Corrections To Manufacturing Data Lead To Choppy Trading - U.S. Commentary

(RTTNews) - After recovering from an early move to the downside, stocks showed a lack of direction throughout the remainder of the trading day on Monday. The choppy trading came as traders digested corrections to a key reading on U.S. manufacturing activity.

The major averages eventually ended the day on opposite sides of the unchanged line. While the Nasdaq edged down 5.42 points or 0.1 percent to 4,237.20, the Dow rose 26.46 points or 0.2 percent to 16,743.63 and the S&P 500 inched up 1.40 points or 0.1 percent to 1,924.97.

The early weakness on Wall Street was partly due to the release of a report from the Institute for Supply Management showing an unexpected slowdown in the pace of growth in the manufacturing sector in the month of May.

The report generated some uncertainty about the strength of the economic recovery from the weather-induced weakness seen earlier in the year.

However, stocks climbed well off their lows after ISM revealed that the data was incorrect due to a series of technical glitches.

Corrected data from the ISM showed that the purchasing managers index inched up to 55.4 in May from 54.9 in April, with a reading above 50 indicating growth in the manufacturing sector. The latest reading was nearly in line with economist estimates of 55.5.

Due to a software error that applied last month's seasonal adjustment factor to this month's data, the ISM originally said the index dropped to 53.2 in May, indicating a slowdown in the pace of growth.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Overall, based on the corrected survey, it appears that manufacturing activity is still gathering momentum after the winter slowdown."

A separate report from the Commerce Department showed that construction spending rose by less than expected in the month of April, although spending still reached its highest annual rate in five years due in part to revisions to the data for the two previous months.

Among individual stocks, shares of Broadcom (BRCM) moved sharply higher on the day after the communications chipmaker said it is exploring strategic alternatives for its cellular baseband business, including a potential sale or wind-down.

American Realty Capital Healthcare Trust (HCT) also turned in a strong performance after the company agreed to be acquired by Ventas (VTR) for $2.6 billion in cash and stock

On the other hand, shares of Ventas moved to the downside on the heels of the news, falling by 2.8 percent to their lowest closing level in over a month.

Sector News

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Tobacco stocks saw notable weakness on the day, however, with the NYSE Arca Tobacco Index falling by 1.2 percent. Lorillard (LO) and Vector Group (VGR) turned in two of the sector's worst performances.

Networking and computer hardware stocks also moved to the downside on the day, while some strength was visible among airline and defense stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Monday. Japan's Nikkei 225 Index surged up by 2.1 percent, while Australia's All Ordinaries Index rose by 0.5 percent. The markets in Hong Kong and mainland China were closed for holidays.

Meanwhile, the major European markets turned in a mixed performance. While the French CAC 40 Index edged down by 0.1 percent, the U.K.'s FTSE 100 Index rose by 0.3 percent and the German DAX Index inched up by 0.1 percent.

In the bond market, treasuries moved notably lower on the day, pulling back further off their recent highs. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 7.7 basis points to 2.534 percent.

Looking Ahead

Tuesday morning, the Commerce Department is due to release its report on factory orders in April, although trading activity may be somewhat subdued ahead of the European Central Bank meeting and the monthly U.S. jobs report later in the week.