Dow soars 255 on manufacturing strength

Manufacturing is still growing nicely, the Institute for Supply Management says. Stocks enjoy their best day since early July. Auto sales dropped in August, but auto stocks rally.

By Charley Blaine Sep 1, 2010 2:54PM

Charley BlaineUpdated: 9:04 p.m. ET

Stocks started September, historically the worst month of the year, with a bang, having their best one-day rally in nearly two months.

Credit better-than-expected numbers on manufacturing from the Institute of Supply Management as the biggest reason for the gain.

In addition, investors cheered strong economic reports from China and Australia. And Apple (AAPL) was up 3% to $250.33 as it announced a new line of iPod music players and said it was planning to offer to rent movies and TV shows through its iStore online service.

The Dow Jones industrials ($INDU) were up 255 points, or 2.5%, to 10,269. The Standard & Poor's 500 Index ($INX) added 31 points, or 3%, to 1,080, and the Nasdaq Composite Index ($COMPX) was up 63 points, or 3%, to 2,177.

The gains for the indexes were their best since July 7, when the Dow jumped 275 points.

All 30 Dow stocks were higher, led by Bank of America (BAC), up 6.1% to $13.21, and Caterpillar (CAT), up 4.6% to $68.16.

All the stocks in the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, were higher, led by Expedia (EXPE), up 7.1% to $24.49. The index was up 53 points, or 3%, to 1,820. Apple contributed 10 points to the index's gain.

Gold fell $2.20 to $1,248.10. Crude oil settled up $1.99 to $73.91.


Energy shares were higher as a result.

Exploration and production companies and oil-service shares got an additional boost after U.S. District Judge Martin Feldman in New Orleans refused to toss out a suit by offshore oil-service companies challenging the government's offshore drilling halt. Diamond Offshore (DO) was up 4.7% to $60.91.

The dollar was lower against major currencies.

Interest rates were higher as the rally pulled money away from bonds. The 10-year Treasury yield rose to 2.582% from 2.477% on Tuesday. That pushed bond prices lower. The iShares Barclays 20+ Year Treasury Bond exchange-traded fund iShares Barclays 20+ Year Treasury Bond exchange-traded fund (TLT) was down 2.4% to $105.96 after rising 8% in August as investors sought safety from the stock market.

The rally was quite broad. Gainers were ahead of decliners 5.8-to-1 on the New York Stock Exchange and 4.1-to-1 on Nasdaq. All 10 sectors of the S&P 500 were showing gains, led by industrial, energy and financial stocks. 

Thursday's market will be affected by the Labor Department's weekly report on new jobless claims, a report on pending home sales from the National Association of Realtors and government reports on productivity and factory orders.

Futures trading suggests a modestly lower open.

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A relief or something more?
The market's gains were probably a shock to bears who believe they will be rewarded for their short positions in what has historically been the year's worst month. And many were probably buying back shares to cover short positions.

Today's is "sort of a relief rally," economist John Canally of LPL Financial told The New York Times. "The market priced in a bunch of bad news and did not get it."

But the first day of trading in a month has been a winner for most of the year. The Dow's been up on the first day in five of the first nine months of the year and six of the last 13 months.

The problem is that the first day is not a big predictor of how a month will do. The Dow was up 208 points on Aug. 2, the first trading day of the month, but the index finished the month down 4.3%.

Manufacturing is still strong
U.S. manufacturing expanded at a faster pace than forecast in August as factories added workers and cranked up production.

The Institute for Supply Management’s factory index rose to a three-month high of 56.3 from 55.5 in July. Readings greater than 50 signal growth, and a Bloomberg News survey showed that economists had expected a drop to 52.8. Economists surveyed by Reuters had expected the index to drop to 53.

The index is closely watched by investors and economists for an understanding of what's going on in the economy. But it has not been the nation's key economic driver for many years because so much U.S. manufacturing has been pushed abroad.

Manufacturing is "one of the bright spots," said Hugh Johnson, the chief investment officer at Hugh Johnson Advisors in Albany, N.Y., the only analyst in Bloomberg's survey to predict the index would rise.

Still, Johnson added, "you have to have increased demand from consumers and businesses for these numbers to be sustained."

Johnson's point is well taken. While the index was higher and production itself was up 2.9 points, growth in new orders slipped to 53.1 from 53.5.

As welcome as the ISM data is, the big report of the week is still ahead: Friday's report on unemployment and nonfarm payrolls.

A preview of that report came today. Data from payroll processor ADP showed a decline of about 10,000 jobs among private employers in August, against a revised 37,000 gain in July.

But Challenger, Gray & Christmas' latest jobs report said job cuts planned in August were down 17% to 34,768 from the 41,676 cuts announced in July. The August total was the lowest for any month in more than a decade and was 55% below the 76,456 planned cuts in August 2009.

Auto sales drop without Cash for Clunkers
Automakers reported substantially lower August sales today. Most of the declines were due because last year's results were inflated by the Cash for Clunkers tax credit.

But the consumer jitters that have kept a lid on retail sales generally also were at work.

Autodata, the auto market research firm, said August sales ran at a seasonally adjusted annual rate of 11.47 million units, down 19% from a year ago and down 0.6% from July.

"Consumers are being very cautious about where they spend their money," Emily Kolinski Morris, Ford senior economist, said on a conference call. "On big-ticket items, they’re undertaking those very carefully."

Big gains for Burger King, Amazon, Netflix and Joy Global
Among stocks making unusual moves:

Burger King Holdings (BKC) jumped 14.7% to $18.86, the most in four years as a public company. The fast- food chain is in talks with buyout firms about a possible sale, The Wall Street Journal reported. (AMZN) and Netflix (NFLX) were both higher in the wake of the Apple news. The Web retailer has approached media companies including Time Warner (TWX) with plans to start an online video subscription service to rival one from Netflix. Netflix gained 7.5% to $134.91. was up 6.1% to $132.49.

Joy Global (JOYG) rose 6.4% to $60.16. The mining-equipment maker raised its full-year earnings forecast as its customers expanded mines and increased spending. The company sees earnings of $4.10 to $4.15 a share for the year through October, compared with a June prediction of $3.85 to $4 a share.

Short hits from the markets -- New York close


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