ISM Breaks Critical Threshold: Implications for Economic Growth and Fed Policy

1) ISM – The US ISM Manufacturing Purchasing Managers' Index (PMI) has recently registered at 52.6, marking a significant milestone as it has broken above the critical 50-mark threshold for the first time since January 2025. This is a bullish indicator for the overall health of the economy, suggesting that manufacturing activity is expanding rather than contracting. A reading above 50 typically indicates that the manufacturing sector is experiencing growth, which can have positive implications for employment, production, and overall economic sentiment. HOWEVER… it is important to note that a robust ISM reading may reduce the pressure on the Federal Reserve to implement interest rate cuts. Historically, when the ISM index shows expansion, the Fed is more inclined to either pause on rate cuts or even consider rate hikes, as strong manufacturing data often correlates with a strengthening economy that could lead to inflationary pressures. Many investors and analysts closely monitor the ISM as a key indicator for a variety of “investment indicators,” making it a valuable tool for forecasting market trends and potential shifts in Fed policy. As we often emphasize in economic discussions, if you can accurately gauge the direction in which the Fed is heading based on the ISM data, you can typically align your macroeconomic allocations effectively, positioning yourself advantageously in the financial markets.

2) SILVER – This morning, silver has surged by +7.8%, climbing back above its TREND line, which is a significant technical indicator in market analysis. Maintaining a position above the critical level of $88.85 would be seen as a constructive development, potentially increasing the likelihood of reaching the target area of $104 that I discussed in my previous analysis. The key question remains: can silver sustain this critical momentum signal? While the answer to this is uncertain, it is not imperative for traders to have definitive knowledge at this moment. What is essential is to establish a clear strategy for action depending on whether the price remains above or falls below the $88.85 mark. In conjunction with this, the US Dollar Index (DXY) is currently testing its TREND low area around $97.64. Should the DXY drop below the range of 97.64 to 98.31, it will likely maintain a downward bias, which could further bolster silver prices. If the USD fails to hold these levels - something that could easily occur with a disappointing jobs report this coming Friday - silver could rapidly ascend toward that $104 target. It is also worth noting that silver volatility is currently over 96, indicating that traders should brace for significant price fluctuations in the near term, regardless of the direction.

3) EARNINGS – The earnings season is progressing robustly, with 370 companies from the Russell 2000 index having reported impressive aggregate year-over-year earnings per share (EPS) growth of +24%. Meanwhile, the S&P 500 is showcasing a solid aggregate YoY EPS growth of +15.5%. These figures reflect a healthy growth trajectory across the market, suggesting that the bull market is continuing to broaden as small-cap stocks begin to take their turn in the spotlight. This broadening of market performance is significant, as it indicates a shift toward “value” stocks, which is often a hallmark of a sustainable bull market. Such rotations typically occur in the healthiest of bull markets, where investor sentiment shifts from growth-oriented stocks to those that may be undervalued but offer strong fundamentals. This transition not only diversifies the market but also enhances stability, as it spreads out investment across various sectors and company sizes, contributing to a more resilient overall market environment. As we continue to monitor these developments, it will be crucial to assess how this earnings growth influences market sentiment and investment strategies moving forward.