ISM Non-Manufacturing PMI Missed Analyst Expectations

Key Insights

• The final reading of the S&P 500 Global Services PMI report exceeded analyst expectations. 
• ISM Non-Manufacturing PMI missed expectations, providing some support to stocks. 
• Traders continue to prepare for additional rate hikes from the hawkish Fed.

Stocks Try To Rebound As ISM Non-Manufacturing PMI Misses Expectations

Markets will be extremely sensitive to economic reports after yesterday’s Fed Interest Rate Decision and the subsequent commentary from Jerome Powell, which indicated that the Fed remained hawkish.

Today, traders had a chance to take a look at the final reading of the Services PMI report for October. The report indicated that Services PMI declined from 49.3 in September to 47.8 in October, compared to analyst consensus of 46.6. Composite PMI decreased from 49.5 to 48.2, compared to analyst consensus of 47.3.

ISM Non-Manufacturing PMI declined from 56.7 in September to 54.4 in October, compared to analyst consensus of 55.5.

At this point, any positive news would be interpreted as a signal that the Fed would raise rates aggressively, while disappointing reports may provide some support to S&P 500.

S&P 500 has started to rebound from session lows after the release of the ISM Non-Manufacturing PMI report. It remains to be seen whether this rebound will be sustainable as traders remain risk-averse. The U.S. Dollar Index is up by 0.7%, while the yield of 2-year Treasuries has settled at yearly highs near the 4.70% level.

Markets Prepare For Additional Rate Hikes

The FedWatch Tool indicates that there is a 52.8% probability of a 75 bps rate hike at the next Fed meeting, so traders expect that the Fed will push the interest rate towards the 4.75% level in December. The interest rate is expected to reach the 5% level in February 2023.

Rising rates are bullish for the U.S. dollar, which continues to move higher against a broad basket of currencies. At the same time, higher rates are bearish for stocks.

Tech stocks are especially sensitive to the higher interest rate environment as they usually trade at higher multiples. Not surprisingly, Nasdaq Composite has underperformed S&P 500 this year.

For a look at all of today’s economic events, check out our economic calendar.