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Real Time Insight

As this morning's weaker-than-expected manufacturing data is being chewed on, the broad market continues to charge higher, with the S&P 500 taking out resistance at 1620 (site of a bearish cross in the 20 and 50-day moving averages, among other expected "lids" on the bounce off of 1560).

I think it's all about biotech (only half sarcastic here) as Onyx Pharma (ONXX) snubs its nose at AMGN's $120 per share offer. Lots of great pin action here as the freight train you can't stop, biopharma M&A, has the IBB up 3.75% and one of my biotech names up 10% at one point this morning.

But let's talk about that manufacturing data because it may or may not be telling a tale of underlying weakness in the economy. Granted, the companies that make durable stuff are less than 15% of the economy, but these industries generate investment, spending, and jobs in other sectors that in a virtuous circle.

First up this morning was the Markit PMI Mfg Index for June coming in at 51.9 vs its mid-month "flash" of 52.2 and vs May's 52.3. According to Bloomberg, "The slight downgrade from mid-month includes slightly slower growth for new orders, which ends June at 53.4 to show virtually no change from May's 53.3. A mid-to-low 50s reading for this report, which has generally been showing a bit greater strength than other manufacturing data, points to no better than modest growth for the manufacturing sector.

"The nation's manufacturing sector continues to rely on domestic demand for growth as new orders for exports show significant contraction at a faster rate, at 46.3 vs May's 49.8. This reading is a concern and could, importantly, reflect slowing demand in China. Total backlog orders, boosted by domestic demand, remain in positive ground, up 1 tenth to 51.3. This reading, together with the total reading on new orders, points to steady activity for other factors in the months ahead."

Next up was the ISM Mfg Index for June which came in slightly higher than expected at 50.9 to indicate slight growth from a weak May at 49.0. Again from Bloomberg, "But new orders are a big highlight in the report, up more than 3 points to 51.9. And unlike the PMI manufacturing report released earlier this morning, the ISM report shows strength, not weakness, in export orders, at 54.5 vs 51.0 in May. Strong levels of new orders point to rising activity in the months ahead for the sector."

The standout weakness in this ISM report though was the employment component, dropping below 50 to 48.7.

Does this point to more months of lukewarm job growth of 150k-ish? And does it detract from 2014 GDP forecasts from me, the FOMC, and Deutsche Bank for 3% growth?

Beyond that, please share what you are seeing in the industries or stocks you own that are directly related to, or indirectly benefit, from manufacturing.

And please, let's see if we can talk about all of this without mentioning the QE taper effect. QE on or off, the economy is on a course that the steady-but-soon-to-peak course of QE won't affect much from here on out. Opine if you must. 


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