Stocks Turn Lower After ISM Manufacturing Data

The stock market took a turn lower on Tuesday, September 3, as investors reacted to the latest update on U.S. manufacturing. The S&P 500 was down 0.3%, the Nasdaq Composite was down 0.6%, and the Dow briefly turned lower before ending the day up just 18 points. The Institute for Supply Management’s Purchasing Managers Index (PMI) slipped to a reading of 50.3 in August, below economists' expectations of 50.5. The new orders index fell to 48.6 from 55.1 in July, indicating a slowdown in manufacturing activity.

The ISM Manufacturing PMI has been a key indicator of the health of the U.S. economy, and its recent performance reflects the broader economic trends. In January 2025, the ISM Manufacturing PMI rebounded to 50.9, signaling a return to expansion after two consecutive months of contraction. This improvement was driven by several key components:

1. New Orders Index: The New Orders Index climbed to 55.1 in January, indicating that manufacturers are receiving an increasing number of orders. This suggests that demand for manufactured goods is picking up, which is a positive sign for the broader economy.
2. Production Index: The Production Index bounced back into expansion territory, with a reading of 51.3. This indicates that factories have ramped up their output, which is crucial for economic growth.
3. Employment Index: After contracting for 14 of the past 16 months, the Employment Index rebounded in January, climbing to 50.3. This signals a return to expansion in the manufacturing sector, which is an important driver of job creation and economic growth.

However, even though the manufacturing sector showed signs of expansion, the health of the overall economy has been put to the test amid some loss of momentum in key fundamentals in past weeks. This report not only reflects the pulse of the manufacturing area but also hints at the evolving narrative of the wider economy.

For long-term investors, the recent performance of the ISM Manufacturing PMI suggests that the U.S. economy may be on the mend, with manufacturing leading the way. This could bode well for companies in the sector and the broader market, as investors may become more optimistic about growth prospects. However, it's crucial to monitor the data closely and consider the broader economic context when making investment decisions.

Given the sector-specific trends observed in the ISM Manufacturing PMI, certain industries or companies are likely to be most affected. For instance, the aerospace and defense industry has seen an increase in production, which could benefit companies like Boeing (BA), Lockheed Martin (LMT), and Northrop Grumman (NOC). Additionally, the automotive industry's potential recovery could boost shares of General Motors (GM), Ford (F), and Tesla (TSLA). Investors can capitalize on these shifts by buying shares of these companies or considering exchange-traded funds (ETFs) focused on these sectors.

In conclusion, the recent performance of the ISM Manufacturing PMI provides valuable insights into the overall health of the U.S. economy and has implications for long-term investors. While the manufacturing sector showed signs of expansion, the broader economic context should be considered when making investment decisions. By monitoring the ISM Manufacturing PMI and other economic indicators, investors can make more informed decisions about when to buy or sell specific stocks or ETFs.