In a sign that fiscal stimulus effects and economic activity are peaking, the ISM Manufacturing index, a monthly economic indicator measuring industrial activity, registered at 65 in March—above the threshold of 60 that Goldman says typically represents peak economic growth.

Coming off the worst quarter in history, the U.S. economy grew at its fastest pace ever in the third quarter as a nation battered by an unprecedented pandemic put itself back together. Michelle Girard, chief U.S. economist at NatWest Markets, Stephanie Kelton, professor of economics and public policy at Stony Brook University, and Michael Strain, director of economic policy studies at the American Enterprise Institute, join “Squawk Box” to discuss. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi​ » Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision​ » Subscribe to CNBC: https://cnb.cx/SubscribeCNBC​ » Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic
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According to Goldman, the S&P 500 has historically fallen an average of 1% in the month after the ISM Manufacturing index registers more than 60, and in the subsequent 12 months, it’s gained a “paltry” 3%—significantly less than the 14% annualized return over the last 10 years.

Goldman expects the S&P will end the year at 4,300 points—implying just a 4% increase from Thursday’s close, lower than some other market forecasters who expect the index could soar to as high as 5,000 points by year’s end.

Crucial Quote

“Equities often struggle in the short term when a strong rate of economic growth begins to slow,” a group of Goldman strategists led by Ben Snider said Thursday, noting that during the last 40 years. “It is not a coincidence that ISM readings have rarely exceeded 60 during the last few decades; investors buying U.S equities at those times were buying stocks at around the same time as strong economic growth was peaking—and starting to decelerate.”

Surprising Fact

The most recent ISM reading is the highest since a level of 70 in December 1983—after which the S&P inched up just 0.2% in the following 12 months.

Key Background

Trillions of dollars in unprecedented fiscal stimulus during the pandemic have helped lift the stock market to new highs over the past year, and though President Joe Biden’s $2.3 trillion infrastructure plan could add even more fuel to the economy, Anu Gaggar, a senior investment analyst for Commonwealth Financial Network, said Thursday that “investors have been quick to recognize [that] much of the upside has already been priced.”

That’s evidenced by the growing divergence in performance between the broader market and growth stocks this year, Gaggar says, echoing the sentiment from Goldman analysts Thursday. The tech-heavy Nasdaq, which far outperformed the broader market by surging 44% last year, has climbed about 9% this year, underperforming the S&P and Dow Jones Industrial Average, which are up roughly 12% each.

Further Reading

S&P 500 Passes 4,000—And These Market Experts Think It Can Keep Climbing Higher. Here’s Why. (Forbes)

Dow Jumps 200 Points: Stocks Fend Off Third Day Of Losses Despite Biotechs, Netflix Falling (Forbes)