Manufacturing Rebound Fuels Wall Street Gains, Offsetting China Concerns and Shutdown Jitters
Wall Street kicked off the week on a positive note, with major indices climbing as a robust U.S. manufacturing survey bolstered confidence in the underlying economy's strength, even as headwinds gathered overseas.
The S&P 500 rose 0.39%, while the Dow Jones Industrial Average gained 0.84%. The tech-heavy Nasdaq 100 advanced 0.64%. The rally found its footing after the Institute for Supply Management's (ISM) manufacturing index for January showed its fastest pace of expansion in over three years, suggesting industrial activity is accelerating.
"This ISM number is a clear signal that the industrial sector, long a laggard, is finding its rhythm," said David Chen, a portfolio manager at Horizon Capital Advisors. "It provides a tangible counter-narrative to recession fears and supports the earnings outlook for cyclical companies."
The data helped stocks shake off early pressure from a partial U.S. government shutdown, now in its third day. Market participants are cautiously optimistic, however, as the House of Representatives reconvenes with a vote on a funding bill expected imminently.
Gains were broad-based but spearheaded by chipmakers and AI infrastructure stocks, rebounding from Friday's sell-off. SanDisk surged over 14% after a bullish analyst initiation. The sector's recovery underscored a renewed appetite for growth-oriented names amid the solid economic backdrop.
In a move with significant geopolitical implications, the administration is poised to launch a $12 billion strategic stockpile for critical minerals, aiming to reduce reliance on China. The announcement sent shares of rare-earth mining companies like USA Rare Earth sharply higher.
Not all sectors participated in the rally. Energy stocks slumped as West Texas Intermediate crude oil prices fell more than 4%, eased by diplomatic overtures between the U.S. and Iran that tempered fears of a wider conflict. Cryptocurrency-exposed equities also tumbled, mirroring a sharp drop in Bitcoin to a near 10-month low.
The positive domestic picture contrasted sharply with economic signals from China, where both manufacturing and non-manufacturing Purchasing Managers' Indexes (PMIs) contracted unexpectedly in January. The Shanghai Composite Index fell 2.48%, weighing on broader Asian markets and reminding investors of persistent global growth risks.
"The divergence is stark," noted Anya Sharma, chief economist at The Global Macro Institute. "The U.S. economy appears to be decoupling from global softness, driven by resilient domestic demand. But sustained weakness in a major engine like China will eventually be a drag; markets can't ignore it forever."
In fixed income, Treasury yields rose, with the benchmark 10-year yield climbing to 4.273%. The strong manufacturing data dampened expectations for near-term Federal Reserve rate cuts, pushing bond prices lower.
The earnings season continues to be a tailwind. With over 150 S&P 500 companies reporting this week, nearly 80% of those that have reported so far have exceeded expectations, supporting the market's upward trajectory.
Michael Rossi, an independent trader, offered a more cynical take: "This is a classic 'bad news is good news' flip. The strong data means the Fed has less reason to cut rates quickly, which ultimately pressures valuations. Today's rally in megacap tech on the back of this report is short-sighted. Plus, the shutdown is a clown show that introduces needless uncertainty—investors are just choosing to ignore it."
Looking ahead, the market's focus will pivot to a slew of labor market data, culminating in Friday's nonfarm payrolls report, and the ongoing stream of corporate earnings for further direction.