US Stocks Close Higher As Economic Data Spur Industrial Buying 02 June 2009

A wave of better-than-expected economic data fueled a broad rally for industrial and material companies Monday, with Alcoa, Boeing, Caterpillar and United Technologies pacing a more than 200-point jump in the Dow Jones Industrial Average.

The Standard & Poor's 500, with the broad gains, marked a new high for 2009. The index has recently been aided by a string of gains for energy and materials companies as economic sentiment has improved globally. For Monday, hopes for a turnaround in global commodities demand were bolstered by the Institute for Supply Management's index of U.S. manufacturing activity that came in above analysts' expectations, as well as improving reports on personal income and construction. In addition, data showing that China's manufacturing sector grew moderately last month also helped.

Overall, the Dow Jones Industrial Average tacked on 221.11 points, or 2.60%, to 8721.44, marking its biggest one-day gain since May 18. The Dow's close also marked its highest close since Jan. 8, with the index off only 3.5% from its 2009 closing high.

The S&P 500 rose 23.73 points, or 2.58%, to 942.87, and is now up 4.39% for the year-to-date. The S&P closed at its highest point since Nov. 5. The Nasdaq Composite gained 54.35, or 3.06%, to 1828.68, marking its highest close since Oct. 13.

But some investors are nervous that the month, traditionally a weak one for stocks, may not end as well. The market's gains on Monday came despite signs that the economy might have a tough slog ahead of it, including rising interest rates and the nation's fourth-largest bankruptcy ever.

Traders homed in Monday on better-than-expected readings on manufacturing, consumer spending and construction spending. The Dow Jones industrial average and other major indexes rose more than 2 percent, and the Standard & Poor's 500 index and Nasdaq composite rose to their highest levels this year.

Buy At Support; Sell At Resistance

Analysts pointed out that technical factors also pushed stocks higher on Monday. The first trading day of the month often brings with it a surge of new money from mutual funds, and the S&P and Dow both broke through their 200-day moving averages for the first time in well over a year. Moving averages are closely watched technical barometers for the market, and some traders will automatically buy or sell if those levels are breached.

CAUTIONS

This year's stock market has had an eerily similar pattern to last year's, falling until mid-March and then gaining through May. Then in June of last year, the market started to sink. Some analysts pointed out that the average return for the month of June during the past 20 years is negative 0.5 percent.

So while the stock market's technical achievements Monday helped bring about gains, they are also raising questions about the staying power of those gains.

Also, trading on the first day of the month is generally much stronger than normal. The S&P 500 index was down about 34 percent in the 10 years leading up to May 1. But according to S&P data, if someone invested in the index only on the first day of the month over that time frame, he or she would have gained 21 percent.