02/02/24 09:36 AM EST

Easy Comps Signaling ISM Re-acceleration

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.

Today's bonus chart displays ISM versus the Semiconductor index on a 3-month lead. Small alligator chart for you.

In August of 2022, the Biden administration announced the Chips and Science Act, a $52 billion spending bill, and billions more in tax credits to encourage the development and onshoring of semiconductor manufacture back to the US from Southeast Asia — a stimulative tailwind for semiconductors.

Yesterday, the US ISM Manufacturing PMI saw an uptick to 49.1 from December's 47.1, surpassing the anticipated forecast of 47. This signaled a slower contraction in the sector, with a moderate demand improvement, steady production at 50.4, and inputs remaining supportive. New orders grew to 52.5, while inventories contracted at a slower pace, at 46.2. Supplier deliveries at 49.1 were quicker for the 16th consecutive month, though customer inventories at 43.7 suggested readiness for increased production. Employment marginally declined to 47.1, with order backlogs at 44.7 and a notable increase in price pressures to 52.9.

While some of the regional PMIs have been very poor of late, the national data is now showing signs of at least stabilizing; as we move through the spring, a re-acceleration of ISM looks very likely AND is largely priced in. Remember that a sizeable portion of the Semis YoY move is a function of the easy comparisons from 2022. As those fall off, further progress gets more challenging.

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