Upbeat Manufacturing Reports Boost Stocks….

U.S. stocks were higher to start the week, as favorable reads on manufacturing activity out of China, Japan and the Eurozone were followed by a thirteen-year high in the U.S report. However, gains were tempered a bit, as attention turned to the deadly shooting in Las Vegas. Treasury yields were modestly higher and the U.S. dollar extended a recent run, while gold and crude oil prices were lower.

The Dow Jones Industrial Average (DJIA) increased 153 points (0.7%) to 22,558, the S&P 500 Index was 10 points (0.4%) higher at 2,529, and the NASDAQ Composite advanced 21 points (0.3%) to 6,517. In moderate volume, 754 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ.  WTI crude oil lost $1.09 to $50.58 per barrel and wholesale gasoline was $0.03 lower at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.54 to $1,276.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 93.60.

Manufacturing activity hits thirteen-year high, joining plethora of positive global data…

The Institute for Supply Management (ISM) Manufacturing Index for September unexpectedly jumped to the highest level since May 2004, after rising to 60.8 from 58.8 in August, compared to the Bloomberg forecast calling for a dip to 58.0. A reading above 50 denotes expansion. ISM said comments from the survey reflect expanding business conditions, with news orders (64.6), production (62.2), employment (60.3), order backlogs (58.0), and export orders (57.0) all growing, while customer inventories remained at low levels (42.0). Prices surged 9.5 points to 71.5.

The final Market U.S. Manufacturing PMI Index was revised to 53.1 for September from the preliminary reading of 53.0, where it was expected to remain, and above the 52.8 level posted in August. A reading above 50 denotes expansion. The release is independent and differs from ISM’s manufacturing report, as it has less historic value and Market weights its index components differently.

Construction spending rose 0.5% month-over-month (m/m) in August, versus projections of a 0.4% advance, and following July’s downwardly revised 1.2% drop. Residential and non-residential spending both rose 0.5%.

The manufacturing data joined upbeat reads on the sector out of China, Japan and Eurozone, while adding to the backdrop of heightened December Fed rate hike forecasts and cautious optimism regarding last week’s tax reform framework, which has boosted Treasury yields and the U.S. dollar. The reports also kick off a week that will bring another speech by Fed Chairwoman Janet Yellen and culminate with Friday’s September nonfarm payroll report.

Treasuries were modestly lower, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all ticked 1 basis point higher to 1.49%, 2.34% and 2.87%, respectively.

Schwab Center for Financial Research – Market Analysis Group

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