Why Today's PMI Kicked off the Dow's Triple-Digit Surge

Strong manufacturing numbers at home and abroad have the big indices flirting with record highs.

Jul 1, 2014 at 2:30PM
Daily Fool

The market has bounced higher today from the opening bell, with the Dow Jones Industrial Average (DJINDICES:^DJI) up 145 points as of 2:35 p.m.EDT and holding just below the 17,000-point mark on a day in which all but two of the index's 30 member stocks are in the green. Positive manufacturing data kicked things off on the market, while individual stocks' most notable jump has come from a big upgrade that  sent Netflix (NASDAQ:NFLX) up by more than 6%. Let's catch up on what you need to know.

PMI data
The Purchasing Managers' Index for June from the Institute for Supply Management fell by 0.1 percentage points from May, but the reading still came out at 55.3% -- far above the breakeven level of 50% that represents neither contraction nor expansion in manufacturing and sustaining optimism that American industry is on the right track for a big rebound. The ISM press release noted that 15 of 18 reporting industries showed growth last month.

Individual manufacturing metrics have lifted hopes that the sector is on a positive long-term trend for the future after years of post-recession slumping. New orders jumped by 2 percentage points in June and production remained far above levels from earlier this year, while customer inventories were low and employment growth has kept up. A few concerns did sprout in June, with export growth dropping by 2 percentage points as import growth jumped significantly. Overall, though, the picture of American manufacturing shows strong signs that this cyclical sector is ready to kick things into a higher gear.

It wasn't just the U.S. PMI showing strength, however. China's own PMI numbers showed the first jump in manufacturing activity in six months, as Markit's final index for Asia's largest economy showed a leap into expansion territory in June. Analysts expect further PMI growth in coming months as China works to turn around the slowing growth of recent quarters. The climb in new export orders is a particularly good sign for China and the country's leading manufacturers, considering the impact of a positive trade balance on the country's overall GDP growth. Chinese stocks could use the boost: Year to date, Hong Kong Hang Seng (HSIINDICES:^HSI) index has trailed leading indices around the world and fallen into negative territory.

^DJI Chart

^DJI data by YCharts.

Around the market today, Goldman Sachs (NYSE:GS) raised its opinion of Netflix stock from neutral to buy. Goldman went much further than that, however: Analyst Heath Terry projected that Netflix could grow its audience to more than 200 million subscribers by 2017 as the company taps into international growth. With Netflix also investing in children's content, the company's charge into expanding into new markets looks strong. Terry said Netflix's stock could roar higher by 34% over the coming 12 months, something that Netflix investors, who have already enjoyed a 21% year-to-date run-up, no doubt can applaud.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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