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Stocks rally as China's manufacturing sector recovers

U.S. stocks climbed, tracking a global rally as better-than-expected manufacturing data out of China helped assuage worries of a broad economic slowdown.

The S&P 500 (^GSPC) rose 1.16%, or 32.79 points, as of market close, led by advances in the Financials and Industrials sectors. The Dow (^DJI) rose 1.27%, or 329.74points, as JPMorgan Chase (JPM) and Caterpillar (CAT) outperformed. The Nasdaq (^IXIC) rose 1.29%, or 99.59 points.

On Friday, S&P 500 closed out its best first quarter since 1998, rising more than 13% for the year-to-date.

The Dow rose 11.2% in the first three months of 2019, or 2,601 points. The largest single contributor to the advances in the index was Boeing (BA) – which contributed 421 points, or 16% of the Dow’s gain, according to a Datatrek analysis. Apple (AAPL) was the second largest contributor, helping to add 233 points, or 9% of the total gain.

Historical returns show that the S&P 500 could be set for a strong April given its performance at the start of the year. The S&P 500’s 7.9% rally this January was one full standard deviation above January’s average return of 1.2% since 1958, Datatrek co-founder Jessica Rabe pointed out in a report. In the eight years ahead of 2019, whenever the S&P 500 returned more than one standard deviation above average in January, the index rose an average of 2.2% in April and was positive in 60% of those years.

Equity futures overnight rose after new data showed China’s manufacturing sector rose at the fastest rate of increase in eight months. The country’s private Caixin/Markit Manufacturing Purchasing Managers’ Index released Monday registered at 50.8 in March, rising out of contractionary territory with a reading above 50. Consensus analysts expected the survey to register at 49.9 for a second consecutive month in March.

The results of the Caixin/Markit Manufacturing PMI survey reaffirmed data from China’s National Bureau of Statistics released Sunday, which showed that China’s manufacturing sector expanded for the first time in four months in March.

This week, Chinese Vice Premier Liu He will lead a delegation in Washington, D.C. to continue talks with U.S. officials and work toward a deal on trade. After speaking with Chinese negotiators in Beijing last week, U.S. Treasury Secretary Steven Mnuchin wrote in a Twitter post that talks have so far been “constructive.”

Over the weekend, China’s State Council said that the country intends to continue with a hold on additional tariffs on U.S. vehicles and automobile parts after April 1. China originally decided to pause on additional auto tariffs in December for three months as part of a trade truce with the U.S., and is extending this measure as negotiations with the U.S. toward a deal move forward.

Elsewhere, the British pound rebounded to above $1.31 against the dollar (GBPUSD=X) after being lower earlier in the session on the heels of new economic data suggesting that U.K. businesses were preparing for a chaotic departure from the EU.

IHS Markit’s Purchasing Managers Index for the U.K. rose to 55.1 in March, or the highest in more than a year, from 52.1 the month prior, due to rising inventories. Business optimism remained tepid, IHS Markit noted.

“Companies stepped up production to build-up inventories in advance of Brexit and also meet rising inflows of new work (mainly reflecting stockpiling at clients),” IHS Markit wrote in a statement.

Britain's Prime Minister Theresa May speaks to lawmakers in the House of Commons, London, Friday March 29, 2019. U.K. lawmakers on Friday rejected the government's Brexit divorce deal with the European Union for a third time. (Mark Duffy/House of Commons via AP)

Members of the U.K. Parliament are set to vote on a host of Brexit options Monday evening ET after MPs took control of the U.K.’s exit proceedings from prime minister Theresa May last week. Given May’s departure plan was voted down for a third time last week, the current default option is for the U.K. to crash out of the EU without a deal on April 12 – a hard Brexit outcome that many economists believe would be harmful to each side.

Economy

Retail sales unexpectedly declined in February, according to an advance reading from the U.S. Census Bureau. The headline reading on retail sales for the month declined 0.2%, versus a 0.2% increase expected. However, the reading for January was upwardly revised to see a rise of 0.7%, from an increase of just 0.2% previously.

Excluding automobile sales, retail sales fell 0.4% month-over-month in February, below a 0.3% expected increase and an upwardly revised 1.4% advance from January. Excluding sales of automobiles and gas, sales dropped 0.6% month-over-month, below a 0.3% increase expected and an upwardly revised 1.7% rise in January.

“We expect more strength in March, helped by late-arriving tax refunds and more normal weather than in February, but Q1 as a whole will likely still look weak,” Jim O’Sullivan, chief U.S. economist for High Frequency Economics, wrote in a note Monday.

The control group for retail sales – which feeds into the calculation of gross domestic product – fell 0.2% month-over-month in February, after rising an upwardly revised 1.7% in January. This category excludes the more volatile categories of auto, gas, building material and food service sales.

IHS Markit’s reading for the U.S. manufacturing PMI declined to its lowest level in more than a year in March as output and new orders decelerated. The reading fell to 52.4 in March, down from 53 in February, and below consensus estimates for a reading of 52.5. Following March’s final reading, the first-quarter average for U.S. manufacturing PMI settled at the lowest level since the third quarter of 2017, IHS Markit reported.

Separately, the Institute for Supply Management’s monthly report showed that manufacturing PMI rose to 55.3 in March, from 54.2 in February and above consensus estimates of 54.5. The advance was led in part by an improvement in ISM’s Employment Index, which rose 5.2 points to 57.5 in March. The index’s New Orders index rose to 57.4, from 55.5 in February.

The “modest rebound” in March “offers some reassurances that the U.S. factory sector isn’t following its European counterpart off a cliff,” Andrew Hunter, senior U.S. economist for Capital Economics, wrote in a note Monday. However, “the details of the survey are still consistent with manufacturing output growth slowing,” he added, noting that sub-indices aside from employment did not hold up as strongly in ISM’s latest report.

Morning Brief

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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