U.S. stocks post May-Day increase

Markets around the west, including most in Europe, were closed Tuesday in observation of May Day, the annual celebration of labor that took on added meaning in this year of fiscal austerity and recession. U.S. stocks were an exception, open and trading higher on an encouraging report from the Institute of Supply Management, whose widely watched purchasing managers’ survey for manufacturing took a surprise bounce higher in April. The Dow Jones Industrial spurted as much as 125 points higher after the 10:00 ISM report and managed to hold on to roughly half of that gain by today’s close. In the process, the Dow finished the day at its highest close since December 2007, an increase of 0.5%; the S&P 500 rose 0.6% today, closing within 1% of a four-year high; and NASDAQ was up 1.3% at Tuesday’s high, ended up just 0.1% as Apple and Google sold off late. There were 58 gainers on the NASDAQ 100, against 42 decliners; market breadth was better among S&P 500 stocks (368 advancers vs 123 decliners) and within the Dow 30 (22 winners vs 8 losers). Despite NASDAQ’s PM swoon, on the whole it was a satisfactory start to May, a month whose so-so history has spawned the spurious traders’ bromide: sell in May and go away (for the summer).

The report that ignited buying interest in stocks today: the ISM manufacturing PMI, which climbed to 54.8 in April, up from 53.4 in March and the best reading since last June. The employment, new orders and production components of the PMI all showed healthy gains, the latter two hitting 12-month highs. Throughout the day, the auto companies reported mixed sales results for last month; late in the day, when the results were tallied, April light vehicle sales were a touch better than March’s levels. Construction spending increased just 0.1% in March, below expectations, but that report appeared to get short shrift in the market as old news.

Treasury bond prices retreated modestly today, commodities prices were mixed, and the dollar was little changed. The big mover in commodities pits today was the unleaded gasoline contract, which declined 2.6% to a two-month low. Natural gas futures bumped higher by another 3% Tuesday, bringing the five-day bounce to almost 20%. The first week of economic reports for April continues tomorrow with ADP’s estimate of private sector employment growth, Thursday’s ISM report for services and Friday’s nonfarm payroll numbers, which together should provide some confirmation as to whether or not last month’s uptick in manufacturing was also experienced in the service sector and the economy writ large. The Citi Economic Surprise Index for the U.S. ticked higher today for the first time in more than two weeks.

Reports/dates/facts/links worth paying attention to over the next week:

  1. May 2: PMI’s for Italy, France and Germany; ADP U.S. national employment report for April; factory orders for March.
  2. May 3: Unemployment claims; productivity for Q1; ISM non-manufacturing survey for April.
  3. May 4: Employment situation for April; PMIs (service sector) for Italy, France and Germany.

Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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Senior Vice President – Investment Research/Economist
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