Encouraging reports on the home front from manufacturing and construction sectors guided the benchmarks to a finish in the green on Monday. Markets opened higher on the first trading day of the third quarter after declining on Friday. Meanwhile, factory activity in China, the world’s second largest economy, declined in June. The industrial sector was the biggest gainer among the S&P 500 industry groups. Utilities stocks were the only losers.
For a look at the issues facing today's markets, read our Ahead of Wall Street for July 2 article.
The Dow Jones Industrial Average (DJI) gained 0.4% to close the day at 14,974.96. The S&P 500 added 0.5% to finish yesterday’s trading session at 1,614.96. The tech-laden Nasdaq Composite Index rose 0.9% to end at 3,434.49. The fear-gauge CBOE Volatility Index (VIX) declined 2.9% to settle at 16.37. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.0 billion shares, lower than 2013’s average of 6.4 billion shares. Advancing stocks outnumbered the decliners. For the 70% that advanced, only 27% declined.
Major indices chalked up gains on the first trading session of the third quarter. The S&P 500 gained nearly 1.3% in the early hours of trading. But the index lost more than half of its early gains after investors booked profits. Markets have enjoyed a decent rally in the first half of 2013 and the S&P 500 surged 12.6% during that period. The rally in the stock markets this year was primarily driven by the Federal Reserve’s bond buying program.
According to the Institute of Supply Management, U.S. manufacturing activity expanded in the month of June. The manufacturing index climbed to 50.9 in June from the previous month’s figure of 49. This is marginally higher than the consensus estimate of 50.5. Expansion in the manufacturing sector was boosted by an increase in new orders, exports and production. The New Orders Index moved up to 51.9 from the May’s figure of 48.8 whereas the Production Index jumped to 53.4 from 48.6. On the other hand, employment in the manufacturing sector declined to its lowest level in nearly four years. This indicates that the upcoming jobs report due on Friday might show reduced employed figures for factories for the fourth consecutive month.
Meanwhile, the U.S. Census Bureau of the Department of Commerce reported that construction spending increased for the month of May. According to the report, construction spending increased to $874.9 billion from April’s revised figure of $870.3 billion. Private construction came in at $605.4 billion from $605.7 billion recorded in April. Public construction gained 1.8% in May to touch $269.5 billion from the revised April figure of $264.7 billion.
On the international front, growth concerns for China resurfaced after it released discouraging reports on the manufacturing sector. Both official and the private sector PMI measures for June showed that manufacturing activity declined in China. The official PMI declined to 50.1 in June from May’s figure of 50.8. The HSBC/Markit, PMI fell to 48.2 for the month of June from May’s final figure of 49.2. The HSBC/Markit PMI has touched its lowest level in nearly one year.
The industrial sector was the biggest gainer among the S&P 500 industry groups. The Industrial Select Sector SPDR (XLI) gained 1.0%. Stocks such as United Parcel Service, Inc. (NYSE:UPS), Union Pacific Corporation (NYSE:UNP), Deere & Company (NYSE:DE) United Technologies Corporation (NYSE:UTX) and General Electric Company (NYSE:GE) increased 0.7%, 0.7%, 0.1%, 1.9% and 0.7%, respectively.
The utilities sector was the only loser among the S&P 500 industry groups and the Utilities SPDR (XLU) lost 1.3%. Stocks such as Public Service Enterprise Group Inc. (NYSE:PEG), NRG Energy Inc (NYSE:NRG), Exelon Corporation (NYSE:EXC), Duke Energy Corp (NYSE:DUK) and Wisconsin Energy Corporation (NYSE:WEC) declined 2.5%, 1.7%, 1.8%, 1.0% and 1.7%, respectively.