S&P 500 Index: ISM Services PMI Shows Economic Recovery Intact

ISM Services PMI, S&P 500, Economic Recovery – Talking Points

• ISM Services PMI registers a fifth month of growth
• Equity market move higher following Election Day
• Market risk ahead includes FOMC and NFP Report

The ISM Services PMI crossed the wires at 56.6% on Wednesday morning. While the figure shows a 1.2% drop from the previous month, it still shows an expanding services sector in the US economy, now in its fifth consecutive month of growth. Equity markets in the U.S. are showing bullish momentum this morning with the S&P 500 Index climbing to a near 3% gain following the report's release.

S&P 500 Index (3-Min Chart)

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The services figure, combined with this week’s manufacturing report, shows the economic recovery in the United States is being sustained, despite an uptick in Covid cases throughout many states. However, the services report does show that Covid concerns are still relevant and could interrupt the recovery going forward. The ISM report records a survey respondent saying:

“Business has improved, but greatly reliant on COVID-19-related restrictions. Supplier’s inventories and lead times are longer and spotty with outages due to keeping lead times lean as a cash flow measure, but putting consistent supply at risk”

A closer look into the report also shows many of the index’s sub-components continue to grow, including new orders, employment, and business activity. Business activity decreased by 1.8%, but still shows strong growth in production at 61.2% for October. The figure could be a product of continued pent-up demand after months of consumers staying indoors to avoid social interactions. Another encouraging signal from the report points to employment with the employment index recording its second straight month of growth at 50.1%, after dropping from 51.8%.

The PMI figure is surely a sign of confidence for V-shaped recovery hopes in the economic progression following the early stage of the Covid Pandemic. However, volatility is likely to continue this week as the market reaction to election continues to evolve as undecided states tally the votes. According to the DailyFX Economic Calendar, we will see the FOMC interest rate decision on Thursday and October’s Non-farm Payrolls report Friday morning.

DailyFX Economic Calendar

Source: DailyFX