Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

If there were a week where the Vol-induced flows contradict the macro, it would be this week. We've seen a lot of this in 2023. 176 days without a return above 2% for SP. Market Structure and Macro are married but living apart to iron out their differences. We expect the lovely couple to reconcile very shortly; we've seen this before with these two.  

US Recession Alert in Manufacturing & Production - 11.2 1

The ISM Manufacturing PMI dropped to 46.7 in October of 2023, down from a 10-month peak of 49 the month prior. This was a steeper decline than the anticipated 49, marking the eleventh successive month of contraction in the U.S. manufacturing realm. This downturn highlights the ripple effects of the Federal Reserve's increased borrowing rates, further testing the mettle of U.S. goods producers based on other indicators. The contraction in new orders intensified (45.5 versus 49.2 in September), indicating the 14th consecutive decrease. Panelists attributed this to diminished demand from both domestic and international markets. As a result, production decelerated (50.4 vs 52.5), almost reaching a standstill, given the marked drop in backlog orders (42.2 vs 42.4) which countered the reduced demand for new items. 

US Recession Alert in Manufacturing & Production - 11.2 2

This isn't solely a U.S. issue. Just today, the German Manufacturing PMI registered at 40.8 (16th consecutive month of contraction), the French PMI at 42.8 (10 consecutive months of contraction), and the Italian PMI at 44.9 (7 consecutive months of contraction). These are decidedly recessionary figures, sustained over an extended duration. The equity market now seems to lean more heavily on inflows from 401(k)s. The focus, from a macro perspective, is firmly on employment.

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