August 21, 2020
Data: US August flash PMIs extended further into expansion territory with manufacturing coming in at 53.6 vs consensus for 52, and services improving to 54.8 from 50 last month and beating consensus for 51.
Sectors: Today’s better than expected US August PMI data and improving coronavirus trends now gives the S&P 500 an opportunity to clear technical resistance at 3393. In May, we saw improving US COVID metrics translate into broader market breadth, better participation and outperformance in cyclically-sensitive/value stocks. We expect to see a similar pattern emerge as early as next week and probably last through September. The price patterns in cyclical, value and small cap indices look orderly, coiled and ready to rally. The price patterns in growth (Tech and Consumer Discretionary) look extended and we see early signs of trend deceleration. As growth sectors decelerate, we expect cyclical/value and small cap names will squeeze higher. To be clear, we’re not looking for a big ‘rotation’ out of growth stocks…there’s plenty of sideline cash (~$5T in money funds) that can be used as a source of funds.