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What Fueled the Dow's Explosion?

John Maxfield
October 1, 2012

Investors are cheering news today that domestic manufacturing expanded in September after most economists had expected it to contract. With only an hour left to trade, the Dow Jones Industrial Average (INDEX: ^DJI  ) is up an impressive 120 points, equating to a 0.9% gain.

Why the Dow's up
The Institute for Supply Management released its much-anticipated Purchasing Managers' Index this morning. The reading for September of 51.5 significantly outperformed both the preceding month's figure and economists' expectations. For the month of August, the figure was 49.6; anything below 50 indicates contraction. The best news related to demand, as the ISM's new orders index rose to 52.3 from 47.1 in August.

Also fueling the markets today are comments by U.S. Federal Reserve Chairman Ben Bernanke about the central bank's resolve to press forward with monetary stimulus. Speaking to economists in Indianapolis, Bernanke noted, "We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens."

These upbeat developments contrast sharply with related news from around the world. In the U.K., an analogous purchasing managers' index shrank to 48.4 in September, down from 49.6 in August. And data out of China suggests that manufacturing activity there has contracted now for an 11th straight month.

It's for these reason that a bond analyst told Bloomberg that "manufacturing in the U.S. looks surprisingly good against a backdrop of weak performance in China and the euro area and the looming fiscal cliff."

What's ahead for the week?
Beyond the news released today, there's a significant amount of data coming out this week that could cause the markets to either plunge or continue their ascent.

As my colleague Alex Dumortier noted, numerous central banks from around the world convene their quarterly monetary policy committees this week to decide on whether or not to take further actions to spur their respective economies. In the month of September alone, central bankers in Europe, Japan, China, and the United States all implemented new rounds of monetary stimulus, leading some to term the seemingly related moves a