Investors should be skeptical of any signs that the U.S. economy is about to enter a strong cyclical period, according to Stifel Financial Corp. Some investors seem to be expecting a manufacturing rebound in the United States, but next week’s release of the February U.S. PMI Manufacturing index should be taken taken with a grain of salt, cautioned Thomas Carroll, an analyst in institutional equity strategy at Stifel, in a note to clients. “We believe there are significant obstacles to more than a temporary ‘pop’ higher for the U.S. PMI Manufacturing index, and we see abundant economic headwinds for the S & P 500 as 2025 progresses,” Carroll said. The preliminary version of the PMI report was released last week and showed an uptick in U.S. manufacturing. But Chris Williamson, the chief business economist at S & P Global Market Intelligence, warned in his analysis that the bounce may prove to be ” short-lived ,” in part due to firms trying to front-run potential tariffs. Carroll echoed that phrasing in his note, and also highlighted that the services sector, which is much larger than manufacturing, was shown to be contracting in the same report. Some of the economic data released Thursday supports the Stifel view as well. The Kansas City Fed’s manufacturing survey reflected a decline in activity in February, and initial jobless claims jumped to 242,000 , the highest reading since early October. Instead of betting on a manufacturing rebound, Carroll said investors should be more defensive. “We continue recommending an over-weight of defensive value (e.g., staples, healthcare, utilities) [stocks] and more defensive factor proxies (quality, low volatility, gold) as the S & P 500 appears to us to have risks skewed to the downside,” the Stifel note said. The defensive trade has been a good bet so far in 2025. As of Thursday afternoon, consumer staples and health care are the two best performing S & P 500 sectors in the new year, according to FactSet data. XLV YTD mountain Health care has been a strong sector for investors in 2025. — CNBC’s Michael Bloom contributed reporting.
