Yesterday’s upbeat news on the manufacturing sector enthused the stock market. The ISM Manufacturing Index climbed to 56%, its highest reading since April 2006. Equity investors took the obvious clue and reasoned that the economy is still bubbling, which of course it is. The trend encourages growth in corporate profits. Investors were in a mood to agree and the S&P 500 gained more than 1% yesterday.
The notion that corporate profits still have more room to run on the upside is no minority vision. The bulls are still in control of the psychological tone that permeates Wall Street and investment predictions generally. Yesterday’s equity rally is one source of the tone, but there are plenty of other wells of optimism to draw on.
One example: a proprietary equal-weighted index of economic and financial variables calculated by yours truly suggests that the broad trend was distinctively bullish in May. And after reading the ISM report, there’s reason to think that a rebound from this year’s first-quarter GDP slump is under way.
Optimism about optimism, in fact, is evident far and wide. For instance, reports that hedge fund firm Och-Ziff Capital Management Group LLC is planning an IPO remind that these are golden times for raising capital, reporting profits and otherwise basking in the financial glory.