U.S. stock markets started September with a bang but then faded into the close as the threat of a missile strike against Syria came back into view.
Over the weekend, the likelihood of Congressional resistance put the strike on hold, but the new week found House Speaker John Boehner, Senator John McCain, and Majority Leader Eric Cantor lining up behind President Obama to promote Congressional approval of an airstrike on Syria.
Economic reports helped stocks close in the green as The Institute for Supply Management’s August 2013 ISM Manufacturing Report on Business indicated that the Purchasing Managers Index made an unexpected advance to 55.7 from July’s 55.4. Economists were expecting a decline to 53.8.
The Commerce Department’s Census Bureau reported that Construction Spending increased 0.6 percent in July to $900.8 billion from June’s $895.7 billion. Economists had been expecting a less-significant increase of 0.3 percent. Investors were unfazed by the fact that the final August U.S. Manufacturing PMI from Markit Economics declined to 53.1 from the flash estimate of 53.9 and the July reading of 53.7, despite expectations that the flash estimate would hold.
Although Markit provides global PMI data, the firm only recently began publishing PMI reports concerning the United States, as the ISM had always been the recognized authority on U.S. PMI data. Both firms claim PMI as a trademark.
The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 23 points to finish Tuesday’s trading session at 14,833 for a 0.16 percent advance. The S&P 500 (NYSEARCA:SPY) climbed 0.42 percent to close at 1,639. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.58 percent to finish at 3,091. The Russell 2000 (NYSEARCA:IWM) rose 0.53 percent to end the day at 1,016.
In other major markets, oil (NYSEARCA:USO) rose 0.73 percent to close at $38.76. On London’s ICE Futures Europe Exchange, October futures for Brent crude oil rose $1.17 (1.04 percent) to $113.71/bbl. (NYSEARCA:BNO). December gold futures climbed $15.90, 1.14 percent, to $1,412.00 per ounce (NYSEARCA:GLD). Transports were rolling again on Tuesday, as the Dow Jones Transportation Average (NYSEARCA:IYT) rose 0.39 percent.
In Japan, yen weakness continues to be the driving factor behind stock prices. The yen weakened to 99.70 per dollar during Tuesday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). Toyota shares soared 3.3 percent higher. The Nikkei 225 Stock Average skyrocketed 2.99 percent to 13,978 (NYSEARCA:EWJ).
In China, stocks advanced following a pep talk by Premier Li Keqiang, in which he expressed his belief that China will meet its 7.5 percent growth target. Goldman Sachs had better news, raising its own forecast from 7.4 percent growth to 7.6 percent. The Shanghai Composite Index jumped 1.18 percent 2,123 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index soared 0.99 percent to end the session at 22,394 (NYSEARCA:EWH).
In Europe, stocks gave up some of Monday’s gains after Russian defense officials reported that two unidentified objects had been launched toward the eastern Mediterranean, which fell into the sea (NYSEARVA:VGK). Israeli officials later admitted that the event was a joint test, with the United States, of the Arrow missile defense system, in which a new type of Sparrow target missile was fired.
News of the missile test raised concerns that the United States will proceed with a planned airstrike on Syria, rattling the nerves of European investors. The Euro STOXX 50 Index finished Tuesday’s session with a 0.75 percent drop to 2,753 — remaining above its 50-day moving average of 2,736. Its Relative Strength Index is 46.59 (NYSEARCA:FEZ).
Technical indicators revealed that the S&P 500 remained stuck below its 50-day moving average of 1,661 after finishing Tuesday’s session with a 0.42 percent advance to 1,639. At this point, a head-and-shoulders pattern has now formed on the S&P chart, from the period beginning in early May through the present. (There already had been a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.) Its Relative Strength Index rose from 37.37 to 41.05. The MACD is below the zero line as well as the signal line, suggesting a further decline.
For Tuesday, all sectors were in positive territory, except for the utilities sector and the consumer staples sector, which declined by 1.15 percent and 0.08 percent, respectively.
Consumer Discretionary (NYSEARCA:XLY): +0.71 percent
Technology: (NYSEARCA:XLK): +0.10 percent
Industrials (NYSEARCA:XLI): +0.64 percent
Materials: (NYSEARCA:XLB): +0.60 percent
Energy (NYSEARCA:XLE): +0.74 percent
Financials: (NYSEARCA:XLF): +0.83 percent
Utilities (NYSEARCA:XLU): -1.15 percent
Health Care: (NYSEARCA:XLV): +0.65 percent
Consumer Staples (NYSEARCA:XLP): -0.08 percent
Bottom line: President Obama’s success at winning the support of John Boehner and Eric Cantor in promoting an airstrike on Syria dampened Tuesday’s rally, but stocks still finished green based on better-than-expected economic reports. The week ahead will likely see continued volatility as sabres rattle in the Middle East.
John Nyaradi is the author of The ETF Investing Premium Newsletter.