[Chart courtesy of MarketWatch.com]
After falling to a three-week low yesterday, U.S. equity markets closed the trading session higher to begin the new month and quarter, led by some upbeat manufacturing activity data despite the first partial government shutdown in 17 years.
Investors for now appeared confident that the situation would be short-lived. After dropping seven out of the past eight sessions on concerns about a possible shutdown, traders viewed the pullback as a buying opportunity in the absence of an extended shutdown.
Stocks made the bulk of their advance during the opening minutes before spending most of the afternoon near their highs. Equities appeared unconcerned with the first day of the government shutdown. All ten sectors posted gains as equities drew strength from typical start-of-quarter inflows. Risk assets also benefited from the rebound in Europe where yesterday’s fears of a possible collapse of the Italian government were alleviated.
The outperformance of the Nasdaq was also due in part to the relative strength of the tech sector (+1.0%) and biotechnology. The iShares Nasdaq Biotechnology ETF climbed 2.0%, contributing to the strength of the health care sector (+1.3%), which ended in the lead.
In the health care space, Dow component Merck jumped 2.4% after announcing restructuring plans that include about 8,500 layoffs. Outside of technology and health care, the discretionary sector (+0.9%) was the only other outperformer. Retailers fared well as Amazon.com advanced 2.7% and the broader SPDR S&P Retail ETF added 1.1%.
Resiliency for stocks was fostered by an unexpected improvement for the U.S. ISM Manufacturing Index to the highest level since April 2011. The Index unexpectedly rose to 56.2 in September, while the forecast of economists called for a decline to 55.0. The index remained above the 50 level that denotes expansion in manufacturing for the fourth consecutive month. Investors have been scrutinizing economic reports to gauge whether growth is robust enough for the Fed to begin curtailing its stimulus at its next meeting this month. The shutdown will halt federal agency reports on the economy. The Labor Department will not publish its closely watched monthly employment report on Oct. 4 if the government remains closed.
Our Trend Tracking Indexes (TTIs) followed the upward momentum and closed at +3.43% (Domestic TTI) and +6.95% (International TTI).