The steady pace of unpredictability: assessing the current market indicators

Let's take a look at the specific situation in the markets – from a macroeconomic perspective. Some of the indicators I tend to look at, I refer to as “get an overall feel of the macro sentiment.”

Let’s start with the latest Manufacturing PMI report:

No changes here – tariffs, tariffs, and again tariffs…

The ever-changing decisions of the US administration and their impact on the manufacturing sector are more than obvious. Not to mention specific numbers.

The manufacturer's comments speak for themselves:

“Currently, higher interest rates still depress the construction industry for new construction projects. Tariff policies are uncertain, which slows down (1) our investment in new projects, (2) component sourcing for new products, (3) blanket orders, and (4) replenishment of large inventory quantities. Instead, we’re working to shift suppliers to lower political risk countries or develop domestic sources. We are impacted by the higher tariffs on costs of raw materials and components both sourced domestically and from overseas, and we expect expenses will be higher in the third and fourth quarters as we consume the inventory received with new and higher tariffs or update costs from domestic sources in the second quarter.” [Machinery]“Tariffs are causing complete uncertainty around sourcing strategies. A sit-and-wait game for now.” [Electrical Equipment, Appliances & Components]“Sales are about on par with 2024, but nowhere near the budget forecast. Tariff concerns seem to be growing as the year progresses.” [Nonmetallic Mineral Products]

And it's like that in almost every sector. Out of the entire report, only one of the sub-indexes shows an upward trend:

No matter how negative the comments are, the manufacturing index is not falling into the abyss either. Although the overall mood is rather bad, the situation, as some could say, is stable.

By the way,

the index has not been below 50 points for such a long time since 1948. 

On average, when the ISM falls below 50, it stays there for about 10 months. At this moment, that period has stretched for 30 months already, starting from November 2022 and up to July 2025. Yes, you may note that during that period the ISM has “shown the result slightly above 50 points” whole 3 times, but it doesn’t mean much since during all these 30 months that number has steadily stagnated within a corridor between 46 and 50.

We are definitely not in a recession zone, but we are not in any super growth cycle either...

Let’s look at the Services PMI report:

The picture is very similar to the manufacturing sector. Rather stable, without stress, but also without any bright spots. The comments are very similar as well – tariffs, tariffs and political uncertainty in top of that.

The index has been “holding” slightly above the 50 mark for quite some time, and everyone is looking for a way out of the political uncertainty. Definitely not in a recession zone! Instead, a stable, slow growth zone.

The Consumer sentiment report:

Consumers are also looking for political stability and are monitoring the impact of tariffs on everyday matters.

“While sentiment reached its highest value in five months, it remains a substantial 16% below December 2024 and is well below its historical average. Short-run business conditions improved about 8%, whereas expected personal finances fell back about 4%. Consumers are unlikely to regain their confidence in the economy unless they feel assured that inflation is unlikely to worsen, for example, if trade policy stabilizes for the foreseeable future.”

Consumers are really worried about the potential impact of tariffs on inflation, as well as the impact of political uncertainty on the labor market. People are worried about their jobs.

The FED interest rates:

Trump continues to put pressure on Jerome Powell to cut interest rates. However, it is not so clear-cut. The latest “DOT Plot” FOMC vote shows a very mixed picture. 50 to 50. And if a cut in interest rates is planned this year – it will definitely be rather insignificant.

And the CME FED Watch tool indicates that a cut is planned for the upcoming FOMC meeting in September.

It seems like everything is easy and simple... BUT

1990s, 2000s, 2008–09, 2019–20: Fed always cut when inflation was stable or falling, not when it was still rising above 3%...

December 2024: First time they cut under those risky conditions.

2025 (so far): If inflation data in August >3%, another cut in September would repeat this unusual policy stance. Here's the dilemma Jerome Powell finds himself in.

Now – unemployment rates:

A reduction in interest rates would certainly help improve the situation in the labor market. Such dilemmas certainly do not make J. Powell’s situation any easier.

Looking at all of the above,

it seems that the conditions for the markets are not very good, but at the same time the S&P 500 has reached new highs.

This year, the S&P500 has risen by 10%! At the same time the US dollar has fallen by 11%. So, in principle, we can say that “in dollar terms” we are on the same page.

And the second popular thesis is: the US markets are not attractive due to the new US administration. Mostly of political instability but many other factors are at play here as well. So, it’s better to invest in other markets now. And I agree with this opinion, by the way!

Now, if we look at the S&P500 against the “MSCI Emerging Markets Value Index (USD)”, then emerging markets show relatively good results. What is included in this index?

Up to date, Emerging Markets have experienced greater growth.

Will this continue and emerging markets will outperform the US market? I'm not so sure, though.

As a European, I would like to believe it. But it seems that this is just my opinion and foreign investors have a different opinion:

As we can see, money continues to flow into US assets. This is another situation where we need to separate “opinion from facts”! So, for the time being, it looks like this thesis is being refuted;

we’ll see.

So, what’s next? You may ask.

Continue trading but with much “tighter stops” since the market is unstable and macro data does not show “superfast growth”.

As soon as all the current uncertainties will gain some ground, the growth will become much pronounced. An important issue is interest rates – let’s keep an eye on it and see where it goes. Also, a pressing issue is Russia’s war in Ukraine. Although Trump is optimistic, I do not believe that Putin is interested in ending the war. In my opinion, he is stalling for time ,and that’s all!

If we talk about risk assets like crypto, I see no reason for stress or any other drop in optimism. Crypto usually experiences growth in good economic conditions. If we look at BTC, it usually reaches its max at the “peaks” of economic growth.

What would be the best way to look at these “peaks”? As the “peaks” of the manufacturing sector. Why? Simply because they correlate with the rest of the economy as such. So here it is:

Every time manufacturers reach their maximums, it coincides with BTC's maximums. When manufacturers experience a crisis, then BTC falls, and so it goes on every time.

At the moment, the Manufacturers Index is stagnating and is not close to its maximum yet. Therefore, we expect growth and new all-time highs!

Stay tuned!

Agris