Stocks rallied Monday morning as the S&P 500 gained nearly 1% while markets awaited a key vote in Greece later in the week. The index and exchange traded funds that track it have survived two recent tests of their 200-day moving average, a closely watched technical indictor.
A rebound in manufacturing orders has bulls hoping the economy is back on track following its recent soft patch. Reports last week estimated U.S. manufactured goods orders and an index of business spending plans rose in May, reports Lucia Mutikani for Reuters. Durable goods orders increased 1.9% and revisions to April figures show that the declines were smaller than previously expected. More importantly, the durable goods numbers suggests the economy will likely pick up its pace later on in the year, according to the report.
“This supports our view that the economic ‘soft patch’ will not endure meaningfully into the second half,” remarked Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Additionally, the transportation sector experienced higher orders, with a 5.8% surge in transportation equipment, which may suggest improvement in the U.S. auto industry. Orders on machinery, primary metals, capital goods, electrical equipment and appliances, and computers and electronics all showed improvement. [S&P 500 ETFs Back for Test of 200-Day Average.]
“Business continues to spend on new equipment,” commented Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ, “the only mystery is why they are not adding to staff to run the machines they are buying.”
However, a manufacturing index of Texas from the Dallas Fed fell sharply, according to a report Monday, while U.S. consumer spending declined slightly in May.
Overall, the U.S. economy expanded 1.9% in the first quarter.
Traders are closely watching the S&P 500 and other stock indicators, which are close to their 200-day moving averages. The S&P 500 has bounced twice in the past week at this technical level. However, a move below the 200-day moving average could trigger stops and lead to more selling from investors who use the 200-day moving average to protect against losses. [An ETF Trend-Following Plan.]