When a tsunami worldwide event like the recent coronavirus plague is followed by panic governments shutting down their society, you can expect years and sometimes decades before its impact is mostly neutralized.  I say mostly because some changes in societal behaviors and government policies following major events may not return to former standards for many decades, if at all.

As an example, Richard Reid, on December 22, 2001, boarded American Airlines Flight 63 between Paris and Miami with his shoes packed with explosives, which he unsuccessfully tried to detonate on the flight.  Thankfully, passengers subdued him mid-flight, and he was arrested at Logan International Airport in Boston.  This failed attempt was 23 years ago, and every passenger around the world to this day is still required to remove their shoes before going through security.  Only a few years ago, this policy was revised for those with TSA status who can walk through with their shoes on.

The most recent economic tsunami was the 2020 pandemic that significantly disrupted all business and specifically manufacturing.  Manufacturers were initially required to shut down operations and send their employees home.  The obvious supply chain dysfunction that followed disrupted all businesses depending on manufactured products. 

To illustrate the volatility of the manufacturing industry, I refer to the Global Manufacturing Purchasers Management Index (PMI), which includes the US.  The index had a sharp decline in 2020 and bounced back just as sharply in 2021, peaking at 63.4 in July 2021.  After reaching its peak, the Global PMI Index slowly declined in the aftershock from the pandemic to bottom in December 2022 at 46.2.  Since then, it has been in a steady recovery as material supplies and labor have returned to normal standards.  Note that readings above 50 indicate growing activity and readings below 50 indicate slowing activity.

The US-only manufacturing industry also experienced a sharp decline in 2020 and rebounded several months later.  The US Manufacturing Index peaked at 64.7, 1.3 points above the global index, and several months earlier in March 2021.  Just as the global PMI index declined, so did the US PMI index.  However, the decline of US manufacturing activity was much slower, with the PMI index eventually bottoming in June of 2023 at 46.0, six months after the Global PMI index bottomed.  Since then, the US PMI index peaked at 50.3 in March and dropped back to 48.7 in May. 

As US manufacturing slows down, the Global PMI index is still at 50.9, indicating that the industry is experiencing growth.  Chris Williamson, Chief Business Economist for the S&P Global Market Intelligence, provided the following in his commentary on May’s report:

“At 50.9, the Global Manufacturing PMI, sponsored by JPMorgan and compiled by S&P Global Market Intelligence, recorded above 50.0 neutral mark (and therefore in expansion territory) for a fourth straight month in April, the rate of growth gaining ground to the highest since July 2022. The latest data signaled an ongoing steady improvement of the global manufacturing economy so far in 2024 after almost one and a half years of decline.”

It would be understandable for the US manufacturing industry to be the first to begin to contract as it was the first to recover after the pandemic.  However, if the global demands continue and worldwide manufacturing can continue to expand, then US manufacturing may begin to recover with the US PMI index moving back above 50.0.

What Does This Mean to Me?

The tsunami impact on business from the pandemic will continue to reverberate in the economy for several more years as companies and suppliers are surprised by dramatic changes in materials and demand. 

Human behavior habits can be hard to change following an impactful event (some elderly people still save pocket change due to their Great Depression experiences).  The 2020 pandemic was very disruptive and resulted in significant changes in nearly every area of society. Admittedly, I never understood why people were required to wear masks in open areas like parks or when walking on the sidewalk.  It didn’t make sense then, and I still see people outside or even in their cars, with no other passengers wearing masks.  Habits are hard to change.

It remains to be seen how businesses will be effective with additional aftershocks due to the many significant economic events.  Consider events since the pandemic that included supply chain disruptions,  rising inflation, the Federal Reserve rate hike campaign, commercial real estate collapse, and slowing housing sales.  Any one of these events would have years of economic reverberation, causing businesses to adjust to unusual circumstances.  Add them all together, and the influence could continue for several more years.

So far, mostly the largest businesses have been able to navigate through the challenges caused by recent events.  Unfortunately, smaller business and those less prepared for the major disruptions have not faired as well.  The S&P 600 small cap index is still negative YTD and the S&P 600 mid cap index trails well behind the S&P 500 large cap and NASDAQ index. 

Despite the challenges in recent years, the US stock market continues to maintain its positive trend in 2024.  Our view since January is that the likelihood of more disruptions from government actions, including new legislation and tax increases, this year is minimal, primarily due to it being an election year.  Wall Street is aware of this and likes it when politicians are busy not doing their job.  Therefore, companies are taking advantage of undisturbed economic growth with rising sales and net income.

Below is an outline of the returns of the major indices YTD through May 31, 2024:

• S&P 500: 10.39%

• NASDAQ: 12.30%

• S&P 400 (mid-cap): 5.01%

• S&P 600 (small cap): -0.98%

• Bond Index: -0.11%

Let us know if you have any questions or comments on this Weekly Brief.  In addition, we welcome the opportunity to assist you and your family with your financial planning and wealth building goals.