Market Roundup
Dow -12.69 to 16,272.01
S&P +3.79 to 1,923.82
NASDAQ +6.92 to 4,627.08
10-YR Yield -0.02 to 2.04%
Gold -$1.80 to $1,113.70
Oil -$0.09 to $45.47
I’d love to think our economy could survive just on selling houses and cars to each other, or waiting tables and taking care of the sick and injured. But that’s simply not the case.

Manufacturing, transporting and exporting goods are still big industries in this country, even as the service sector has accounted for a larger slice of the economic pie over time. And that’s a key reason why I’m increasingly worried about the outlook for growth here.

We just got the latest ISM manufacturing data for the U.S. this morning. The headline index fell to 50.2 in September from 51.1 in August. Not only was that weaker than economists expected, but it was also the lowest reading going back 28 months.

The internals don’t look any better. Production, employment and pricing all weakened. An index that tracks new orders fell to the lowest level since November 2012, while order backlogs tanked.

Customer inventories also piled up at a faster rate – a sign that production will need to slow further to bring them back down. That fits with the outlook I shared on inventories in my Sept. 16 Money and Markets column.

If you look at the big picture, you can see we’re now dangerously close to the “low water” mark for the economy recovery:

Worrisome signs …

If we breach the 48.9 level from November 2012, it would demonstrate that manufacturers are suffering the most since the end of the Great Recession. And I don’t see how you spin that as bullish for stocks.

After all, the last time the ISM index was as low as it was this September, the Dow Jones Industrial Average was trading for around 15,000. The last time the ISM index was lower than that crucial 48.9 level, the Dow was going for … gulp … 9,000.

I can’t stress enough how there are a lot of other factors that go into stock pricing than one indicator. So none of these comparisons guarantee we’re going to fall off a cliff. But they sure as heck should make you concerned … and they underscore why I keep saying you need to raise cash, hedge against downside risk and take other precautionary measures.

“You need to raise cash, hedge against downside and take precautionary measures.”

Still, you’d be amazed how much money you can make in down markets if you know what specialized investments to buy, as well as how and when to buy them, as I’ve been helping my subscribers do in my Interest Rate Speculator service.

Any thoughts floating around in your head about the outlook for manufacturing? The state of the economy? Whether or not these lousy economic reports suggest we have a lot more downside to come in stocks? Then let me hear them over at the Money and Markets website.

Our Readers Speak

Meanwhile, yesterday’s piece on the state of the job market and domestic economy got your chins wagging over at the website – with many of you skeptical that conditions are as rosy as the government has been claiming.

Reader Tibi said: “All these favorable and often rosy write ups about our economy written by supposedly educated people make me wonder why they write them. Who do they think the readers are? How can we have a healthy economy in this country when there is so much outsourcing?

“All the people who lost jobs can’t pay taxes and can’t be healthy consumers of goods. And where are all the goods manufactured? Not in this country.”

Reader Ray said: “I add to all this the uncertainty of if anything can or will get done in Congress. We desperately need an infrastructure bill passed, some sort of progress on the budget done, and tax reform accomplished. Instead, we are still hearing the same nonsense regarding people’s personal lives.”

Reader Chuck B. added: “QEs may have some short-term effect, but they can never work in the longer term. They will always create an expectation of further easing, and that can never keep happening without destroying the value of any fiat currency and resulting in runaway inflation. I think even the Fed members must understand this.”

Lastly, Reader Billy said: “First of all, nobody should ever take these job reports, especially from the BLS, and to a lesser extent, ADP, seriously. You have to reverse engineer them to get to the truth and factor out economic hedonics.

“Having said that, you are right on to say this is the best jobs report to come out for a long time. We are facing an off-the-chart, deflationary storm that is in progress and likely to be the worst since the Great Depression. Most people have no idea how bad this situation is going to get.”

Thanks for sharing those observations. I think the economy was trying to find its footing for a while there. But the rebound was supported by even more of the same drug that got us in trouble in the first place – too much easy money. Now even that modest bounce is fading as a weaker global economy is reverberating back on our shores.

Long story short: It doesn’t matter much what the Federal Reserve, the European Central Bank, or Bank of Japan say anymore, at least for more than a few minutes, hours, or days. Markets are rolling over anyway because investors are realizing the underlying economic and earnings picture is worsening at an increasing rate. That’s bad for all risk assets, from junk bonds to stocks.

But if you think I’m off base, please do hit up the website and let me know. This link will get you pointed in the right direction.

Other Developments of the Day

● Add ConAgra (CAG) to the list of companies announcing layoffs. The food company said it would cut 1,500 jobs, costing it $345 million, and relocate its corporate headquarters from Omaha to Chicago. Initial jobless claims filings rose 10,000 to 277,000 in the most recent week, incidentally.

● A probe into whether confidential details of internal Federal Reserve discussions were leaked to an advisory firm called Medley Global Advisors is intensifying, according to the Wall Street Journal. The firm reportedly gave its clients information about Fed plans to purchase more mortgage backed securities before those plans were announced in 2012. It’s unclear whether any charges will come out of the long-running investigation.

● The quagmire in Syria continues to get worse, with Russian air forces now reportedly bombing anti-government groups that are nominally allied with the U.S. in the fight against ISIS. While it’s tough to know for sure what is happening on the ground, given all the split loyalties, it’s clear Russia is thumbing its nose at us and guarding its own interests in the Middle East nation. U.S. government protests have so far fallen on deaf ears.

● A key Chinese manufacturing index remained mired in contraction territory, coming in at 49.8 in September after a reading of 49.7 in August. A separate private survey of factory activity that was released a few days ago looked even worse.

● Hurricane Joaquin strengthened overnight into a Category 3 storm with winds of 120 miles per hour. Forecasters believe it will turn north soon, and potentially take aim at the U.S. East coast – though it could also go out to sea. We’ll see how the computer forecast models settle out on this one.

Alleged insider trading involving the Fed? More U.S.-Russia tensions over Syria? Lousy Chinese economic data? If you have thoughts on these stories that you’d like to share, head on over to the website.

Until next time,

Mike Larson