The U.S. Manufacturing PMI (Purchasing Managers Index) reading is a widely used indicator for the health of the economy. It is also known as the Institute for Supply Management (ISM) report. When the PMI drops below 50, there is a good chance that the country is in a recession or could be headed that way. The historical average reading is around 53.4, and investors will look at figures below this number as a danger sign, and any number that is five digits higher or more above the average is a great sign for the economy.
I have shown a table below with PMI readings along with stock market comparisons. I stopped recording in the table in June 2014 because I had compiled enough data to show what a bull market looks like. If the PMI ever reads below 50, you probably should head for the sidelines and sit in cash until the PMI (ISM) number is above 50 again. Sometimes the stock market correlations do not have much meaning, especially if the PMI reading is near the average. However, as noted in the table below, the high PMI reading of 59.7 on April 30, 2011 resulted in a low stock price for TLT, the 20-year treasury bond ETF. People were much more interested in stocks during this time period. However, by the end of 2011, TLT had gained more than 20% because investors were starting to like bonds.
The Dow price at the time is also listed along with the price of TVIX, a volatility ETN that is supposed to reflect 2 times whatever VIX is doing in the options market. Note: TVIX did a 1:10 reverse split on December 21, 2012. 2nd note *** TVIX did another reverse split in 2013. This is a worthless and dangerous stock to own unless we are in a recession. As long as the economy is doing good, volatility stocks like TVIX will be always in a state of constant decay because the stock market is discounting any significant volatility. Then, the company that sponsors TVIX will do reverse stock splits whenever the price gets too low.
|-326 Dow drop due to ISM (PMI) decline.|