Points clés -
Is this market losing its marbles?
Multi-asset chart of the month: How the US stock market's relationship with business confidence has gone awry.
24 juin 2019
The chart that caught the eye of the Schroders Multi-Asset Investment team this month shows that the relationship between the ISM Manufacturing Purchasing Managers' Index (PMI) and the S&P 500 index has broken down.
The PMI is based on a survey of purchasing managers from more than 300 manufacturing firms. It is a widely followed and influential gauge of business confidence, as it incorporates new orders, production, employment, supplier deliveries and inventories.
Typically, when the index is rising with improved business confidence, stocks climb. Conversely, when it is falling, the stock market follows suit.
However, as the chart below shows, business confidence has fallen in recent quarters. At the same time, the US stock market has rebounded to near all-time highs.
Multi-asset chart of the month
What’s more, while equities (stocks) have risen, so too have bond prices. This is as investors anticipate that the US Federal Reserve will reverse its policy tightening and begin to cut interest rates.
An environment characterised by simultaneous strength in equity and bond markets is not sustainable. But as this long economic cycle is drawn out, can business confidence and economic growth return to support equities? Or have risk markets begun to lose their marbles?
We on the Schroders Multi-Asset Investment team have a neutral stance on equities while we await greater clarity on how this macro-economic picture plays out.
We currently have a supportive view of bond markets given the re-emergence of central bank support, weaker economic indicators and the persistence of political risks across various regions, which all support this defensive asset.
It is important to note that Schroders does not provide advice and this should not be perceived as a recommendation to purchase or sell a particular stock or asset class.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.