VIDEO: August Manufacturing PMI No Slam Dunk for a Rate Cut

In today’s Portfolio video, Chris Versace breaks down today’s back-to-back August Manufacturing PMI reports from S&P Global and ISM, sharing why the inflation and jobs figures are not a slam dunk event for a September interest rate cut. 

Chris also shares our plans for picking up more shares for one of the Portfolio’s AI chip plays, and a potential catalyst date for American Express AXP.

Transcript

CHRIS VERSACE: Welcome back, my friends. Chris Versace here. We are moving into the ninth month of the year, my birth month, better known as September. And as you've probably noticed, as we come back from the Labor Day weekend, the market is off to a weak start.

We can chalk this up to some of the renewed uncertainties that we talked with you in our opening comments this morning about Trump tariffs and some other items. But to that, we can add the rash of economic data that we got late morning. Here, we're talking about the back-to-back August manufacturing PMI reports from S&P Global and ISM. Let's break it down.

When we take a look at what S&P Global had to say, its report was a little more favorable in terms of the outlook for US manufacturing. It found that the conditions improved to the greatest degree in over three years during the month of August, amid a surge in production and solid growth in new order bookings. Mostly, that was US driven.

Tariffs, as S&P found, really weighed on export demand, not exactly a big surprise. S&P's findings also showed a big pickup in hiring, as factories took on more staff to meet a, quote, "influx" of new orders. However, on the pricing front, input cost inflation accelerated in August, and it was the second-highest increase, again according to S&P, in the last three years. The only month that was greater was the month of June, 2025. And, yes, that can also be blamed on tariffs.

A lot of companies were saying in S&P's findings that tariffs were pushing up their operating costs. And where they could, they sought to pass that on to clients through an upturn in selling prices, not exactly good commentary for the inflation pressures that we've seen building. That also kind of supports comments we've heard from other retailers over the last few weeks about potentially raising their prices, as they have to restock their inventory levels.

Now let's turn and see what ISM had to say with their August manufacturing PMI. And, remember, that compared between S&P Global and ISM, while we drink all the comments in for the portfolio, when it comes to economic data, ISM's findings are an input into GDP calculations. So the market might weigh that a little bit more.

So what did it have to say? Well, it also said that manufacturing picked up a little bit, compared to the month of July, but not as much as S&P found. Technically speaking, the headline ISM manufacturing PMI was below 50, so still contracting, but at an incrementally slower pace. However, ISM's data also showed a pickup in new order activity, with a modest increase as well in manufacturing employment and somewhat softer prices. But, still, even with a handle of 63, the August ISM manufacturing PMI price indicator was still well above where we were at the start of the year, January, February, and up significantly compared to this time last year.

So if we smash together these two reports, and we think about the 10% to 15% of the US economy that is manufacturing, we would walk away and say that incrementally better in August than July. Employment was up month over month. But inflation pressures remain.

The big question that we have is, how sustainable is this pickup in demand that we're seeing in August? It really kind of smells more like inventory restocking. And we talk about that because when we look at the supplier inventory data found in ISM's report, it does show a decline for the third consecutive month.

So that doesn't necessarily mean that the manufacturing side of the economy is revving, poised for a pronounced upturn, but more kind of just rebuilding inventory levels. We're going to want to watch the demand side a little bit more closely when we get the September data. But, remember, in the near term, we're much more focused on what these two reports have to say about employment, up modestly, and inflation pressures, ticking higher or remaining at elevated levels.

When we look at those two data points and we think about the Fed, I think the jury is still going to be out on whether or not we have multiple rate cuts late this year, October, November. But I would say that when we think about the September rate cut, what we saw in today's data doesn't say it's a slam dunk. Remember, though, we have a lot more data coming this week.

Some of the biggest will be on Thursday, when we get the ADP employment report for August. We'll also get again back-to-back August service PMIs from S&P Global and ISM. Remember, my friends, that the services sector is 85% to 90% of the economy.

So while we're paying mindful attention to the manufacturing PMI data for August, it's really the service sector that we have to pay most important to. Arguably, this makes Thursday a very, very big day today and one that happens to come right before the August employment report. And when we look at expectations with just a few days to go, the August employment report is supposed to show a net gain of around 75,000 jobs.

Now, yes, that is down a tick, compared to what we saw in July but up rather significantly compared to May and June. As we think about that, this really hearkens back to why we want to use a three-month trailing average for the data to smooth some of this lumpiness out and really identify the trend in the data. So you'll see us talking about that a little bit more in the next couple of days.

Remember, too, Fed Chair Powell has said that that is the way that the Fed looks at the data as well, to identify the emerging or apparent trends in the data. So we're going to have our nose to the grindstone with that. But before we get there, I just want to talk a little bit about the portfolio coming into September.

You know that over the last two weeks, we made a number of moves, and our cash position is just over 10% of the portfolio's assets. But, remember, September tends to be a seasonally weak month for the market. And as we talked about in our opening comments, there are multiple reasons to think that there could be some renewed uncertainty in the market as we begin this ninth month of the year.

However, I wanted to talk about Marvell for a second and the big overreaction that we saw with the quarterly earnings report last week. Yes, we are inclined to use this disconnect between the company's demand outlook, especially as it ramps in the fourth quarter of the year for its custom AI business, compared to the just overwhelmingly overdone drop in the shares. Are we inclined to do this? Yes, we are.

But, remember, we don't make moves without being mindful of what's unfolding in the economy and the market around us. So given my comments about having to watch the data and what it could mean, could mean, for the market having to rethink the potential for Fed rate cuts-- remember, the market sees three before the end of the year-- that as we get more data, we'll have a clearer sense this week as to how likely that number of rate cuts are, as well as the potential for a September rate cut. So we're going to want to tread carefully.

Remember that we're all about looking to maximize the upside in a position, no question. But we also have to be mindful of what's going on in the market, so we can minimize any incremental downside risk as well. So, please, be patient with us as we move through the week. We will continue to evaluate the timing for picking up some additional Marvell shares.

And, finally, before we get out of here in today's video, I just wanted to touch a little bit on American Express. I don't know if you, but I was certainly watching the US Open over the weekend. And, of course, American Express is a big sponsor. And there were some rumblings, as I was doing some reading, that perhaps September 18th could be the day when American Express announces the refresh for its platinum cards.

Remember, this is a catalyst that we're waiting for. Maybe it's September 18th. Maybe it's not. But we're going to put a pin in it, so we'll at least be looking out for anything in and around that date as it relates to American Express.

Remember that there is likely to be an uptick in the annual membership fee. But we do expect American Express to pack on the member benefits to offset that. We'll have to see what the outlook is for those benefits.

But by and large, remember that we key in on the membership size, not only American Express but Costco, because, A, it's a differentiated business model, and, B, in both companies, the membership fee revenue stream is a meaningful piece of their pre-tax income. It's big at Costco. It's even bigger, as we've talked about, with American Express. So this is an important catalyst for us to watch, as it relates to our rating on the shares as well as our price target as well. So we'll have a lot more coming in the coming days as we get more clarity on that.

And just given the timing, I would just point out to you that, yes, we do have another wave of back-to-back investor conferences to chew through this week, next week. But next week, we also have Apple's event. The week after that, we have Meta Connects event and Mark Zuckerberg's keynote. And so it could be a very, very busy September, which means, my friends, we will be breaking it all down for you.

But I need you to continue to check your Alerts, check your emails, so you can get our latest thoughts. And if and when the time is right to make any moves with the portfolio, you are right there with us. Thanks for watching. 

At the time of publication, TheStreet Pro Portfolio was long AXP.