The ISM manufacturing index dropped 1.5 points month-over-month in March. February's 60.8 was the highest since 61.4 in May 2004. Manufacturing is strong. It is difficult to imagine activity continuing at this pace.

This is particularly so considering that interest rates have trended higher.

After essentially putting the interest-rate pedal to the metal near zero for seven long years, the Fed raised the fed funds rate by 25 basis points in December 2015 to a range of 25 to 50 basis points. Since then, rates have gone up by another 125 basis points, to between 1.50 percent to 1.75 percent.

Historically, these are still very low rates, but a lot of times it is not only the level but also the rate of change that counts.

In Chart 1, the red line represents a 12-month basis-point change in the fed funds rate, and, in keeping with the rise in rates, has begun to rise (or drop in the chart as the line is inverted.) The FOMC's dot plot forecasts two more hikes this year, meaning the red line will continue higher. Historically, ISM manufacturing has had an inverse relationship with the red line with a lagging effect.

Viewed this way, that manufacturing softened in March should not come as a surprise. Activity is way elevated, and mean reversion only makes sense. More deceleration probably lies ahead. This will have repercussions for a whole host of things, not the least of which is stocks.