The Dow Builds Up Gains Despite Manufacturing's Fall

Stocks have pushed higher to start the week, though Wall Street has hardly been flooded with good news. U.S. manufacturing slid sharply in May, according to the Institute for Supply Management's Purchasing Managers' Index released today, although the Dow Jones Industrial Average has managed to defy the downbeat report to pull in gains of about 65 points as of 2:25 p.m. EDT. Stocks have wavered throughout the day, with the index's members mixed between risers and fallers. How far has manufacturing fallen, and is it taking a toll on the Dow's stocks? Let's catch up on what you need to know today.

Manufacturing takes a tumble
America's PMI slipped into contraction territory last month, falling to a reading of 49 from April's measurement of 50.7. A reading of more than 50 indicates expansion in manufacturing, while a number of less than 50 signifies contraction. Economists surveyed by Bloomberg had expected a reading of 51 today. Sequestration's cuts have played a part in manufacturing's contraction, but international sluggishness is likely more to blame here.

China's continued slowdown -- the IMF recently cut its expectations for the country's economic growth by a quarter-percent for the year -- and Europe's ongoing recession have weighed on manufacturers looking to build up sales. The U.S. housing recovery has been a nice story for the industry, but unless other leading economies pick up growth, manufacturing will continue to slump.

The downbeat PMI has taken a toll on two of the Dow's manufacturers today. Alcoa shares have fallen 0.4% after the PMI suggested further bad news for the metals business. While new orders for metals producers picked up last month, prices continue to fall, a trend that has slammed Alcoa and its fellow aluminum firms. China's aluminum makers are partly responsible for this, having kept up production despite the glut of aluminum supply, but until demand picks up -- something that will require economic growth around the world -- expect prices to continue to haunt the aluminum industry.

United Technologies shares are also following manufacturing downward, losing 0.2% of their value. As a conglomerate, UTC is more insulated from such poor reports than more focused companies like Alcoa. Still, UTC could be in for some trouble if manufacturing is contracting, though less because of global concerns and more because of budget cuts. The company operates a sizable defense business through its Sikorsky subsidiary, and with the Pentagon looking to slash its budget by hundreds of millions of dollars over the coming decade, UTC will almost certainly take some hits from sequestration. Sikorsky's well-known Blackhawk helicopter will prevent UTC's subsidiary from being seriously crippled by cuts, but don't expect the company to emerge unscathed.

On the other side of the Dow, Merck shares are up 4.1% to lead the index higher today. Merck investors received welcome news today when Merck's melanoma drug lambrolizumab was found to decrease tumors in 38% of its trial population in a significant way. New melanoma drugs are replacing older melanoma treatments, and some analysts believe this could be a multibillion-dollar market in the future. For Merck, which has seen its sales hit hard by the patent cliff, it's an opportunity that it can't afford to miss.

Finally, Intel shares are up 3% today, following up on last week's gains after the company announced a deal to supply chips for Samsung Galaxy phones. Competitor ARM fired a shot at its rival today by claiming that ARM's mobile processers are "a generation ahead" of Intel's, but whether or not that's true, Intel's good fortune with Samsung has dealt rivals in the mobile industry a blow. Intel has struggled to break into mobile-chip making, but if the company can capitalize on this opportunity, it'll have an outlet to pivot away from the declining PC business it once dominated.

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