Yesterday’s selloff was strong to the downside, relieving some of the overbought condition hanging over the market. The HCM-BuyLine® remains strong and pullbacks should be bought. Today, the market is rallying back up, showing how much cash and short-term bonds investors have as they try to pick up deals from the selloff.

Durable goods orders edged up 0.2% in December, below the consensus of 0.8%. It was the eighth consecutive increase, but also the smallest in that sequence, weighed down by a 51.8% drop in civilian aircraft orders. Excluding transportation, durable goods orders were up 0.7%.

Nondefense capital goods orders ex-aircraft, or core business orders, rose 0.6%, also its eighth increase in a row. Most major categories advanced, led by a 2.4% rise in machinery orders. The core orders-to-shipments ratio was practically unchanged from the previous month at 102.0%. But the ratio is near its highest level since August 2018, and has risen 1.7 ppt from a year ago, implying improving business conditions. Additionally, core unfilled orders increased 0.7%, the second most since July 2018, pointing to firmer future demand and some tightening in operating capacity, which could lead to more hiring in the manufacturing sector.

On a y/y trend basis, durable goods orders gained 1.9%, while core business orders increased 7.6%, the fastest pace since August 2018. The pickup in y/y momentum shows a strengthening of capex demand and bodes well for manufacturing output growth in the near-term.

Private business activity picked up at the start of 2021, despite a still raging COVID-19 virus and a relatively slow vaccine rollout. The Markit U.S. flash Manufacturing PMI climbed 2.0 points to 59.1 in January, a record high level. Factory output grew at the fastest pace since August 2014. New orders, including export orders, rose at the quickest rate since September 2014. Greater demand drove up order backlogs, which led to firms expanding their workforce at the fastest rate in two years. Supplier deliveries slowed, a sign of strengthening demand, although in the current COVID-impacted environment vendor performance has also slowed because of supply chain delays and raw material shortages.