U.S. stocks kicked off March on a solid note Tuesday as the major averages closed more than 2 percent higher, helped by a rise in oil prices and a better-than-expected ISM manufacturing report. ( Tweet This )
The Dow Jones industrial average traded more than 300 points higher to hit its highest level since Jan. 7. Apple briefly traded more than 4 percent higher to top $100.50 a share in afternoon trade as one of the top contributors to gains.
“I think it’s near-term price action, possibly some chart chasing, momentum chasing, which continues to forge us higher into the close,” said John Caruso, senior market strategist at RJO Futures.
Stocks are rising “on really nothing … that would warrant a (more than 2) percent rise in stocks today,” he said.
The major averages extended gains in afternoon trade as oil held above $34 a barrel. “I think when we broke 1,955 on the S&P that got us moving in the right direction. I think you saw a lot of people covering shorts at 1,955,” said Peter Coleman, head trader at Convergex.
The S&P 500 had its best morning since Aug. 27 with a rise of more than 1.5 percent through noon, according to Bespoke Investment Group. The index has seen 208 such morning rallies since 1983, with an average additional gain of 0.37 percent in the afternoon from noon to the close and positive returns 69 percent of the time, the note said.
Financials traded more than 3 percent higher to lead advancers.
S&P 500 year-to-date performance (intraday)
Of the several positive factors for stocks, “I would tilt more towards oil. The reality is we’ve been trading pretty closely with oil in the last couple of weeks,” said Kelly Bogdanov, vice president and portfolio analyst at RBC Wealth Management.
U.S. crude oil futures recovered from an intraday dip to settle up 65 cents, or 1.93 percent, at $34.40 a barrel.
The Dow Jones industrial average traded more than 300 points higher, while the Dow transports held more than 2 percent higher.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 10 percent in intraday trade to hit 18, its lowest since Dec. 31.
The uptick in the February ISM report “adds another piece of evidence we’re not falling into recession anytime soon,” Jeremy Klein, chief market strategist at FBN Securities.
February ISM manufacturing came in at 49.5, about 1 point above expectations and topping January’s 48.2 print. However, the figure still remained below the 50 contraction-expansion level.
As of early afternoon trade, Fed funds futures were pricing in a more than 60 percent chance of a December rate hike, up from 30 percent on Monday, according to CME Group’s FedWatch tool.
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The Atlanta Fed’s GDPNow model forecast for first-quarter real GDP growth declined for the second time in five days, falling to 1.9 percent after the morning’s construction spending and ISM report.
The Nasdaq composite traded more than 2 percent higher as Apple, Microsoft and Amazon extended gains. The iShares Nasdaq Biotechnology ETF (IBB) also rose more than 3 percent after falling 2.8 percent Monday.
Goldman Sachs and Apple contributed the most to gains on the Dow in afternoon trade.
The earlier gains in stocks came despite a temporary turn lower in U.S. crude oil futures, indicating “today that’s real buying with the ISM and potentially first-of-the-month (positioning),” Klein said.
The S&P 500 generally posts its best two-month gain over the March and April period, with average returns of 2.66 percent, according to Bespoke.
Treasury yields rose after the data, with the 2-year yield hitting its highest in a month near 0.85 percent and the 10-year yield touching a roughly two-week high just above 1.83 percent. Gold turned lower.
The U.S. dollar index pared gains, with the euro at $1.0871 after hitting a fresh low against the dollar, going back to Feb. 1. The yen traded at 114.10 yen against the greenback as of 2:18 p.m. ET.
European Central Bank President Mario Draghi said Tuesday in a Reuters report that euro area inflation trends are weaker than expected and the ECB’s policy review in March has to “be seen against the background of increased downside risks to the earlier outlook.”
In other U.S. economic news, construction spending rose 1.5 percent in January to its highest level since 2007, Reuters said. The Markit manufacturing PMI for February came in at 51.3, up from the flash 51.0 print but down from January’s final 52.4 read.
Initial reports on February auto sales continued to show growth for most major automakers.
“We’re seeing strength (in stocks) partly because of strong auto sales and that says a lot about the durability of continued consumer spending, which is underappreciated by Wall Street,” Bogdanov said.
“As long as job growth continues, as long as wages continue to drift up, as long as that happens, I think we have the ability for auto sales to meet or exceed last year’s strong sales,” she said.
The key data for the week is the jobs report, due Friday.
“Oil going up is a good thing. I think it’s the spillover from the Chinese central bank cutting the reserve (requirement) ratio, which is encouraging to people since the Chinese index was down dramatically heading into yesterday’s open,” said Marc Chaikin, CEO of Chaikin Analytics. He also attributed morning gains to beginning-of-month inflows.
“Today’s opening is consistent with the fact the market is starting to trade a little better and I think we’ve shaken off the bad January,” he said.
European stocks closed more than 1 percent higher Tuesday, with the German DAX outperforming with gains of 2.3 percent. The auto and parts sector outperformed.
Asian equities ended mostly higher, with the Shanghai composite closing up 1.7 percent after the central bank’s reserve requirement ratio cut and worse-than-expected manufacturing data. The yuan’s midpoint fix against the dollar was slightly firmer.
Overnight in China, New York Federal Reserve President William Dudley said he sees downside risks to his U.S. economic outlook, an assessment that could flag a longer pause before the Fed’s next interest-rate hike than he and his colleagues had earlier signaled, Reuters said.
“I think the market’s now chopping around, worrying about when the next Fed move is going to be,” said Maris Ogg, president at Tower Bridge Advisors. “That’s why we’re getting strange reaction to things.”
“I don’t think the underlying growth rate in the U.S. has changed at all. Of course, the large economic blocs in Europe and China have added some uncertainty to that,” she said.
Tuesday is also “Super Tuesday,” when 12 states hold contests.
“There’s still this sense of unease and I’m a little bit concerned this won’t come to an end until the presidential election,” Ogg said.
The major U.S. averages closed lower Monday, despite gains in oil, with the S&P 500 and Nasdaq composite posting their first three-straight months of losses since 2011. Traders attributed Monday’s decline in stocks largely to late-day sell orders around the month-end.
The S&P 500 gained 38 points, or 1.98 percent, to 1,970, with financials leading nine advancers and utilities the only laggard.
The Nasdaq composite gained 111 points, or 2.44 percent, to 4,669.
About four stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of 613 million and a composite volume of 3.1 billion.
Gold futures for April delivery settled down $3.60 at $1,230.80 an ounce.