The S&P Global US Composite PMI was 51.7 in May.
A reading above 50 suggests overall business activity increased, while below 50 suggests it decreased.
Moderate Private Sector Expansion
The May composite PMI reading of 51.7 indicates the U.S. private sector is continuing to expand at a moderate pace. This number suggests both the services and manufacturing sectors are growing, which reduces near-term recession fears. For us, this signals a stable economic backdrop for the coming weeks.
Given this sign of economic resilience, we should consider bullish positions on broad market indices. This could involve buying call options or selling put spreads on the S&P 500, as continued business activity typically supports corporate earnings. The steady, but not overheating, growth suggests a favorable environment for equities.
This PMI reading of 51.7 aligns with the latest April jobs report, which showed a solid 210,000 jobs added. With the last CPI inflation reading also coming in a bit firm at 3.6%, the data points to a resilient economy. This combination strengthens the case that the Federal Reserve will not be cutting interest rates in the immediate future.
Therefore, we see an opportunity in positioning for interest rates remaining elevated. This might involve using SOFR futures to bet against imminent rate cuts or buying puts on long-duration treasury bond ETFs like TLT. A growing economy means the Fed has little reason to ease monetary policy.
Positioning For Lower Volatility
Volatility will likely remain suppressed in this environment of steady growth. We should consider selling VIX futures or call options, as the index of market fear tends to fall when economic data comes in as expected without major surprises. This PMI number is strong enough to soothe markets but not so strong as to spark new inflation fears.
We remember the slowdown scare in the second half of 2025 when the PMI briefly dipped below 50, causing significant market jitters. The current data confirms a clear and sustained recovery from that period of uncertainty. This suggests the economic expansion has regained its footing, a stark contrast to last year’s concerns.
