fall as the ISM Manufacturing Index rises and in an uptrend because of the sensitivity of bonds to inflation. However, when the ISM Manufacturing Index is declining like it is now and in a downtrend, it can be positive for bonds.

The funny thing is my directional price trend systems already have us meaningful exposure to long term U.S. Treasury bonds.

You see, I don’t have to know about economic indicators or follow them, my systems and methods identify when the trends are actually starting as well as when they reverse. When they do this well, we naturally get in sync with the price trends and what these economic indicators observe.

It looks like there are real signs of a slowing U.S. economy. As such, investors need to be prepared and not be complacent with non-risk managed holdings in their portfolio. I manage our risk at Shell Capital Management by predefining my exits on all of our holdings, hedging, and tactically investing in the direction of trends and sometimes likely countertrends. It’s what our clients pay us for. As this economic expansion is very aged as is the bull market in stocks, the only certainty is the change we’ll see in the future. What has been trending up so long will eventually trend down.

I’m as prepared as I’ve ever been and probably better now than I was in the past when I operated through such conditions.

Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical.

Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or any recommendations made by the firm. Any opinions expressed may change as subsequent conditions change.  Do not make any investment decisions based on such information as it is subject to change. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data is deemed reliable, but is not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. Use of this website is subject to its terms and conditions.

 

 

 

 

 

 

 

 

 

 

 

 

 

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