Wall Street Kicks Off September With a Rally

Stocks kicked off a traditionally tough month for the market with sharp gains Wednesday after a key report on U.S. manufacturing came in much better than expected, easing fears over the pace of economic recovery, at least for a day. Industrial and energy shares led the rally, as all 10 sectors of the S&P 500 ($INX) traded higher.

The Dow Jones Industrial Average ($INDU) jumped 255 points, or 2.5%, to 10,269. The broader S&P 500 added 31 points, or 3%, to 1,080. The more volatile, tech-heavy Nasdaq Composite ($COMPX) gained 63 points, or 3%, to finish at 2,177.

The catalyst for Wednesday's action was a surprisingly strong reading on U.S. manufacturing by the Institute for Supply Management. The ISM's purchasing managers index, a closely watched gauge of business activity, increased to 56.3 in August from 55.5 in July. Economists, on average, were looking for the index to fall to about 53. A reading above 50 means business activity is expanding.

Following Asia and Europe Higher

September is historically a bad month for the market, making Wednesday's rally especially welcome given that the Dow fell 4.3% last month, its worst August performance in nearly a decade.

"For the day, stocks have started the month on the upswing," wrote John Stoltzfus, market strategist with Ticonderoga Securities, in a note to clients. "Last month, stocks around the world lost ground as markets lacking a longer-term catalyst focused on the near term with the world economy in flux. The new month has started with a global rally."

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U.S. equities followed Asian and European shares higher, propelled by news that China's manufacturing sector and Australia's economy grew faster than expected. Bond prices moved lower for the first time in three days, as the yield on the benchmark 10-Year Treasury note rose to 2.57%. (Bond yields move in the opposite direction of prices.)

The positive data out of the U.S., China and Australia more than offset another disappointing report on the jobs front. U.S. employment suffered another setback as the private sector unexpectedly cut 10,000 jobs in August, ADP announced Wednesday. Economists had expected private employers to add 17,000 jobs in the month after adding a revised 37,000 jobs in July, down slightly from the previously estimated 42,000 gain.

August's loss was the first monthly decline in seven months, with ADP adding that the drop "confirms a pause in the recovery already evident in other economic data."

Wednesday action has put the Dow within striking distance of breakeven for 2010.