Stocks started hot on Monday with strong gains across the board; the second half of the year began in the same positive fashion as the first half, rebounding from Friday’s sell-off. But volume lagged all day, and prices cooled down by day’s end. Upbeat manufacturing reports from the U.S., Japan, and the Eurozone among others helped to fuel the broad-based rally. Treasuries were slightly higher following the return to expansion territory for manufacturing activities and constructions.
Despite mixed data out of China, as the country’s Manufacturing PMI declined to 50.10 from 50.80, stocks climbed at the open, taking a cue from gains in major markets across the world. Meanwhile, most European Manufacturing PMI reports surprised to the upside, but only Great Britain posted an expansionary reading while Spain came in right on the border between contraction and expansion. The aggregate Eurozone Manufacturing PMI ticked up to 48.8 from 48.7.
In the U.S., the ISM Manufacturing Index rebounded 1.9 points in June, its first increase in four months, to 50.9, above the consensus of 50.0. It indicated the manufacturing sector expanded in 45 of the past 47 months.
Moreover, The ISM prices index increased slightly to 52.5, but remained in the zone consistent with low consumer inflationary pressures. Finally, construction spending rose 0.5% in May, close to the consensus of 0.6%, reaching its highest level since September 2009. Taken together, the market showed a solid chance of posting a follow-through day.
Commodities began showing strength overnight, and those gains provided a boost to growth-oriented sectors. The industrial sector overtook producers of basic materials into the close as transportation-related names fared well. Elsewhere, the energy space advanced 0.6% as crude oil climbed 1.4% to $97.95 per barrel. While most cyclical sectors outperformed the broader market, countercyclical groups ended in mixed fashion. The health care space received some support from biotechnology after Onyx Pharma rejected an unsolicited acquisition proposal from Amgen. On the downside, telecom services and utilities ended with respective losses of 0.1% and 1.3%.
While fears about the Fed’s early exit from its stimulus efforts have calmed for now, I believe the eventual transition to a no-stimulus environment, if it really happens, will result in further volatility.
The market is beginning to think about second-quarter earnings as it wants to turn attention away from the Fed. Alcoa Inc. will unofficially start the second-quarter earnings season as the biggest U.S. aluminum producer becomes the first company in the Dow to report results.
Our Trend Tracking Indexes (TTIs) followed upward momentum and closed as follows:
Domestic TTI: +1.37%
International TTI: +3.76%
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