I’ve mentioned this on several occasions previous, and I mention again only as an addendum of sorts — an “extra” factoid to consider as you ponder the prospects for the new bull market in US equities.

If you plot the YoY percentage change in the S&P 500 with the YoY change in ISM manufacturing, you get a pretty compelling visual. If you ask me, that’s apples to oranges by definition: You’re comparing a PMI to a cap-weighted index of stock prices. However, when we talk about “the fundamentals” in the context of the US economy, you could do worse than ISM manufacturing.

Personally, I could take it or leave it when it comes to PMIs (all PMIs), but there’s no denying that ISM is a marquee report — a top-tier release, recognized far and wide as a reliable indicator of manufacturing vibrancy or, as things stand currently, a lack thereof.

It’s the “lack thereof” aspect juxtaposed with an equity market which last week erased the entirety of losses incurred over the course of the most aggressive rate-hiking campaign in a generation that has some analysts concerned. ISM manufacturing has spent seven months in contraction territory, and as of May sat nearly 10 points lower versus the same month a year ago. As noted, the juxtaposition with equities’ YoY change is stark, as shown below.

For Morgan Stanley’s Mike Wilson, this is just one more reason to be wary of a rally that still lacks buy-in from some big names on the sell-side and apparently from some on the buy-side too, going by (under)performance.

“On the fundamental side, the measure we prefer to use is ISM manufacturing [and] the spread between the YoY change in the S&P and the PMI has rarely been wider,” Wilson remarked.

He noted that the only comparable disconnect in recent memory showed up at the end of 2019, when Morgan Stanley’s US equities team was likewise out of consensus on the growth outlook. “Many will say our pessimistic view on growth at that time would not have played out had the pandemic not arrived,” Wilson went on. “We will never know for sure, but… either way, the YoY change in the S&P is in rarified air from both a liquidity and fundamental standpoint.”