4 months ago • 2 mins
You could spend a lot of time fretting about the current state of play. And, sure, with stubborn inflation, higher-for-longer interest rates, and an increasingly unstable geopolitical landscape, there’s a lot to fret about. But, despite all this (gestures wildly), stock markets are holding in there, just about. If you ask me, there’s one big reason why and it’s neatly illustrated in the chart. The ISM (Institute of Supply Management) new orders index is a sub-component of its big monthly survey of firms across the US. It asks business owners what their customers are doing and whether they’re seeing new orders. This gauge is widely considered to be one the best predictors of future economic activity, and take a look: after a long downward slope, it looks to have turned a corner.
Now, it’s not entirely out of the woods: the reading for September came in at just 49.2, and anything below 50 indicates a contraction, while anything above 50 indicates expansion. So, yes, new orders are still falling. But that September figure was the highest in almost a year, and you don’t need to be an economist to see from the chart that once a positive trend sets in, it tends to continue.
So let’s take a well-earned sip from our half-full glass for a moment. There’s a decent chance that a brand new cycle of improving economic activity has already begun. That would contradict everyone calling for an imminent recession – a recession which, incidentally, was “supposed” to be on top of us by now.
Look, I don’t have a functioning magic eight ball here, but I do know it’s important to consider the other side of an argument. I also know that current market sentiment is pretty lousy, and yet markets aren’t imploding. So maybe a new economic cycle has begun, and if inflation can be kept on a tight leash, then things might turn out better than people think. In markets, that’s what tends to happen.
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