On Monday, the latest figures from the Empire State Manufacturing Index were released. This leading economic indicator is often seen as a barometer for economic health. Why? Because businesses react swiftly to market conditions and shifts in their sentiment can be early signals of future economic activities like spending, hiring, and investment.
While it’s often not the best strategy to trade solely based on economic readings, they do offer important context about the economy and market directions. This week, traders were all eyes on the report, trying to decode which way the economy is headed. Why? The implications for Federal Reserve policies and inflation are huge!
Although the latest number was negative, indicating that conditions are perceived as deteriorating (it has been mostly negative since early 2022), the trend is more telling than the standalone figure. Since hitting a recent low in January, the survey has been showing gradual improvement, suggesting that the negative sentiment is slowly fading.
Why does this matter for your portfolio?
When the Empire State Manufacturing Index is trending up, fixed income returns tend to underperform. That’s because better economic conditions might lead to a less accommodative Fed or rising inflation, both of which can be headwinds for bonds. Conversely, when the index is trending lower, bonds tend to perform better thanks to potential lower future inflation and a more supportive Fed.
Understanding how this piece fits into the broader market puzzle can help you make smarter allocation decisions.
Let’s stay informed and make data-driven decisions for a more robust portfolio!
