Stocks Climb as Solid US Manufacturing News Bolsters Economic Optimism

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.54%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.73%.  March E-mini S&P futures (ESH26) rose +0.57%, and March E-mini Nasdaq futures (NQH26) rose +0.76%.

Stock indexes settled higher on Monday as signs of strength in US manufacturing activity bolstered optimism about the economic outlook, following the release of the Jan ISM manufacturing index, which expanded by the most in more than 3.25 years.  Also, strength in chip makers and AI-infrastructure stocks supported gains in the broader market on Monday.

The US Jan ISM manufacturing index rose +4.7 to 52.6, stronger than expectations of 48.5 and the strongest pace of expansion in more than 3.25 years.

Comments from Atlanta Fed President Raphael Bostic were bearish for stocks on Monday, when he said, "We have so much momentum in the US economy that the Fed needs to keep the policy rate in a mildly restrictive stance," and therefore doesn't project any rate cuts for 2026.

Energy producers were under pressure Monday, as WTI crude oil prices sank by more than 4% amid easing geopolitical risks after President Trump said the US is talking to Iran, and Iran’s foreign ministry said it hopes diplomatic efforts will avert a war. 

Cryptocurrency stocks retreated on Monday as Bitcoin (^BTCUSD) tumbled more than -7% to a 9.75-month low.  According to Coinglass, nearly $590 million in long Bitcoin positions were liquidated over the weekend.

Signs of weakness in China’s economy are bearish for global growth prospects and stocks.  The Shanghai Composite Stock Index fell more than -2% on Monday to a 4-week low after the China Jan manufacturing PMI unexpectedly fell -0.8 to 49.3, weaker than expectations of no change at 50.1.  Also, the Jan non-manufacturing PMI unexpectedly fell -0.8 to 49.4, weaker than expectations of an increase to 50.3 and the steepest pace of contraction in three years.

The partial US government shutdown, now in its third day on Monday, has dampened investor sentiment as markets await the House's approval of a funding deal President Trump worked out with Democrats.  The funding lapse may be short-lived, however, with the House returning from a week-long break Monday and possibly voting on the spending bill later Monday or on Tuesday.

The markets this week will focus on tariff news, earnings, and economic news.  On Wednesday, the Jan ADP employment change is expected to increase by +45,000. Also, the Jan ISM services index is expected to fall by -0.3 to 53.5.  On Thursday, initial weekly unemployment claims are expected to increase by 3,000 to 212,000.  On Friday, the University of Michigan Jan consumer sentiment index is expected to fall -1.5 to 54.9.   

Q4 earnings season is in full swing, with 150 of the S&P 500 companies scheduled to report earnings this week.  Earnings have been a positive factor for stocks, with 78% of the 167 S&P 500 companies that have reported beating expectations.  According to Bloomberg Intelligence, S&P earnings growth is expected to climb by +8.4% in Q4, marking the tenth consecutive quarter of year-over-year growth.  Excluding the Magnificent Seven megacap technology stocks, Q4 earnings are expected to increase by +4.6%.

The markets are discounting an 12% chance for a -25 bp rate cut at the next policy meeting on March 17-18.

Overseas stock markets settled mixed on Monday.  The Euro Stoxx 50 closed up by +1.00%.  China’s Shanghai Composite fell to a 4-week low and closed down -2.48%.  Japan’s Nikkei Stock 225 fell from a 2.5-week high and closed down -1.25%.

Interest Rates

March 10-year T-notes (ZNH6) on Monday closed down by -7.5 ticks.  The 10-year T-note yield rose +3.2 bp to 4.269%.  T-notes gave up an early advance and turned lower on Monday, and the 10-year T-note yield rose to a 1.5-week high of 4.281% after the Jan ISM manufacturing index expanded by the most in more than 3.25 years, dampening expectations of further Fed rate cuts.  Also, strength in stocks today has reduced safe-haven demand for T-notes.  Losses in T-notes accelerated on Monday after Atlanta Fed President Raphael Bostic said he doesn't project any rate cuts for 2026.

T-notes also have some negative carryover from last Friday when President Trump nominated Keven Warsh as the next Fed Chair.  Mr. Warsh is seen as more hawkish than other Fed Chair candidates and often emphasized inflation risks during his tenure as a Fed Governor from 2006-2011. 

European government bond yields were mixed on Monday.  The 10-year German bund yield rose +2.5 bp to 2.868%.  The 10-year UK gilt yield fell -1.5 bp to 4.506%.

The Eurozone Jan S&P manufacturing PMI was revised upward by +0.1 to 49.5 from the previously reported 49.4.

German Dec retail sales rose +0.1% m/m, right on expectations, and Nov retail sales were revised upward by +0.1 to -0.5% m/m from the previously reported -0.6% m/m.

