Weekly Market Summary

Extra Credit^*

• The ISM manufacturing composite index rose 1.7 points in January, buoyed by a firming in new orders and production, alongside a strengthened employment picture. Although some improvement was expected in January, the 50.9 reading was higher than the consensus of 49.9. The latest reading is the highest since September 2022 and, in principle, seems a notable break from an extended period over which manufacturing activity generally stayed level. That said, January's firming is likely exaggerated by the unwinding of supply disturbances related to events last fall, including hurricanes Helene and Milton, as well as the strike at Boeing.
• This interpretation would be consistent with hard data on manufacturing production, which, according to estimates from the Federal Reserve, registered a second consecutive monthly gain in December.
• Concerns about supply conditions bubbling below the surface could be a precursor of things to come for markets. On the whole, there may be little reason to believe that a sustained acceleration in manufacturing activity is taking shape following the election. After some high-level assessments of demand showed conditions were mixed overall, a number of them highlighted early signs that cost pressures may be in the pipeline from tariffs and other restrictions from the new presidential administration.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the January at 1.50% for high-yield bonds and 0.30% for bank loans, down from 1.52% and 0.36% December. This is also well below the long-term historical default rate of 3% for loans and 3.4% for high yield, and the historical post-GFC default rates of 2.3% and 2.5%, respectively.

Sources: Bloomberg and JP Morgan as of 2/3/25.