Stock Market Begins July In Good Form

The stock market began second half of 2013 with solid gains. Monday’s trading activity helped make the case that American investors currently have a preference for the Purchasing Managers’ Index reports from the Institute for Supply Management over those provided by Markit Economics. Markit dominates the global market for PMI data and has only recently begun competing with the Institute for Supply Management, which had been the exclusive provider of PMI data in the United States. Both firms claim PMI as a trademark. Monday’s release of the final Markit U.S. Manufacturing PMI for June brought some disappointing news: The headline index dipped to 51.9 from the flash estimate of 52.2 and May’s reading of 52.3. Economists had been expecting a repeat of May’s final figure. Nevertheless, the result remained above 50, which is the threshold for expansion.

Despite the disappointing news from Markit, the major stock indices made solid advances, with the Russell 2000 soaring 1.26 percent. The June 2013 ISM Manufacturing Report on Business provided the logical explanation, since its reading of 50.9 percent beat economists’ expectations of a less-significant increase to 50.5. Investors were happy about something . . . and it was not likely the May Construction Spending report, which missed economists’ expectations with a 0.5 percent increase rather than the anticipated 0.6 percent.

The Dow Jones Industrial Average (DIA) picked up 65 points to finish Monday’s trading session at 14,974 for a 0.44 percent advance. The S&P 500 (SPY) climbed 0.54 percent to close at 1,614.

The Nasdaq 100 (QQQ) surged 0.61 percent to finish at 2,927. The Russell 2000 (IWM) jumped 1.26 percent to end the day at 989.

In other major markets, oil (USO) soared 1.40 percent to close at $34.66.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by 85 cents (0.83 percent) to $103.01/bbl. (BNO).

August Gold Futures advanced by $29.10 (2.38 percent) to $1,252.80 per ounce (GLD).

Transports lit the afterburners on Monday, with the Dow Jones Transportation Average (IYT) accelerating 1.24 percent.

In Japan, stocks made big gains after the Bank of Japan’s quarterly Tankan Survey of manufacturers’ sentiment rose to positive 4 during the second quarter from negative 8 in the first quarter. Economists had been expecting an increase to positive 3. Continuing yen weakness helped fuel Monday’s rally. A weaker yen causes Japanese exports to be more competitively priced in foreign markets. During Monday’s trading session in Tokyo, the yen weakened to 99.50 per dollar (FXY). The Nikkei 225 Stock Average soared 1.28 percent to 13,852 (EWJ).

In China, stocks advanced after the National Bureau of Statistics reported that China’s Manufacturing PMI was in-line with economists’ expectations for a reading of 50.01, despite the decline from May’s 50.8. On the other hand, the HSBC China Manufacturing PMI for June dropped to 48.2 from May’s 49.2. The Shanghai Composite Index climbed 0.81 percent to close at 1,995 (FXI). The Hong Kong Stock Exchange was closed on Monday for a public holiday (EWH).

European stocks made healthy advances on Monday after Markit Economics released a batch of better-than-expected Manufacturing PMI reports (VGK). The Markit Eurozone Manufacturing PMI for June rose to 48.8 from the flash reading of 48.7 and May’s 48.3. Although a reading below 50 indicates contraction, the results were clearly “less bad” for all countries, except Germany – which has been slow to feel the effects of the Eurozone recession.

The Euro STOXX 50 Index finished Monday’s session with a 0.77 percent advance to 2,622 – remaining just below its 200-day moving average of 2,634. Its Relative Strength Index is 44.76 (FEZ).

Technical indicators reveal that the S&P 500 remains just below its 50-day moving average of 1,622 after closing at 1,614. The 50-day MA continues to provide significant overhead resistance. As a result, bears are anticipating a decline to the 200-day moving average of 1511. Its Relative Strength Index climbed from 46.88 to 49.35. Although the MACD remains below the zero line, it is poised to cross above the signal line. If it does so, the move would suggest a likely advance.

For the day, all sectors were solidly in positive territory, except for the utilities and utilities sector, which sank 1.25 percent. The industrial sector took the clear lead, climbing 1.01 percent.

Consumer Discretionary (XLY): +0.69%

Technology: (XLK): +0.54%

Industrials (XLI): +1.01%

Materials: (XLB): +0.59%

Energy (XLE): +0.72%

Financials: (XLF): +0.33%

Utilities (XLU): -1.25%

Health Care: (XLV): +0.27%

Consumer Staples (XLP): +0.73%

Bottom line: The major American stock indices headed into the second half of 2013 with a good start following a better-than-expected June Manufacturing PMI report from the Institute for Supply Management.

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