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ISM PMI and Stock Market Returns

Posted in Economic Indicators

According to the Institute for Supply Management (ISM), their Manufacturing Report On Business, published since 1931, "is considered by many economists to be the most reliable near-term economic barometer available." The manufacturing summary component of this report is the Purchasing Managers' Index (PMI), aggregating monthly inputs from purchasing and supply executives across the U.S. regarding new orders, production, employment, deliveries and inventories. ISM releases PMI for a month at the beginning of the following month. Does PMI predict stock market returns? Using monthly seasonally adjusted PMI data during January 1950 through January 2016 from the Federal Reserve Bank of St. Louis (discontinued and removed) and from press releases thereafter through December 2018, and contemporaneous monthly S&P 500 Index closes (828 months), we find that:

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