Welcome to this fourth release in our “Business Cycle Week”, where, besides addressing the just released Philadelphia Fed Manufacturing Survey, we’ll probe the probability for a cyclical rebound and assess the implications for equities in particular.

Take away: 

• Divergence in soft and hard data has scared the outlook for earnings in US industrials the most
• Equity betas

This week has been all about our ‘business cycle week’ here at Steno Research and for this one we’ll zoom in on both soft and hard data from the manufacturing sector and put it into an equity perspective. We’ll start with the glaring problem of the decoupling of soft and hard data which is prevalent all over the world but especially in the US, where PMI surveys nosedived in 2022 and have not particularly strongly recovered since then while industrial production numbers have been chugging along. It sure seems like sentiment and future expectations have been hit the hardest by the rise in inflation.

Chart 1: Soft data vs hard data and its 2022 divergence