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By Scott McIntyre, CFA
Co-Head of Investment Management
HilltopSecurities Asset Management
The latest survey from the Institute for Supply Management (ISM) indicated the service sector had accelerated in May with the composite services index rising from 51.7 to 54.5, the highest since February and a considerable improvement from the 49.9 reading 12 months earlier. Underlying measures suggest further advancement is on the horizon as the new orders index rose nearly four points while supplier delivery times shortened.
One downside to the otherwise healthy services report was a retreat in the employment index, which was already flashing contraction (below 50). The apparent improvement in the overall well-being of the largest sector of the U.S. economy, paired with a reduction in hiring expectations, suggests technology is filling the gap. However, that apparent automation gain failed to cool inflation as the prices paid index reached a four-year high of 71.3.
On Monday, the ISM manufacturing index jumped from 52.7 to 54.0, the strongest measure since May 2022. This factory composite has now signaled expansion (above 50) for five consecutive months for the first time since 2022. Similar to the services survey, the new orders index surged further into expansion territory (57.3) while the employment index seeped further into contraction (47.9).
While the price index slipped a notch from the four-year high reached back in April, the 82.1 May reading indicates the vast majority of factory managers are still seeing their input prices rise.
The inflation problem doesn’t seem to be going away, and stronger economic growth is normally consistent with higher prices in the future. On a positive note, a manufacturing revival seems to be afoot, but so far signs of life haven’t ushered in new hires.
Although stocks and bonds sold off today (yields higher), the sell-off was the result of renewed bombing in the Middle East, suggesting the fragile ceasefire has broken. Oil prices are up for the third straight day, with WTI now back above $96 and approaching a two-week high.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.
Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.