Chicago PMI a blowout but stocks rest

The Chicago PMI at 68.6 was well above estimates of 61 and it’s the best since July 1988 and up from 62.5 in Nov. New Orders rose by almost 6 pts, Production was up by 2.7 pts, Backlogs rose by almost 16 pts and Inventories were up by almost 12 pts. Employment rose 4 pts to the best since ’05. All of these gains came with higher inflation as Prices Paid rose 7.5 pts to 78.2, the highest since July ’08. Net-net, an impressive # following a below 400k print in claims points to a continued rebound in the economy and certainly explains the big Dec move in stocks. Today’s market action though is the first in this Dec rally that didn’t respond to the strong data but that’s likely because we’re only down 3 days the entire month. With this said, inflation and higher rates will follow this recovery and therefore economic activity may begin to separate from market performance especially considering the discounting the stock rally has done already.

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