US stocks edged higher yesterday, shaking off a surprise contraction in US manufacturing, which some investors took as a signal the Federal Reserve will take more forceful actions to boost the economy.
The Institute for Supply Management’s manufacturing index came in at a lower reading than expected in June, registering a contraction in the sector for the first time since July 2009.
The S&P was lower for much of the session but closed slightly higher in late gains.
Still, industrial shares were under pressure after the data, the latest in a string of indicators pointing to deteriorating economic conditions around the globe. Boeing lost 1.5 per cent to $73.18 and Caterpillar was off 1.4 per cent at $83.68.
The weak data supported the view that conditions were worsening, and investors said it made the Fed more likely to adopt additional easy money policies, like more quantitative easing.
“The ISM reading was pretty weak. But it is pretty positive that the market had an excuse to sell off and instead we’re resilient,” said Mike Gibbs, chief market strategist at Morgan Keegan in Memphis, Tennessee. “This gives investors a little more confidence that QE3 may be on the cards.”
Eurozone manufacturing shrank again in June and factories are preparing for worse, according to business. Manufacturing in China also weakened in June with export orders.
UBS cut its year-end target on the S&P 500 index to 1,375 from 1,475, implying that the market would only rise about one per cent from current levels over the next six months.