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ISM Services PMI and Stock Market Returns

Steve LeCompte | | Posted in: Economic Indicators

Guide Market Indicators Economic indicators

Key Insight

ISM Services PMI level and monthly change show little relationship with next-month S&P 500 returns (correlations -0.03 and -0.09; R-squared 0.001 and 0.008; Jan 2008–Aug 2023; monthly data; descriptive, in-sample; not a trading test).

Each month, the Institute for Supply Management (ISM) each month generates the Services Purchasing Managers Index (PMI), aggregating monthly inputs from purchasing and supply executives in services firms across the U.S. regarding business activity, new orders, employment and supplier deliveries. ISM releases Services PMI for a month on the third business day of the following month. Does the monthly level of Services PMI or the monthly change in Services PMI predict U.S. stock market returns? Using monthly seasonally adjusted Services PMI data during January 2008 through January 2016 from the Federal Reserve Bank of St. Louis and from press releases thereafter through August 2023, and contemporaneous monthly S&P 500 Index closes, we find that:

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