Early Clues To Manufacturing Rally

  • September 4, 2001
  • Marc Dupee

The “surprise” up-tick in the National
Association of Purchasing Management’s index (NAPM) is giving stocks a boost
on the hope that the worst of a nearly year-long slump in manufacturing is over.
But there were
signs prior to today’s rally that the NAPM report might come in strong and that
the market would rally.

The Dow is up 213 at 10,163, the Nasdaq is up 26.08
at 1832.32, and the S&P 500 is up 19.81 at 1153.39.

An indicator that precedes and often foreshadows what
the NAPM will do is the regional National Association of Purchasing
Management-Chicago. In last Friday’s Market Flash, we pointed out how
this indicator rose from its lowest level in nearly a decade. This was your
first clue that today’s NAPM could be stronger-than-expected.

TradingMarkets’ Market
Bias Indicators Page also had an unusually high number of arrows pointing up —
five. Price often precedes news, and the
relatively rare occurrence of five up-pointing indicators was your second
indication that the major indexes could come off multi-month lows. 

Bond honcho Tony Crescenzi also pointed out over two
weeks ago in his commentary on TradingMarkets.com
that the “manufacturing sector may be bottoming.” Back on August
16, Tony pointed out that “the scenario is rather
simple: businesses have cut their inventories so substantially that any
further loss of inventories puts these businesses at risk of losing their
respective market share. Given this risk, businesses may now be
deciding to either slow their rate of inventory disinvestments or to actually

raise production.”

An improving economy reduces the chance the Fed will continue to cut
interest rates. Just two days ago, the federal funds futures
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were pricing in an 86% chance of another 25-basis-point cut by the October
FOMC meeting. Today the FFV1 is down sharply, reducing the odds of another
quarter-point cut (from 3.50% to
3.25%) to 40%.

Oil services
(
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report on merger news that Santa Fe International
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Marine
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In a move that would make it a rival in size to Big
Blue
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(
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HWP is off 14% and CPQ is off 4%, with both stocks trading at their 
lowest levels since 1996. Both companies have suffered on drastically slower
sales of PCs over the past year.

Transports
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and retail
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