Solid PMIs and new home sales nudges S&P 500 higher

The S&P 500 closed up 0.43% to 3,131.29 as manufacturing and services PMIs came in ahead of expectations. The US census bureau also announced firm new home sales numbers of 676,000 for May, which translates into a 16.6% month-on-month increase.

Market expectations were for a 2.9% month-on-month increase in new home sales on April’s figure, however new home sales in the southern and western US states roared back into life and accounted for the bulk of the increase in May.

Southern and western US states saw an increase of 53,000 and 38,000 to 402,000 and 169,000 new home sales respectively – a 15.2% and 29% rise on April. The standout southern US reading was the highest level of new home sales achieved since the 414,000 reading in October 2019. The mid-west remained sluggish a posted its lowest reading of new home sales (73,000) since October 2019.

Markets were equally jubilant towards the four month highs announced in IHS Markit’s flash US services and manufacturing PMIs, which were 46.7 and 49.6 respectively. The services reading narrowly beat expectations of 46.5, whilst manufacturing emphatically trumped expectations of 48.

Although these figures still remain below the all-important 50 score that indicates no change in conditions, it’s encouraging to see that activity in both sectors is only slightly away from being back in growth territory.

IHS Markit noted the downturn in key export markets of US manufacturing firms slowed significantly, as easing of lockdown restrictions prompted a resurgence in new orders, albeit from significantly depressed levels. The business confidence element of the index also saw a boost, as managers hoped for a swift return to pre-pandemic new order levels.

Chris Williamson, Chief Business Economist at IHS Markit, remarked:

“Any return to growth will be prone to losing
momentum due to persistent weak demand for many
goods and services, linked in turn to ongoing social
distancing, high unemployment and uncertainty
about the outlook, curbing spending by businesses
and households. The recovery could also be derailed
by new waves of virus infections. Continual vigilance
by the Fed, US Treasury and health authorities will
therefore be required to keep any recovery on track.”

Given the breaking news of record one-day rises of coronavirus cases in the state of Arizona, where US president Donald Trump is coincidentally holding an election rally, caution certainly seems warranted among US policymakers, business leaders and, of course, investors.