U.S. Stocks Approach Record Levels as Chinese Data Provide False Optimism

The Dow and broader U.S. stock market surged on Monday, as better than expected Chinese data provided investors with a false sense of hope about the health of the world’s second-largest economy.

S&P 500, Nasdaq Approach Record Levels

All of Wall Street’s major indexes reported huge gains at the start of the week, with the S&P 500 Index and Nasdaq Composite Index edging closer to record highs.

The S&P 500 large-cap index climbed 1.2% to 2,867.19, its highest since October. Eight of 11 primary sectors reported gains. Among the gainers, seven sectors climbed at least 1.2%, with financials and industrials surging more than 2%.

A strong performance for information technology stocks propelled the Nasdaq Composite Index sharply higher. The index rose 1.3% to 7,828.91.

The Dow Jones Industrial Average jumped 329.74 points, or 1.3%, to finish at 26,258.42.

Chinese Data Provide the Spark

Global stocks rallied on Monday after the latest batch of Chinese manufacturing data signaled for the end of the country’s factory downturn.

The Caixin/Markit manufacturing purchasing index jumped to 50.8 in March, the highest in eight months and well above forecasts calling for 49.9. A PMI reading above 50 signals expansion in the economy. Based on the PMI scoring system, China’s manufacturing sector had contracted in each of the last three months.

From the official report:

“Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-U.S. trade talks, the situation across the manufacturing sector recovered in March. The employment situation improved greatly.”

Caixin’s private-sector data confirmed an earlier report from National Bureau of Statistics that also showed a sharp rebound in manufacturing activity last month. Beijing’s official manufacturing PMI rebounded to 50.5 in March from 49.2 the month before.

U.S. manufacturing activity also picked up in March, according to the Institute for Supply Management (ISM). The ISM manufacturing PMI improved to 55.3 from 54.2 the month before.

U.S. economic data will continue to make headlines this week, with durable goods orders, services PMI and nonfarm payrolls due for release.

China: Not Out of the Woods Yet

China’s PMI data, while promising, won’t be enough to convince investors in the long run that the economy has turned a corner. In January, bilateral trade between the U.S. and China deteriorated at the quickest rate in 17 years. Chinese fixed-asset investment, retail sales and industrial production have all languished in recent years.

Some of these figures have been reflected in Beijing’s official GDP reports. Case in point: 2018 was China’s worst year of expansion since 1990. The World Bank and International Monetary Fund expect Chinese growth to weaken even further in the coming years. Against this backdrop, investors shouldn’t get too optimistic about the latest PMI figures – at least, not yet.

A resolution to the U.S.-China trade dispute will help to ease the pressure on Chinese exporters. Long-term, Beijing is eyeing a major transition away from export dependence toward consumption and services. This transition will likely come at the expense of several percentage points to GDP growth.

Featured image courtesy of Shutterstock. Chart via Stockcharts.com.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi