ISM Manufacturing Trends – Small Cap Implications (updated)

ISM Manufacturing Trends – Small Cap Implications (updated)

We examine what PMI data can say about the performance of small and large caps.

The ISM Manufacturing Index, also known as the Purchasing Managers’ Index (PMI), is an important leading economic indicator in the United States. It measures the health of the manufacturing sector by surveying purchasing managers at various companies.

We’ve seen a significant contraction in the ISM Manufacturing Index since the most recent peak in mid-2021, troughing in mid-2023.  As the index starts to climb from its three-year low, it could be a potentially positive sign for U.S. small cap stocks.

ISM Peak Dates: 12/31/00, 5/31/04, 2/28/11, 5/31/14, 2/28/18, and 5/31/21.
ISM Trough Dates: 5/31/01, 12/31/08, 11/30/12, 1/31/16, 4/30/20, and 3/31/23.
Past performance does not guarantee future results.


Historically, as the index reverts to expansion, small cap stocks have shown to benefit greatly relative to large caps.  As of January 1, 2024, the latest PMI data shows an uptick to 49.1, which was ahead of the 47.2 estimates.

Over the last 23 years, there have been five significant near-term lows for the index, not including the latest in 2023. Over those periods, U.S. small cap stocks have significantly outperformed large caps over the following 12-month periods. 


Index returns do not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Past performance does not guarantee future results.


Small cap companies tend to be increasingly levered to changes in economic conditions compared to their large cap counterparts – not unsurprising, given their home country bias. Thus a rising ISM Manufacturing index, off its lows, could disproportionately favor future growth and expansion opportunities for small cap companies vs. large caps.

For Cambiar, the above observation is an interesting tailwind for the small cap asset class – particularly taken in combination with attractive valuations and company-specific fundamentals.


To learn more about Cambiar’s Small Cap solutions, please visit:

Cambiar Small Cap Fund

Cambiar Small Cap Value SMA




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