Friday, January 3, 2014

How PMI Report Affects the Stock Market


Purchasing Managers Index (PMI) is released on the first business day of each month.  It is maintained, surveyed, and released by the Institute for Supply Management (ISM). This index comprises production level, inventories, new orders from customers, employment level, and supplier deliveries, which are surveyed on 300 manufacturing firms.  PMI is a key sentiment indicator for the whole economy, especially for the manufacturing sector.  A reading of 50 is the cutoff. A reading greater than 50 means an expansion, otherwise a shrinkage.

An old saying, “The stock market action of the first day of each month will predict the rest of the month” might apply here. Jim O’Neill, the former Goldman Sachs economist, thought the PMI numbers were among the most reliable indicators in the world!

Not just the USA delivers the PMI monthly. Markit, HSBC, JP Morgan, RBC, and other major data collecting institutions distribute the most updated figures of PMI for many countries.  China’s PMI is broadcasted the last day of each month due to time zone differences.

Worst-than-expected Chinese PMI data triggered profit-taking, thus the US stock market started 2014 with a whimper.


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