January ISM Drops to 51.3

The stock market is down again this morning. The S&P 500 has been as low as 1,763.46. That’s 4.7% off our intraday high from mid-January. We haven’t been this low since mid-November.

One of the culprits for today’s selloff was a weak ISM report. I like to follow the ISM for a few reasons. One is that it has a decent record of tracking the economy’s strength. I also like because it doesn’t have a lot of lag time; it covers the preceding month and is released on the first business day of the new month. The ISM is also not endlessly revised as many government reports are.

The ISM index for January came in at 51.3 which is a sharp drop from 56.5 in December. The reports said a number of participants cited adverse weather conditions last month. I’m usually a bit skeptical of such reasons—winter weather shouldn’t be a surprise. But if there’s a rebound next month, that will give us an answer.

Still, the ISM is well above the danger zone. Any reading above 50 means that the factory sector of the economy is expanding. Official reasons usually don’t kick in until the ISM drops down to 44 or 45. There’s no reason to believe we’re near a recession at the moment.

On our Buy List, shares of Ford Motor ($F) are down as the company reported a bad sales month in January. Sales dropped 7% from a year ago. The company blamed poor weather, so there may be something to this. The shares are currently about $14.50 which is quite a good bargain.

Posted by on February 3rd, 2014 at 11:14 am


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