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A key barometer of U.S. factories fell in July for the fourth consecutive month and hit an eight-month low – a sign that an ongoing slump in the industrial side of the economy has deepened. Numbers below 50% signal the manufacturing sector is shrinking and suggest a deep contraction. Couple that with the fact that unemployment has risen in each of the last three months and is now close to triggering a recession indicator developed by former Federal Reserve economist Claudia Sahm that has a perfect track record over the last half-century, investors are increasingly worried about the path ahead.

It turns out that bad news for the economy may actually be bad news for the stock market. So often over the last 12 months have we seen a ‘cooling job market’, ‘declining rents’, or ‘slowing CPI / PPI’ be positive signals for investors but the tides have clearly turned. Perhaps the bigger risk is that the Fed acts too slowly as signs of an economic slowdown build. Anecdotes from Corporate America this earnings season have tended to suggest that things could be a bit worse on the ground than aggregate. Markets reacted negatively yesterday and the pullback represents a departure from lukewarm data actually being a positive for market participants.