The Chicago PMI for June registered 56.7, falling short of the 58.1 consensus forecast. The reading still points to expansion, as it remains above the 50 threshold that separates growth from contraction.<\/p>\n\n
The softer-than-expected outturn suggests a slower pace of improvement in business conditions than markets had pencilled in. Attention now shifts to whether upcoming regional and national surveys confirm a cooling trend in activity.<\/p>\n\n
We see this lower-than-expected Chicago PMI as another sign that economic growth is losing steam. This data point reinforces the trend seen in the recent Q1 2026 GDP revision, which was lowered to 1.8%. This isn’t a reason to panic, but it is a clear signal to become more defensive.<\/p>\n\n
This heightened uncertainty about the economy\u2019s direction makes volatility look cheap right now. With the VIX index currently trading near 14.5, a historically moderate level, we think it’s a good time to buy some protection. We are considering buying July or August VIX call spreads to hedge against a potential spike in market turbulence.<\/p>\n\n
Given this is a manufacturing report, we are trimming our exposure to the industrial and materials sectors. We believe buying puts on industrial ETFs, like the XLI, is a prudent move for the next few weeks. This will act as a direct hedge in case the upcoming national ISM Manufacturing report confirms this regional weakness.<\/p>\n\n
The data complicates the Federal Reserve’s job, especially with the latest Core PCE inflation reading for May holding stubbornly at 2.8%. Slowing growth with sticky inflation puts the Fed in a bind, likely leading to more market indecision on the path for interest rates. This supports our view that bond yields may remain range-bound in the near term.<\/p>\n\n
For the broader S&P 500, we are shifting from aggressive bullish positions to more protective strategies. We are looking to purchase out-of-the-money puts dated for September on the SPY ETF. This provides a cost-effective way to insure our portfolio against a potential summer correction driven by further signs of economic cooling.<\/p>\n\n\n\n