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Philly Fed Thursday To Mark Another Major Market Low?

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    August 16, 2012

    The Philly Fed gives an early look at the monthly ISM data since it is released mid-month. The Philly Fed data for August comes out on the 16th (Thursday) while the August data for the national ISM numbers comes out the first week of September. The Philly Fed is VERY depressed at a reading of -12.90 and we often see big snapback rallies in the Philly Fed after plunges just like in 2010 and 2011. Please note that the summer trading range in the S&P 500 was broken BECAUSE of the Philly Fed going from a negative 17.5 to a positive 8.7 for October when it was released on 10/20/2011.

    fed marked prior major lows
    Source: Bloomberg

    Besides the Philly Fed’s tendency to snapback after very low readings, there is fundamental support to expect a much improved reading in the headline index, which is the recent easing in inflationary pressures. In an era of zero-interest-rate-policy (ZIRP), short-term interest rates are not the primary driving force of the business cycle but rather inflation (as detailed by Francois Trahan, Head of Portfolio Strategy and Quantitative Research at Wolfe Trahan and explained in his recent book).

    Based on the Prices Paid component of the Philly Fed which leads the headline component, we should see the Philly Fed rally strongly into yearend as past easing in inflationary pressures acts as stimulant heading into year-end.

    waning inflationary pressures suggest manufacturing sees a rebound
    Source: Bloomberg


    Image: via Flickr (licence attibution)

    About The Author

    Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined PFS Group in 2005 and is currently pursuing the designation of Chartered Financial Analyst. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He manages PFS Group’s Precious Metals Managed Account, Energy Managed Account, and Aggressive Growth Managed Account. Chris also contributes articles and Market Observations to Financial Sense and co-authors In the Know—a weekly communication for Jim Puplava’s clients only—with other members of the trading staff. Chris enjoys the outdoors.