Yielding to Reason

Is softening Purchasing Manager’s Index (PMI) data signaling the end of the economic party after a decade-long expansion? Or, do the numbers represent a temporary lull that will give way to continued growth?

While the debate is far from settled, at least one indicator suggests recent manufacturing weakness may simply reflect a pause as opposed to a full-fledged slowdown.
 
As the chart below illustrates, movements in the yield of the 10-year treasury have been tightly correlated with domestic manufacturing activity. 
 
With yields stabilizing, the market appears to be signaling brighter times ahead for manufacturers if historic PMI patterns persist. A rebound could be particularly rewarding for attractively valued businesses in cyclical industrial areas of the market that already experienced a pullback when macro clouds gathered during the summer.

As value-oriented investors who have found significant opportunities among manufacturing and industrial companies, we would welcome such a development.
 
Stabilizing Bond Yields Foreshadow Better Industrial Activity?
Source: FactSet Research Systems Inc. and Heartland Advisors, Inc.
ISM Manufacturing PMI 10/31/1989 to 9/30/2019; 10-Year Treasury 10/31/1989 to 9/30/2020
Economic predictions are based on estimates and are subject to change.
ISM Manufacturing PMI (Purchasing Managers Index) is an index based on surveys of more than 400
manufacturing firms by the Institute for Supply Management (ISM). The PMI index is an indicator of the economic
health of the manufacturing sector based on five major indicators: new orders, inventory levels, production,
supplier deliveries and the employment environment. A reading over 50 represents that the industry is expanding,
under 50 represents a contraction, while a reading at 50 represents no change.
 
 
Please wait while we gather your results.

Author

Heartland Advisors Value Investing Research Analyst Troy McGlone

Troy McGlone

McGlone, CFA, is Vice President and Portfolio Manager of the Opportunistic Value Equity Strategy. He has 11 years of industry experience, 5 at Heartland.

Email Sign Up

  • I am a financial professional or institutional investor
  • I am an individual investor

©2019 Heartland Advisors | 789 N. Water Street, Suite 500, Milwaukee, WI 53202 | Business Office: 414-347-7777 | Financial Professionals: 888-505-5180 | Individual Investors: 800-432-7856

Past performance does not guarantee future results.

Investing involves risk, including the potential loss of principal.

There is no guarantee that a particular investment strategy will be successful.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

The statements and opinions expressed in the articles or appearances are those of the presenter. Any discussion of investments and investment strategies represents the presenters' views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true.

Economic predictions are based on estimates and are subject to change.

CFA® is a registered trademark owned by the CFA Institute.

Heartland’s investing glossary provides definitions for several terms used on this page.

ALPS Distributors, Inc., is not affiliated with Heartland Advisors.

top