Look to Value as Markets Take Back Gains from Growth
The markets have been very sloppy to start the first two months of 2021. They have worked their way higher the first of each month, only to give most of any gains back during the last week of each month. The HCM-BuyLine® is clearly up, and any pullback should be bought. Growth stocks have slowed as value and divided stocks are holding up reasonably well.
There are really two key headlines in the past 24 hours:
- White House accelerates forward vaccine supply to supply all adults by May, enlisting the aid of Merck to boost production.
- Texas re-opens economy completely.
There has been quite a lot moving forward in the past few weeks. COVID-19 cases are trending definitively lower, even as variants remain a worry. Furthermore, the US has been steadily improving vaccine supply. The Biden Administration is invoking the Defense Production Act to boost the J&J vaccine production, which received the EUA (Emergency Use Authorization) in the past week. Merck and J&J will work together to boost production.
The ISM Manufacturing Index increased 2.1 points in February to 60.8, matching its highest level since May 2004 and stronger than the consensus of 58.9. The V-shaped recovery in factory activity that started with the reopening of the economy last spring has gained significant momentum as demand for manufactured goods picked up during the pandemic; and the sector has proven more conducive than services to operating under the COVID health measures. The current level of the index is consistent with above-trend growth in manufacturing output, fueling market expectations for a faster economic recovery this year. The ISM estimates that the latest index reading corresponds to 5.0% annualized growth in real GDP.
The increase in the ISM Index was spurred by a rebound in production and new orders, indicating stronger demand. Export order growth also picked up, although import orders eased slightly. Order backlogs accumulated at the quickest rate since April 2004. The pressure on operating capacity contributed to the fastest employment growth in nearly two years. But inventories fell back into contraction territory, after four months of tepid expansion. Manufacturers continued to experience slower deliveries, with that index reaching its highest level since the shutdown last April, and near the highest level it has seen since 1979. Slower deliveries typically translate into upward price pressures, particularly in the current environment that is still fraught with supply chain and transportation issues.