Morning Notes — NDX Testing Resistance

Last year at this time (11/30/19), we expressed an emerging preference for cyclical/value sectors when global manufacturing PMI crossed into expansion territory at 50.3.  At the time, the global manufacturing cycle was responding to expectations for a US-China trade détente.  The global economic effects from escalating US-China trade tensions during the preceding ~18 months was buffered by a massive Fed-led global monetary easing cycle.  That easing cycle was layered on top of those from the 2007 global financial crises and ongoing policy accommodation due to China’s 2014 decision to de-lever.  After 12 years of monetary accommodation and with US-China trade tensions easing, the global economy had its first real chance of entering a sustained period of economic growth and reflation.  The onset of coronavirus-related lockdowns (today is one year anniversary of first known case in China) created the sharpest and shortest recession-driven bear market in history.  New, massive monetary accommodation was added in the US and elsewhere, credit backstops were initiated and the largest fiscal stimulus package in US history ($1.8T in direct aid to individuals and business) was introduced.  Manufacturing PMI is our best forward indicator of global growth.  After today’s reports, global manufacturing PMI is extending further into expansion territory at 53.7 from 53 in October.  Global services PMI for November is due on Thursday, but already in expansion mode at 52.9.  Meanwhile, the S&P 500 Value Index (SVX) still trades below year-ago levels and banks still trade near record cheap valuations based on price/tangible book value.