Stocks Rally Even Amid Disappointing Manufacturing Data - U.S. Commentary

(RTTNews) - Stocks moved notably higher during trading on Tuesday, more than offsetting the moderate weakness seen in the previous session. The tech-heavy Nasdaq reached a four-month closing high, while the Dow and the S&P 500 rose to their best closing levels in almost a month.

The major averages saw further upside going into the close, ending the session near their best levels of the day. The Dow jumped 168.43 points or 1 percent to 17,888.35, the Nasdaq surged up 47.64 points or 0.9 percent to 5,156.31 and the S&P 500 soared 22.22 points or 1.1 percent to 2,102.63.

The strength on Wall Street partly reflected positive sentiment generated by an overnight rally by stocks in the Asia-Pacific region.

The Japanese, Australian, Hong Kong, South Korean and Taiwanese markets all saw their key averages rise by over 1 percent.

Traders were also reacting to a report from the Institute for Supply Management showing an unexpected contraction in U.S. manufacturing activity.

The report initially drew a negative reaction, although the data eventually reinforced optimism the Federal Reserve will raise interest rates gradually.

The ISM said its purchasing managers index dropped to 48.6 in November from 50.1 in October, with a reading below 50 indicating a contraction in manufacturing activity.

The pullback into contraction territory came as a surprise to economists, who had expected the index to climb to a reading of 50.5.

The reading below 50 points to the first contraction in manufacturing activity since November of 2012, when the index registered 48.9 percent.

James Knightley, an economist at ING Bank, said, "Overall, the report is likely to make some Fed voters wary about hiking rates later this month, but on balance we still think that is what the outcome will be."

"The services sector dwarfs manufacturing and is performing well while the economy is creating jobs, wages are starting to rise and core inflation pressures are building," he added.

Meanwhile, the Commerce Department released a separate report showing that construction spending rose more than expected in October, reaching its highest level in nearly eight years.

The report said construction spending climbed 1.0 percent to an annual rate of $1.107 trillion in October. Economists had expected spending to rise by 0.6 percent.

Sector News

Gold stocks showed a substantial move to the upside on the day, driving the NYSE Arca Gold Bugs Index up by 3.3 percent. With the gain, the index reached a nearly one-month closing high.

The rally by gold stocks came despite a decrease by the price of the precious metal, as gold for February delivery dipped $1.80 to $1,063.50 an ounce.

Considerable strength was also visible among pharmaceutical stocks, as reflected by the 2 percent gain posted by the NYSE Arca Pharmaceutical Index. Valeant (VRX) helped lead the sector higher, surging up by 9.8 percent.

Airline, computer hardware, health care, and brokerage stocks also saw significant strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably higher during trading on Tuesday. Japan's Nikkei 225 Index surged up by 1.3 percent, while Hong Kong's Hang Seng Index jumped by 1.8 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index climbed by 0.6 percent, the French CAC 40 Index fell by 0.9 percent and the German DAX Index slumped by 1.1 percent.

In the bond market, treasuries showed a strong move to the upside on the heels of the weak manufacturing data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6.3 basis points to 2.155 percent.

Looking Ahead

Economic data may remain in focus on Wednesday, with traders likely to keep a close eye on a report on private sector employment as well as the Federal Reserve's Beige Book.

Trading could also be impacted by reaction to remarks by Fed Chair Janet Yellen, who is due to deliver a speech to the Economic Club of Washington tomorrow afternoon.