As we close the second quarter of 2014, several countries released manufacturing data last week including China and India. The JP Morgan Global Manufacturing Purchasing Managers' Index (PMI) for June also came in at 52.7. This number measures global aggregate manufacturing around the world, and for the month of June, the one-month reading broke above the three-month trend. Historically, this trend change means potentially positive news for investors.
Our historical research shows that when this trend change has happened, we often see strong demand for commodities, higher manufacturing, along with a rise in GDP per capita. In the month following a cross above in global PMI, for example, 67 percent of the time copper rises.
Shown in the chart below, as better economic growth occurs we have generally seen good performance from cyclicals such as energy and technology, as well as encouraging signs in health care, a sector that currently is looking strong as I discussed just last week.
Past performance does not predict future results, but I believe that PMI trends are important for investors to understand. By looking at historical data and internal research, we can see what has generally happened one to three months after a cross above or a cross below - a great tool to use when making investment decisions. The table below puts this into perspective.
In a volatile market, knowing how to read the global PMI, the flash PMI or the PMI of individual countries, can aid in making smart investment choices, ones that aren't based on emotion or market noise. The global PMI number for June should strengthen investors' confidence as we look into the second half of 2014.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The J.P. Morgan Global Purchasing Managers' Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states
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