April 3, 2017

Stocks are down in early trading (Dow -90 pts; SPX -.5%). Financials are leading to the downside, with banks off 1.2% in early trading. Semiconductors, transports and chemicals producers are also lower. The healthcare sector is flat, and that’s about as good as it gets. The VIX Index is back up over 13. WTI crude oil is down slightly to trade around $50.20/barrel. The 5- and 10-year Treasury yields are down around 1.87% and 2.34%, respectively. 

ISM’s manufacturing business activity survey fell to 57.2 in March from 57.7 in the prior month. That is a rather large—but expected—drop in reported business activity. But keep in mind, any reading above 50.0 suggests businesses are expanding. The “new orders” component of the survey, which gives us an early look at sales for the next few months, also edged lower to 64.5 from 65.1. But here again, this reading suggests a very strong absolute level of activity. And export orders are also improving. The employment component picked up nicely 58.9 from 54.2, so our nation’s factories are hiring again. Finally, the report’s inflation gauge (“prices-paid”) increased to 70.5 and that’s the highest level since May 2011. Wholesale inflation is rising.  

Manufacturing business activity indexes—also referred to as PMI surveys—are looking up around the world as well. China’s official PMI rose to 51.8 last month, its highest level since April 2012. Readings have steadily improved over the last 12 months. In addition, the Eurozone’s PMI surged to 56.7 last month, also a multi-year high. 

Automakers are reporting March sales figures today. Ford (F) is down 2.5% after reporting a 7.2% decline in light vehicle sales. Honda Motor and Fiat Chrysler also fared worse than expected. General Motors (GM) reported a 1.6% sales gain in the month but unfortunately, Wall Street analysts were expecting a 7% gain. Nissan was the other major automaker that beat sales expectations. Dealer inventories are near a decade high and price incentives are rising. 

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