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Emerging Markets Lows and Manufacturing Sector Highs | LPL Financial Market Signals Podcast

September 10, 2018

Ryan Detrick and special guest Jeff Buchbinder talk about pullbacks in emerging markets, the manufacturing sector’s continued strength, and other factors affecting the current economic cycle.

The emerging markets index has pulled back at least 15% from peak to trough on a calendar year basis 11 times out of the past 15 years, so a large pullback is actually fairly normal.

- Ryan Detrick - Senior Market Strategist at LPL Financial

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Once again, emerging markets are a featured podcast topic. They’ve had a rough go recently, officially closing last week down 20% from their late January peak.

Concerns over the economic crises in Turkey and Argentina have pressured the group. However, we think the sentiment is getting too one sided and could represent a buying opportunity for suitable investors. In fact, large pullbacks in emerging markets are quite normal. Plus, the underlying fundamentals on the group as a whole still appear to be quite strong.

The manufacturing sector remains strong, and the ISM Manufacturing Index hit another new cycle high last week. Although manufacturing makes up only 12% of overall GDP, we still find this to be a very important part of the overall economy. Historically, stronger manufacturing has been linked with stronger earnings.

Also discussed in this week’s podcast: did the yield curve finally begin to steepen, what does the long monthly win streak mean for stocks, and what matters for investors this week?

 

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Pullbacks in emerging markets are quite normal. In fact, going back 15 years, there have been 11 times that emerging markets pulled back at least 15% from peak to trough during a calendar year. What is worth noting is in six of those years emerging markets managed to finish the year higher even after the large pullbacks.

 

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The ISM Manufacturing Index hit a new cycle high last month, the highest reading in 14 years. Looking at the previous five cycles, a recession didn’t start for nearly four years after a peak in manufacturing. This may bode well for a continuation of the very long economic cycle.

 

Listen to Episode 4 from Monday, August 27 discussing earnings and Fed minutes.

Listen to Episode 5 from Tuesday, September 4 discussing S&P 500 changes and big market moving events.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

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