May Begins with Stocks Mostly Higher…..

U.S. equities began the month of May by finishing mostly higher, as the markets appeared to be somewhat buoyed by optimism surrounding economic reopening. Stocks were mostly able to build on April’s strong performance, and in the process largely shrugged off some less than stellar domestic manufacturing data. Value-oriented issues were the relative outperformers against their growth counterparts, as Energy led the tape, while the Information Technology and Communication Services sectors dragged on the Nasdaq. The earnings calendar stopped to catch its breath after hitting its pinnacle last week, as shares of Estee Lauder fell sharply after missing sales and gross margin forecasts, while Berkshire Hathaway was in focus following some surprising news out of its investor meeting over the weekend. Treasuries turned higher following the soft manufacturing reports, pressuring yields, and the U.S. dollar trimmed some of last week’s gain, while gold jumped, and crude oil prices moved to the upside. Markets that were open in Asia finished lower as virus worries remained top of mind, while Europe closed higher amid positive economic data in the region, as markets in the U.K. were closed for a holiday.

The Dow Jones Industrial Average rose 238 points (0.7%) to 34,113, the S&P 500 Index increased 11 points (0.3%) to 4,193, and the Nasdaq Composite declined 68 points (0.5%) to 13,895. In moderate volume, 889 million shares were traded on the NYSE and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.91 to $64.49 per barrel. Elsewhere, the Bloomberg gold spot price was $22.63 higher at $1,791.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.3% to 90.97.

April manufacturing activity surprises to the downside to kick off the week’s docket…..

The April Institute for Supply Management (ISM) Manufacturing Index showed expansion in the manufacturing sector (a reading above 50) surprisingly decelerated, falling to 60.7 from March’s 64.7 level, below the Bloomberg consensus forecast of an increase to 65.0. The index continued to show expansion for the eleventh month in a row. New orders and employment both fell to 64.3 and 55.1, respectively, and inventories dropped into contraction territory at 46.5, while inflation pressures continued to heat up as prices paid gained 4.0 points to 89.6, its highest level since 2008.

The ISM said, “Respondents reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials. Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy.”

The final Markit U.S. Manufacturing PMI Index for April was revised to 60.5 from the preliminary estimate of 60.6, and versus forecasts calling for an upward adjustment to 60.7. A reading above 50 denotes expansion. The index was up from March’s 59.1 figure and the 36.1 level a year ago. Markit’s release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in size, including small and medium-sized companies.

Construction spending increased 0.2% month-over-month (m/m) in March, versus projections of a 1.7% gain, and following February’s unadjusted 0.8% decrease. Residential spending rose 1.7% m/m while non-residential spending fell 0.9%.

Treasuries moved higher following the data, as the yield on the 2-year note was flat at 0.16%, while the yield on the 10-year note was down 3 basis points (bps) at 1.60% and the 30-year bond rate declined 1 bps to 2.29%.

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