MarketView for June 2

Summary

The Dow Jones Industrial Average and the S&P 500 indexes ended the day on Monday at record highs once again after a closely watched read on U.S. manufacturing was revised to show more strength than initially indicated. Industrials and material stocks were among the day's best performers, while the technology sector ended lower, weighed down by big names like Apple and Google.

After hours of confusion, the Institute for Supply Management officially corrected its earlier report to show that the pace of growth in the U.S. manufacturing sector accelerated in May. Wall Street fell initially after the first report, with all 10 S&P 500 sector indexes down for the day at one point.

The ISM said its index of national factory activity rose to 55.4 last month from 54.9 in April. The ISM had initially said the reading came in at 53.2, but it was corrected due to an error in applying the seasonal adjustments.

The Dow ended at a second consecutive record high while the S&P 500 closed at a third consecutive record though volume was still slight, suggesting a lack of conviction behind the advance

The CBOE Volatility Index gained 1.6 percent but was still near the lows not seen since March 2013. That level has many, including Federal Reserve officials, concerned that the market is complacent.

Apple fell 0.7 percent to $628.65 after the tech giant introduced new operating systems for its Mac computers and mobile devices at its annual Worldwide Developers’ Conference.

Google also pressured tech shares, falling 1.3 percent to $564.34. A censorship watchdog said Google's services were being disrupted in China ahead of this week's 25th anniversary of the 1989 crackdown on pro-democracy demonstrators around Beijing's Tiananmen Square.

Broadcom was the S&P 500's largest percentage gainer, ending the day up 9.3 percent to $34.84 after the company indicated it was looking to sell or wind down its cellular baseband business.

Ariad Pharmaceuticals rose 4 percent to $6.94 in heavy volume a day after the company said its drug ponatinib showed anti-tumor activity in patients with advanced gastrointestinal stromal tumors.

Approximately 4.68 billion shares changed hands on the major equity exchanges, a number that was below last month's average of 5.75 billion shares, according to data from BATS Global Markets.

Manufacturing Surprises

The manufacturing sector expanded in May at a faster clip than previously seen, an industry report showed on Monday. According to financial data firm Markit, its final Manufacturing Purchasing Mangers’ Index rose to 56.4 in May from 55.4 in April, and following a preliminary reading of 56.2. Readings above 50 indicate expansion in the sector.

"The survey puts the sector on course to provide a substantial boost to gross domestic product in the second quarter, and therefore adds to signs that the economy has enjoyed a strong revival after shrinking due to the adverse weather at the start of the year," said Chris Williamson, chief economist at Markit.

"But this is not simply a weather-related rebound," he said, adding that companies are "feeling more confident, restocking, expanding and investing."

The output sub-index was the highest since February 2011, coming in at 59.6, unchanged from the preliminary and above April's 58.2. The employment subindex was unchanged from April at 53.7 after showing a dip to 53.5 in the preliminary report.

Manufacturing Grows Says ISM

The pace of growth in the manufacturing sector accelerated in May, the Institute for Supply Management reported on Monday. According to the report, the index of national factory activity rose to 55.4 last month from 54.9 in April. ISM had initially said the reading came in at 53.2, but it was corrected due to an error in applying the seasonal adjustments. A reading above 50 indicates expansion.

The employment sub-index fell to 52.8 in May from 54.7 the prior month, while the gauge of new orders rose to 56.9 from 55.1.

ISM Corrects May Data

The Institute for Supply Management corrected its key manufacturing activity index for May to 55.4, nearly in line with expectations, after economists on Monday said the original release's reading of 53.2 was incorrect.

The report initially suggested a weakening in the pace of factory-sector growth, but economists, including Stone & McCarthy Research Associates, said seasonal adjustments appeared to have been incorrectly applied to the figures.

It took ISM nearly three hours to issue an official statement revising the data. CNBC initially reported the correction would be to a reading of 56. The 55.4 figure was in line with what Stone & McCarthy said it should be after running the numbers themselves after the initial 10 a.m. EDT (1400 GMT) release.

Kenneth Kim, economist at Stone & McCarthy in Princeton, New Jersey, said he took the numbers from ISM’s website but found that his result “wasn’t adding up to their reported figures.”

He then ran the calculations using the seasonal adjustment factor applied to April's report, not May's, and the numbers were the same as those reported.

ISM later said in a statement the error was caused "when the software incorrectly used the seasonal adjustment factor from the previous month."

The weaker-than-expected initial report weighed on stocks and helped bond prices, while cutting into the U.S. dollar's gains. After chatter of a correction started making the rounds, investors sold U.S. Treasuries, boosting the yield to a high of about 2.54 percent on the changed data. Sub-indexes in the report on new orders and employment were also higher than initially reported.

Construction Spending Reaches 5-Year High

The Commerce Department reported on Monday that construction reached its highest level since March 2009 during April, increasing 0.2 percent to an annual rate of $953.5 billion. Spending in April was led by public construction outlays, which rose 0.8 percent. Spending on both federal government and state and local government projects increased solidly.

While the increase was less than economists' expectations for a 0.6 percent gain, March's construction spending was revised to show a 0.6 percent rise instead of the previously reported 0.2 percent advance.

But spending on private construction projects was flat as a 0.1 percent rise on residential outlays was offset by a 0.1 percent dip in nonresidential projects.

Still, private residential construction spending hit its highest level since March 2008. There were increases in both single and multi-family home building, a hopeful sign for housing, which is struggling to find momentum.

A run-up in mortgage rates has stymied the housing market recovery. Investment in home building and nonresidential structures such as factories and gas pipelines contracted in the first three months of this year for a second straight quarter.