What November Flash PMI Tells Us About Future Rate Cuts and These Holdings
Here's what really hit home in the report’s findings and what it tells us about the timing for the next cut by the central bank.
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We now have our first hard look at how the U.S. economy is shaping up this month, and it’s also the first indication of business sentiment following the 2024 election.
If we had to sum up the findings of the Flash November PMI from S&P Global in just a few words, we would likely channel Goldilocks commenting on baby bear's porridge: "Just right" for further rate cuts.
We would choose those words because the findings show an upturn in business activity and the sharpest increase in demand over the last two-and-a-half years, which led the composite PMI figure to hit 55.3 for November. For context, that is the highest since April 2022, which tells us the overall economy remains on firm footing.
Peering into the data we find the Services part of the economy continues to drive the overall economy. Manufacturing remains soft and new order figures suggest that isn’t going to change as we exit 2024. Fortunately, “new orders for services rose at a rate not witnessed since April 2022,” which suggests the economy is far from rolling over anytime soon.
What really hit home in the report’s findings was further cooling for inflation both for input and output costs.
The only wrinkle we could see in the report was job losses hitting a three-month high, but from a rate-cutting perspective, bad news skews toward being good news. Remember, the Fed is walking the tightrope of further progress toward its 2% inflation target and maximizing employment.
Assembling the pieces found in today’s November Flash PMI data and donning on our Fed decoder ring, the combination supports the argument for the central bank to deliver another rate cut in the coming months. How soon will hinge on the November data we get from ISM and on the jobs front soon after the Thanksgiving holiday. If it confirms the findings of the Flash PMI data, we are likely to see rate-cut expectations move up, and that would be a positive for several of our holdings. If, however, it suggests the Fed could pause at its December meeting, we’ll keep in mind their ultimate goal is getting policy back to more neutral footing.
Ultimately that means the probability of lower rates in the coming quarters is favorable, and that keeps up long-term bullish on the construction plays in TheStreet Pro Portfolio. As we digest the coming data, we’ll be sure to keep a close eye on shares of Builders FirstSource BLDR, which have pulled back since late September and are almost sitting on strong support between $174-$176.
At the time of publication, TheStreet Pro Portfolio was long BLDR.