Swaps are discounting a 2% chance of a +25 bp rate hike by the ECB at Thursday’s policy meeting.

US Stock Movers

Chip makers and AI infrastructure stocks rallied on Monday, lifting the overall market.  Sandisk (SNDK) closed up more than +15% to lead gainers in the S&P 500 after CTBC Securities Investment Service Co Ltd initiated coverage on the stock with a buy recommendation and a price target of $660. Also, Western Digital (WDC) closed up by more than +7% to lead gainers in the Nasdaq 100, and Seagate Technology Holdings Plc (STX), Micron Technology (MU), and Intel (INTC) closed up by more than +5%.  In addition, Texas Instruments (TXN) and Advanced Micro Devices (AMD) closed up more than +4%, and Microchip Technology (MCHP) and NXP Semiconductors NV (NXPI) closed up more than +2%. 

Airline stocks rose on Monday after crude prices fell by 4%, which lowers fuel prices and increases airlines’ profits, and after US manufacturing activity expanded by the most in 3.25 years, boosting optimism about the economic outlook.  United Airlines Holdings (UAL), Delta Air Lines (DAL), Southwest Airlines (LUV), and Alaska Air Group (ALK) closed up by more than +4%, and American Airlines Group (AAL) closed up by more than +3%. 

Energy producers and energy service companies retreated on Monday as WTI crude oil fell by more than -4%.  Diamondback Energy (FANG) and Occidental Petroleum (OXY) closed down more than -3%, and ConocoPhillips (COP), Exxon Mobil (XOM), and Halliburton (HAL) closed down more than -2%.  In addition, APA Corp (APA) and Chevron (CVX) closed down more than -1%.

Cryptocurrency-exposed stocks sold off on Monday as Bitcoin plunged more than -7% to a 9.75-month low.  Galaxy Digital Holdings (GLXY) closed down more than -7%, and Strategy (MSTR) closed down more than -6%.  Also, MARA Holdings (MARA) and Coinbase (COIN) closed down more than -3%, and Riot Platforms (RIOT) closed down -0.84%. 

Natural gas producers fell on Monday after nat-gas prices plunged by more than -25%.  Antero Resources (AR) closed down more than -6%, and Range Resources (RRC) closed down more than -5%.  Also, EQT Corp (EQT) and Expand Energy (EXE) closed down more than -4%, and CNX Resources (CNX) and Coterra Energy (CTRA) closed down more than -3%. 

Caterpillar (CAT) closed up more than +5 to lead industrial stocks higher, and gainers in the Dow Jones Industrials after Monday’s news showed US manufacturing activity expanded at the strongest pace in more than 3.25 years.

Teradyne Inc (TER) closed up more than +4% after Alethia Capital Limited initiated coverage on the stock with a recommendation of buy and a price target of $400.

Autodesk (ADSK) closed up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $319.

Walt Disney (DIS) closed down by more than -7% to lead losers in the Dow Jones Industrials after several analysts said the company’s quarterly outlook for Q2 was disappointing.

IDEXX Laboratories (IDXX) closed down more than -4% after reporting Q4 gross margin of 60.3%, below the consensus of 61%. 

Humana (HUM) closed down more than -4% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $174.

Tesla (TSLA) closed down -2% on signs that weak European car sales are continuing after French Jan Tesla sales fell -42% y/y and Norway Jan Tesla sales fell -88% y/y.

Earnings Reports(2/3/2026)

Advanced Micro Devices Inc (AMD), Amcor PLC (AMCR), AMETEK Inc (AME), Amgen Inc (AMGN), Archer-Daniels-Midland Co (ADM), Atmos Energy Corp (ATO), Ball Corp (BALL), Broadridge Financial Solutions (BR), Chipotle Mexican Grill Inc (CMG), Chubb Ltd (CB), Clorox Co/The (CLX), Corteva Inc (CTVA), Eaton Corp PLC (ETN), Electronic Arts Inc (EA), Emerson Electric Co (EMR), Gartner Inc (IT), Hubbell Inc (HUBB), Illinois Tool Works Inc (ITW), Jack Henry & Associates Inc (JKHY), Jacobs Solutions Inc (J), Marathon Petroleum Corp (MPC), Match Group Inc (MTCH), Merck & Co Inc (MRK), Mondelez International Inc (MDLZ), PayPal Holdings Inc (PYPL), Pentair PLC (PNR), PepsiCo Inc (PEP), Pfizer Inc (PFE), Prudential Financial Inc (PRU), Skyworks Solutions Inc (SWKS), Super Micro Computer Inc (SMCI), Take-Two Interactive Software (TTWO), TransDigm Group Inc (TDG), Veralto Corp (VLTO), Willis Towers Watson PLC (WTW), WW Grainger Inc (GWW).