Stocks ended solidly positive with both defensive and technology sectors posting gains. The session began with the indexes mixed as money flowing into the blue chips following mixed economic data. Bargain hunters in the tech sector combined with sentiment that the Fed may cut rates by 50 basis points at the May 15 FOMC meeting eventually boosted all the indexes into positive territory, where the market remained throughout the session.
On the economic front, April NAPM rose to 43.2% from 43.1% in March. Although lower than the 44% median forecast, new orders climbed to 45.9% from 42.3% and inventories dropped to 39.6% from 44.2% and employment declined to 38.1% from 40.4%. According to Standard & Poor's MMS, the data is consistent with some stability returning to the manufacturing sector as the inventory overhang is alleviated, though the declining employment component is showing up as a lagged effect from previous sector slump.
Meanwhile, U.S. construction spending jumped 1.3% in March from an upwardly revised 0.9% gain in February and up 3.0% in January. S&P MMS says the data is stronger than expected and suggest an upward revision to the construction components of the already surprisingly strong first quarter GDP.
Joseph Barthel, chief investment strategist at Fahnestock & Co. says economic news lately implies the economy isn't as weak as was projected. "By and large what it implies is that the best we can hope for come the 15th is probably 25 basis points [rate cut at the May 15 FOMC meeting] unless you see some economic indicators start to collapse," he says. "The cry previously had been that we're in a profits recession but whether we're in an economic recession at this point is questionable."
With the Fed less aggressive on rates, the stock market will be hard-pressed for catalysts to sustain upward momentum. "Stocks primarily had two things going for them a couple of weeks ago," Barthel points out. "One, everything was oversold and two, you had the Fed being very aggressive." The strategist notes that both arguments are no longer the case. "So the reality is that it may be back to square one and that is what stocks have the best earning prospects going forward."
Among today's stocks in the news, MicroStrategy Inc. (MSTR) posted a $0.29 per share first quarter loss vs. a $0.45 per share loss from operations for the year-ago quarter on a slight revenue rise. The company also forecast a $0.07 to $0.09 per share second quarter loss (pro forma), excluding its Strategy.com unit, on $42 to $46 million in revenue.
The Dow Jones Industrial Average closed up 163.05 points, or 1.52%, to 10898.02. The Nasdaq Composite index gained 52.18 points, or 2.47%, to close at 2168.42. Meanwhile, the broader S&P 500 added 17.00 points, or 1.36%, to 1266.46.
Treasuries closed slightly higher following the release of this morning's NAPM and construction spending data. Traders remained a little skeptical of the "flattening rally" with payrolls and the Treasury refunding on the horizon and a late rebound on stocks helped the long bond settle higher.
In the U.K., the Financial Times 100 Index ended down 38.90, or 0.65%, to 5928.00 as UK April PMI fell to 47.8 from 49.8 in March. German and French exchanges are closed for May Day.
The major Asian equity markets are also closed for holiday observances. By Alan Hughes in New York