MarketView for April 1

Summary

The major equity indexes rose for a third straight session on Tuesday, with the S&P 500 index ending at a record close, after positive data on factory activity indicated economic growth was gaining traction following a harsh winter. The S&P 500 has gained for three straight sessions, up about 2 percent over that period.

Gains were broad, with areas of the market closely tied to the pace of economic growth among the day's leaders. The consumer discretionary index rose by 1.4 percent while the technology shares index gained 1.3 percent.

Among other groups, the housing sector index .was up 1.6 percent and the Nasdaq biotechnology index chalked up a 2.1 percent gain. The Dow Jones Transportation Index .also hit a record high, rising 0.9 percent.

The Institute for Supply Management (ISM) said its March index of national factory activity came in at 53.7, its second straight monthly acceleration. The ISM report was the latest to point to improving economic conditions, giving credence to the theory that soft data earlier this year was due to weather and not weakening fundamentals.

Ford Motor closed up 4.6 percent to $16.32 as overall auto sales rose more than expected in March, following two months when demand was hampered by weather.

General Motors fell 0.2 percent to $34.34, although its March sales also topped forecasts. Mary Barra, the company's chief executive, told a House Energy and Commerce subcommittee GM has retained Kenneth Feinberg as a consultant to gauge possible responses to families of those injured or killed in crashes involving recalled cars.

Among tech names, Google was up 1.8 percent to close at $1,134.89, while Microsoft added 1 percent to close at $41.42. Both were among the largest gainers on the Nasdaq 100 index, which rose 1.7 percent. Shares of Cisco were up 3.9 percent to $23.10 on heavy volume making it the largest advancer on the Dow.

Intuitive Surgical was up 12.7 percent to $493.60 as the best performer on the S&P 500. The U.S. Food and Drug Administration gave marketing clearance for the company's da Vinci Xi Surgical System.

Markit reported that its Manufacturing Purchasing Managers Index came in 55.5 in March, unchanged from a preliminary reading, but the rate of growth and the pace of hiring remained strong.

Construction spending edged up 0.1 percent in February, curbed by a drop in private residential projects.

Medicines fell 15.5 percent to $24.02 after a U.S District Court ruled a generic version of its blood thinner made by Hospira did not infringe two of Medicine Co's patents. Hospira shares gained 2.4 percent to $44.27. After the market closed, shares of Apollo Education fell 3.7 percent following the release of its financials.

Factory Activity Continues to Improve

Factory activity improved during the month of March, with production posting its largest increase since the recession ended. It was the latest indication that the economy is regaining its footing after a brutal winter. The unusually brutal winter chilled activity early in the year and signs of a thaw should raise the possibility of a strong resurgence of economic growth during the second quarter.

According to a report by the Institute for Supply Management released on Tuesday its index of national factory activity rose to 53.7 last month, up from a reading of 53.2 in February and marked the second month of gains. Readings above 50 indicate expansion in the sector, which accounts for about 12 percent of the economy.

Activity was buoyed by a 7.7 percentage point rebound in the production index after it showed contraction in February. The increase was the largest since June 2009, just as the recession was ending. The forward-looking new orders index rose to 55.1 from 54.5 in February. There was also a surge in order backlogs and export orders. Fourteen of the 18 manufacturing industries reported growth.

Even as the sector begins to break out of the cold spell, factory activity remains weaker than during the second half of last year, resulting in unsold goods having accumulated in the second half of 2013, thereby leaving businesses with little incentive to place large orders with manufacturers.

The ISM survey found a sharp drop in customers' inventories, though manufacturers' inventories were unchanged from February. A desire to reduce inventory is expected to hold the economy to an annualized growth pace below 2 percent in the first quarter. That would be a step back from the fourth-quarter's 2.6 percent rate.

A separate factory gauge from data firm Markit slipped in March, but stayed in positive territory, as ebbing overseas demand clipped orders.

While manufacturing appears to shaking off winter's chill, construction activity continued to be held back in February. In a separate report, the Commerce Department said construction spending edged up 0.1 percent after slipping 0.2 percent in January.

Construction spending was curbed by a 0.8 percent drop in private residential construction projects, which was the largest fall since July. However, an increase in spending on nonresidential construction, such as factories and power plants, lifted overall private outlays to their highest level since December 2008.

The decline in private residential construction was led by a 1.1 percent drop in single-family home building. Public construction spending nudged up 0.1 percent in February, with a jump in federal outlays offsetting a fall in state and local government spending.