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Talking Points:

  • January ISM Non-Manufacturing Index comes in at 56.7 compared to Bloomberg survey expectations of 57.0
  • 11 industries reported growth while 7 industries indicated contractions last month
  • Investors seem to be absorbing positive data while downplaying bad data perhaps on expected help from the Federal Reserve

The ISM Non-Manufacturing Index for last month was just released and showed slowing growth in the services sector. The indicator came in at 56.7 for January which fell short of 57.0 expected for the metric. Although the prior period’s reading had an upward revision from 57.6 to 58.0, the ISM Services Index is displaying a tempered pace for the second consecutive month.

ISM NON-MANUFACTURING INDEX: MONTHLY TIME FRAME (DECEMBER 2018 TO JANUARY 2019)

ISM Services Index Price Chart January 2019

The slowing growth was mostly attributable to sharp declines in the new orders and new export orders components which fell 5 percent and 9 percent respectively from the month prior. January’s data release also showed that there were 7 industries that reported business contractions which primarily affected retail trade, educational services, arts and entertainment/recreation. On the other hand, 11 non-manufacturing industries indicated growth, led by transportation, health care, mining and food services/accommodation.

Despite the miss in the services sector indicator, the ISM Manufacturing Index released last weekshowed a healthy performance check on the sector that makes up roughly 10 percent of the US economy. This initially provided hope to bulls looking for evidence to support the parabolic move higher in stocks off December’s low. Price action suggests investors are more readily absorbing positive data while downplaying bad data, perhaps owing to anticipation of the Federal Reserve supporting the US economy through more accomodative monetary policy should fundamentals warrant dovish action.

US S&P500 INDEX PRICE CHART: 1-MINUTE TIME FRAME (FEBRUARY 05, 2019 INTRADAY)

US S&P500 Index Price Chart Response to January 2019 ISM Services Index

However, recent moves in crude oil and bonds suggests investors are skeptical about the 9 percent gain across the US stock market so far this year. This suggests the advance in equities has largely been on the back of the dovish pivot in Fed policy. If the divergence in price movements between these assets widens much further, we could see performance between traditional risk and anti-risk assets return to historical correlations as it seems sentiment has been driving prices opposed to fundamentals.

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Written by Rich Dvorak, Junior Analyst for DailyFX

Follow on Twitter @RichDvorakFX

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