The Institute for Supply Management's manufacturing survey index out Monday unexpectedly surged to 57.8 from 54.9 in May, as the factory sector shifted into faster growth. That's the highest level since mid-2014.
XWall Street economists expected the ISM gauge to edge up to 55. Readings above 50 signal expansion, while those south of 50 suggest contraction.
The new orders index jumped to 63.5 from 59.5, while the current production gauge climbed to 62.4 from 57.1. The employment gauge jumped to 57.2 from 53.5.
The 10-year Treasury yield — which hit a six-week high last week amid some more hawkish central-bank signals than anticipated, especially from the European Central Bank — rose further after the manufacturing report.
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The tech-heavy Nasdaq reversed lower following the ISM report, but the financial-heavy Dow Jones industrial average held up. The Nasdaq closed down 0.5% while the Dow rose 0.6%.
The recovery in Treasury yields has coincided with investors showing renewed interest in bank stocks, among the big winners of the first phase of the Trump postelection rally. Shares of Bank of America (BAC) cleared an aggressive buy point at 24.45, while Morgan Stanley (MS) was close to a 46.08 buy point. Financials were again in a leadership position on Monday, with Bank of America up 1.7% to 24.68 and Morgan Stanley up 2.4% to 45.61 on the stock market today, outpacing the Dow.
The ISM report wasn't expected to be much of a market mover, but the strength caught Wall Street by surprise. Still, markets will look to Friday's jobs report for clues to the Federal Reserve policy outlook. Investors will also be looking at Wednesday's Fed minutes release.
IBD'S TAKE: Last week's stress-free stress-test results will result in massive stock buybacks for JPMorgan Chase, Bank of America, Citigroup and Wells Fargo.
The still-solid readings on manufacturing activity come despite some question marks for the auto sector, with new sales volumes under pressure amid a widening gap between new- and used-vehicle prices as a wave of cars comes off lease. On Monday, Ford Motor (F) reported a 5.1% drop in June vehicle sales vs. a year ago. But that was better than expected, particularly because the drop was due to lower fleet sales. Shares of Ford rose 3.3%.
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