Morning Notes — SOX

This week: Global manufacturing PMI crossed into expansion territory in July at 50.6 and extended to 51.8 in August.  China doesn’t report flash PMIs, but last week’s data from Japan, Eurozone, UK and US imply higher levels.  China will release official September manufacturing PMI tomorrow with updated numbers from other countries on Thursday.  Manufacturing PMI has a strong positive correlation with GDP growth 3-6 months forward.

Sub-group: Semiconductors are a cyclical group levered to global growth.  For the past several years, we’ve used the performance of the Philadelphia Semiconductor Index (SOX) relative to the S&P 500 as a modern version of Dow Theory.  The recent relative outperformance from the SOX is an encouraging economic and broad market signal, but also reminds us that we’re in the recovery phase of the semiconductor cycle.