U.S. Stocks Finish Higher on Factory Data

By Anna Hirtenstein and Ben Eisen

U.S. stocks rose Tuesday after manufacturing data showed the economy continues to bounce back from the coronavirus shutdown.

The S&P 500 was 0.8% higher, advancing further into record territory and opening September with modest gains after its best August since 1986. The Nasdaq Composite rose 1.4% a day after the technology-heavy index closed at a record. The Dow Jones Industrial Average rose 0.8%.

U.S. manufacturing activity accelerated in August, growing for the third straight month and topping the expectations of economists, according to data from the Institute for Supply Management. The growth was driven by new demand and faster export orders, though the picture for hiring was mixed, a pair of surveys released Tuesday showed.

"The continuation of this recovery is being priced in already," said Esty Dwek, head of global market strategy at Natixis Investment Managers. "As long as it keeps going, I think markets can continue advancing."

The economic rebound has some investors preparing for a more normalized investing environment that could favor beaten-down sectors like transports.

Brian Barish, chief investment office at Cambiar Investors, said his firm has been taking profits on some holdings of highflying tech companies, including Amazon.com and Google parent Alphabet. Both have marked sharp gains in recent months, making their shares look expensive to some.

"We are in spectacular valuation territory," Mr. Barish said. He is considering investing in beaten-down hospitality companies, which stand to gain as the economy reopens.

Still, technology companies helped lead the S&P 500 higher on Tuesday, with Netflix and Nvidia up 5% and 3%, respectively. Zoom Video Communications jumped more than 40% after the video-chatting software developer raised its outlook for the year for the second time in recent months.

Data out from parts of Asia and Europe showed that factories are slowly recovering from the sharp output cuts that accompanied coronavirus lockdowns, but have continued to pare jobs in the face of an uncertain outlook.

Germany, Europe's industrial powerhouse, recorded a stronger recovery, with the purchasing managers index rising to the highest level in almost two years. But even with a revival in previously weak export orders, manufacturers reported that they were cutting jobs.

The pan-continental Stoxx Europe 600 fell 0.3%.

A gauge of China's manufacturing activity for last month rose to its highest level in nearly a decade, supported by strong domestic and external demand and faster production activity. It marked the fourth consecutive month that the Caixin China purchasing managers index held above 50, the mark separating contraction from expansion. The Shanghai Composite Index ended the day up 0.4%.

Copper for delivery in three months rose 1.9% on the back of China's manufacturing report. Traders are expecting a rise in demand for the industrial metal going forward, according to Deutsche Bank analysts.

The dollar continued to weaken amid expectations that U.S. interest rates will remain low for an extended period. Federal Reserve official Richard Clarida's comments Monday that employing yield curve control was a future possibility, and that a low unemployment rate won't be a sufficient trigger to raise interest rates, also weighed on the currency.

The WSJ Dollar index, which measures the currency against a basket of others, dropped 0.2%.

"While confidence can be taken from the rapid recovery in the manufacturing sector, it's all about dollar weakness currently and this will be the driving factor for a further rally," said Sam Cooper, a vice president of market risk solutions at SVB Financial Group.

In bond markets, the yield on 10-year Treasurys was about unchanged from 0.695% on Monday.

Gold rose 0.2% to $1,981.70 a troy ounce. Its gains were partly due to the weaker dollar as the precious metal is priced in the greenback, according to Stephane Monier, chief investment officer at Lombard Odier.

"The price of gold is also to a large extent a sign of confidence of investors into the financial systems," he said. "Some people are worried that central banks are printing a lot of money and want a refuge."

Lombard Odier, a Swiss private banking group, has added gold to its strategic asset allocation over the summer. The metal currently makes up 3% of holdings across client portfolios, Mr. Monier said.

Write to Anna Hirtenstein at [e-mail] and Ben Eisen at [e-mail]