Stocks Start Q3 with Gains

Indexes advanced amid a fresh batch of data on U.S. private employment, manufacturing sentiment, and construction spending

U.S. stocks closed higher Wednesday, reversing Tuesday's pullback, as investors continued to bet on the prospects and timing of an economic recovery while awaiting Thursday's June nonfarm payrolls and weekly jobless claims data.

Tuesday's gains came amid light trading, and followed data showing increases in June manufacturing and May pending home sales, and drops in May construction spending, June private-sector employment, and June domestic motor vehicle sales.

On Wednesday, the 30-stock Dow Jones industrial average finished higher by 57.06 points, or 0.68%, at 8,504.06. The broad Standard & Poor's 500-stock index rose 4.01 points, or 0.44%, to 923.33. The tech-heavy Nasdaq composite index added 10.68 points, or 0.58%, to 1,845.72.

Treasuries were mixed. The dollar index was off. Gold futures were higher. Oil futures were lower after the Energy Dept.'s weekly U.S. inventory report, which showed a 3.7 million barrel fall in crude stocks.

AIG (AIG) shares sank after the insurer announced a 1-for-20 reverse stock split.

General Mills (GIS) enjoyed a strong jump in quarterly earnings.

Constellation Brands (STZ) announced sharply lower EPS that beat Wall Street forecasts.

In economic news Wednesday, the U.S. ISM index rose to 44.8 in June from 42.8 in May. The index has been on an upward climb since December's 32.9 (the lowest print since June 1980), reflecting continued slowing in the pace of the contraction, and it compares to 50.2 a year ago. The employment component climbed to 40.7 from 34.3. New orders dipped to 49.2 after rising above 50 to 51.1 in May. Prices paid increased to 50.0 from 43.5.

U.S. construction spending dropped 0.9% in May, from a revised 0.6% increase in April (was 0.8%). It marks the lowest level of spending since March 2004. Residential spending fell 3.5%, after rebounding unchanged in April (revised from 0.6%). Nonresidential spending inched up 0.1% after a 0.8% gain previously. Private construction spending fell 1.0% and marks its lowest level since April 2003. Public spending dipped 0.6%.

U.S. pending home sales index edged up 0.1% to 90.7 in May, after a revised 90.6 in April (was 90.3). That's a fourth straight monthly increase. Regionally, gains were seen in the West (2.2%) and Northeast (3.1%). On a year-over-year basis, sales are up 4.6% after a revised 3.8% increase in April (was 3.3%).

ADP reported that U.S. private payrolls fell 473,000 in June, compared to -485,000 in May (revised from -532,000). April's data were also revised up a bit to -518,000 from -545,000 previously. Goods producing jobs declined 250,000, manufacturing lost 146,000 jobs, while employment in the service producing sector dropped 223,000.

The headline data was worse than expected, though mitigated a bit by the upward revisions to April and May, notes Action Economics.

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