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Manufacturing Contracts For First Time Since 2009

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)

The Institute for Supply Management released its report for June today and the headline manufacturing index declined sharply to 49.7 percent from 53.5 percent in May, well below consensus expectations for a slight decrease to 52.0 percent.

"The PMI registered 49.7 percent, a decrease of 3.8 percentage points from May's reading of 53.5 percent, indicating contraction in the manufacturing sector for the first time since July 2009, when the PMI registered 49.2 percent. The New Orders Index dropped 12.3 percentage points in June, registering 47.8 percent and indicating contraction in new orders for the first time since April 2009, when the New Orders Index registered 46.8 percent. The Production Index registered 51 percent, and the Employment Index registered 56.6 percent. The Prices Index for raw materials decreased significantly for the second consecutive month, registering 37 percent, which is 10.5 percentage points lower than the 47.5 percent reported in May.

Also notable, the new orders index plunged 12.3 percentage points to 47.8 percent and the raw material price index plunged to 37 percent. As expected, the deterioration in economic data that began in May is accelerating.

 

 

As the likelihood of a recession in the US continues to increase, the already confirmed recession in Europe continues to intensify.

The euro area (EA17) seasonally-adjusted unemployment rate was 11.1% in May 2012, compared with 11.0% in April. It was 10.0% in May 2011. The EU27 unemployment rate was 10.3% in May 2012, compared with 10.2% in April4. It was 9.5% in May 2011.

Activity at euro-zone factories continued to fall sharply in June. In a particularly worrying sign for the currency bloc's economy, German manufacturing activity fell at its fastest rate in three years. The final reading of the manufacturing purchasing managers' index was 45.1 in June.

The synchronized global recession is developing as expected in May, suggesting that the US stock market is vulnerable to a violent decline during the next 6 to 12 months. At a current duration of 40 months, the cyclical bull market from 2009 is long overdue for termination and it remains likely that a cyclical top is in the process of forming.

 

 

As we have noted many times during the past several months, stock market risk remains near historic extremes from both long-term and intermediate-term viewpoints. Therefore, we remain fully defensive from an investment perspective and recommend that you do the same.

We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.