The United States S&P Global Services PMI for May came in at 50.9. This was below the forecast value of 51.
A reading above 50 indicates expansion in services activity, while a reading below 50 indicates contraction. At 50.9, the index remained just above the 50 threshold.
Services Sector Shows Early Cooling
The latest services PMI data, coming in at 50.9 against a forecast of 51, points to a slight cooling in the economy. This miss, while small, is significant because the services sector has been a primary driver of recent economic strength. For us, this adds weight to the idea that the Fed’s prolonged high-interest-rate policy is finally starting to bite.
We should expect a rise in market volatility over the coming weeks as this data is digested. The VIX index has been suppressed near 14 for weeks, and a disappointing figure like this is often what’s needed to push it back toward the 18-20 range. This suggests that buying protective puts on major indices like the SPX could be a prudent move to hedge existing long positions.
This situation feels similar to what we observed back in late 2024 and early 2025, where initial signs of softening in PMI data preceded a choppy market. Back then, early bearish bets were punished by resilient jobs data that followed. Therefore, we should be cautious before becoming overly bearish until we see confirmation from upcoming labor reports.
The focus now shifts squarely to the Federal Reserve’s next move and how this impacts interest rate expectations. Traders will likely increase bets on a rate cut later this year, which we can see in the pricing of SOFR futures. Any upcoming comments from Fed officials will be scrutinized for a change in tone away from their recent hawkish stance.
We will be watching the upcoming Non-Farm Payrolls report very closely for any signs of weakness in the labor market. A softer jobs number, combined with this PMI reading, would build a much stronger case for a slowing economy. Conversely, another strong jobs report, like the surprisingly high 240,000 print we saw last month, would likely dismiss this PMI data as temporary noise.
