Wednesday's strong momentum has fizzled out following a weaker-than-expected PMI report. The report reflects a contraction in manufacturing for the first time since the depths of the Covid crisis in May 2020.
What is most interesting about this response is that the weak PMI report is a sign that inflationary pressures are relenting, but the market appears to be more concerned about slowing economic growth. Fed Chair Jerome Powell already made it clear on Wednesday that the Fed believes that inflationary pressures are cooling, but the issue that is becoming increasingly important is whether or not the Fed can engineer a soft landing. While Powell indicated some optimism about that, data like the PMI report are going to become increasingly important.
Keep in mind that we have the November jobs report Friday morning, and that is going to be another market mover. A hot report is going to be particularly negative after Powell highlighted the labor market as being the key element driving inflation.
The indexes have given back a portion of Wednesday gains, but breadth is still positive. The important technical issue now is finding some new support levels without negative momentum building too much. There isn't much interest in stock-picking, but we'll see if that perks up as charts start to develop clear levels of support.
The biggest positive that I see is that many smaller stocks are showing better relative strength and charts. They are no longer in freefall, and there are indications of value buying in the many names that have been hit the hardest.
I continue to hold very high levels of cash but did deploy some Wednesday, and I'm looking for more exposure in individual stocks into the end of the year.