Stocks Soar, Starting Q2 In Spectacular Fashion

Stocks soared yesterday, beginning the 2nd quarter in the same spectacular fashion as it began and ended the 1st quarter!

Strong manufacturing numbers out of China lifted stocks early and they continued from there. China's Manufacturing Index came in at a better than expected at 50.8 vs. expectations for 49.9, signaling the first expansionary reading in 4 months (above 50 indicates expansion), and notching the fastest growth pace in 8 months.

Worries over slowing economies in Europe and Asia were beginning to spook investors a bit as they wondered if any of that would spill over into the U.S. But the numbers out of China, who recently exited their bear market and have begun a new bull market, helped put those fears to rest. Because a strong Chinese economy not only benefits China (of course), but also the EU, given the large export market they have with China. Same for the U.S.

Spirits were high after last week's successful trade talks in Beijing. And they are just as high now as trade talks continue in the U.S. this week.

In other news, the PMI Manufacturing Index in the U.S. came in at 52.4 vs. views for 52.5, while the ISM Manufacturing Index came in at 55.3 vs. estimates for 54.2. While one beat expectations and the other just missed, it was another month of expansion for both.

Construction Spending also underscored the continuing expansion with a m/m gain of 1.0%, easily topping estimates for -0.2%. Moreover, last month's reading was upwardly revised from a 1.3% gain to 2.5%.

Report after report shows the U.S. economy is the envy of the world right now. And it looks like there's a lot more upside to go.

Today we'll get a look at Durable Goods Orders. Tomorrow, we'll see how the Non-Manufacturing sector (Service sector) looks. And then on Friday, we'll get the always important Employment Situation report. Our labor market is literally the best it's ever been. And that's likely to continue for quite some time.

In the meantime, the market is within striking distance of their all-time highs.

And it looks like we might see an upside breakout sooner rather than later.

See you tomorrow,

Kevin Matras

Executive Vice President, Zacks Investment Research