As you can see, above the 50 level represents expansion in the manufacturing sector.  Below 50 represents contraction.  The September number (the big negative surprise) was 47.8.  The report this morning, measuring manufacturing activity from the month of November was 48.1 – still in contraction. 

Now, back in my October note, we discussed the commonalities of the dips below the 50 level in this index.  The big one:  Central banks responded in each case.  And in each case, the decline in manufacturing activity reversed.

What’s happening now, in this current manufacturing contraction?  Central banks are responding again.  The Fed has cut rates three times, stopped quantitative tightening and has started aggressively expanding the balance sheet again.  China is firing every bullet it has.  Global central banks around the world are cutting rates.  And the ECB has restarted QE.

So, what should we expect this time?  An about-face in manufacturing activity. That’s what we’re getting, albeit slowly. The manufacturing data in the U.S., China and Eurozone are all moving higher from the lows of the year.

Now, with the news this morning, we kick off December with a down day in stocks.

The S&P 500 remains up more than 24% on the year, but there are clear memories of what happened last December.  Stocks plunged as much as 18% on the month, and finished down 10% — the worst December on record.

What’s the difference?  The Fed and the ECB were proving to be a violent headwind for the global economy twelve months ago.  Now they’ve flip-flopped on policy, and are a tailwind.

As for December in general:  It tends to be a good month for stocks. If we look back at annual returns on the S&P 500 dating back to 1950, stocks are up 74% of the time in the month of December, with an average gain of +1.4%.