The ISM Manufacturing Index, one of the most-watched indicators of future economic growth, dropped below 50 in August. The last time this happened was exactly three years ago.
The underlying data shows an even less favourable picture, with the sub-index for new export orders plummeting to 43.3, the lowest reading since April 2009. Not only does this confirm that the manufacturing sector remains pressured by the ongoing trade war between China and the US, it also suggests equity markets could face downward pressure.
Historically, the correlation between the year-on-year change in the S&P 500 Index and the ISM Manufacturing Index is reasonably high. Compared to one year ago, the S&P 500 Index is up just 0.2%.