The Institute for Supply Management's manufacturing survey index out Monday eased to 57.2 in March, a modest deceleration after the gauge of factory activity hit a 30-month high in February.
Wall Street economists expected the ISM gauge to dip to 57.0 from 57.7 in January. Readings above 50 signal expansion, while those south of 50 suggest contraction.
The Dow Jones industrial average, S&P 500 index and Nasdaq composite opened higher on Monday, with the Nasdaq briefly hitting an all-time high. But after the ISM report, the major averages reversed lower. Treasury yields edged lower.
The new orders index slipped to 64.5 from a longtime high of 65.1, while the current production gauge slid to 57.6 from 62.9. The employment gauge jumped 4.7 points to 58.9, a six-year high.
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The strengthening in manufacturing activity comes despite question marks for the auto sector.
General Motors (GM) reported weaker-than-expected March auto sales Monday morning, with Ford (F) reporting a hefty decline. General Motors and Ford shares fell in morning trade on the stock market today.
The broad auto sector has been hit in recent weeks by concerns about falling used car prices and other signs of flagging demand.
March U.S. auto sales are expected to rise 3% to a 17.4 million annual rate, amid higher discounts and other customer incentives compared to a year ago, says Kelly Blue Book.
The ISM report starts off a batch of key economic reports this week, including Friday's jobs report. The data may begin to show whether economic momentum is being sustained after the initial burst in business confidence after the surprise election of Donald Trump. The data could begin to shift expectations for the trajectory of Federal Reserve rate hikes.
IBD'S TAKE: Tesla, jobs and factory data, and a summit between President Trump and Chinese President Xi Jinping lead this week's investing action plan. Make sure you get the plan for each trading day.
After giving more hawkish signals in early March, Fed policymakers' forecasts issued at the March 15 meeting signaled two more rate hikes to come this year. Markets are pricing in one hike in June and another in December.
The 10-year Treasury yield has pulled back due to the combination of a patient fed and creeping doubts about President Trump's ability to get tax and infrastructure spending through Congress. That's been a negative for banks, which can reap bigger profits from faster growth, higher rates and a steeper yield curve. Shares of Bank of America (BAC), Wells Fargo (WFC) and Dow component Goldman Sachs (GS) all slipped below their 50-day moving averages last week.
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