RTTNews - After a strong start, stocks are building on their gains in mid-afternoon trading on Monday following encouraging data from the manufacturing and construction sectors. The major averages are all in positive territory, bolstered by optimism regarding the prospect of an economic recovery in the second half of the year.

Some positive sentiment has been generated by news that Ford (F) reported its first increase in U.S. sales in nearly two years in the month of July. Ford said its sales rose 2.3 percent compared to the same month a year ago due in part to the government's Cash for Clunkers program.

In an interview with RTT News, Sam Stovall, chief investment strategist of Standard & Poor's Equity Research explained why August could end up being a better month for stocks than expected.

Stovall said the old rules of thumb that the third quarter and month of August are relatively weak might be put on the sidelines this year.

He added, We have bottomed out of this bear market, and typically the weakest periods of the year tend to actually do relatively well because we are emerging from this bear market scenario.

However, Stovall warned that there's a very good chance that we could see some digestion of the recent gains, predicting the S&P 500 will probably head down to about 950-955 after crossing the 1,000 mark earlier in today's session.

Shortly after the opening bell, the Institute for Supply Management released a report showing a much slower than expected pace of contraction in manufacturing activity in July. The report also showed notable improvement in new orders and production.

Separately, the Commerce Department revealed that construction spending came in far higher than expected for June after a notable slide in May.

In earnings news today, Humana (HUM) and Tyson Foods (TSN) beat Wall Street estimates, while traders are looking forward to the release of results from homebuilding stalwarts Centex (CTX) and Pulte Homes (PHM) after the closing bell this afternoon.

The major averages reached new highs for the session in recent trading, although they have given backs some ground in the past few minutes. The Dow is currently up 104.68 at 9,276.29, the Nasdaq is up 25.03 at 2,003.53 and the S&P 500 is up 13.69 at 1,001.17.

Dow Components

A majority of the Dow components are in positive territory, contributing to the triple digit gain being shown by the blue chip index.

Shares of aluminum producer Alcoa (AA) are leading the Dow higher, posting a gain of 7.4 percent. The day's advance has propelled the stock to its best intraday price in over nine months. The move comes as the firm is expected to benefit from the slew of new car sales on the heels of the government's Cash for Clunkers program.

Bank of America (BAC) and DuPont (DD) are also on the rise, advancing by 2.6 percent and 3.3 percent, respectively. With the climb, Bank of America is poised to finish the session at an eight month high, while DuPont is looking to close at its best level in nine months.

While Travelers (TRV), Caterpillar (CAT) and General Electric (GE) are also posting strong gains, weakness is visible in shares of Coca-Cola (KO), which are sliding by 0.8 percent. AT&T (T) and Verizon (VZ) are also posting modest losses.

Sector News

Strength remains visible in the resource sector in mid-afternoon trading, with the sector continuing to be led higher by steel stocks. The move comes as commodities prices are extending their upward move amid optimism regarding forward-looking demand.

Healthcare provider stocks are also turning in strong performances, with the Morgan Stanley Healthcare Provider Index posting a gain of 4.8 percent. The advance has lifted the index to its best level in just over ten months.

Further, railroad stocks are leading the transportation sector higher, with the Dow Jones Railroads Index posting a gain of 4.1 percent. With the gain, the index has reached its highest intraday level in over eight months.

Substantial gains by Canadian Pacific (CP) and Kansas City Southern (KSU) are bolstering the index, with the stocks up 5.9 percent and 7.2 percent, respectively.

Electronic storage, banking and defense stocks are also gaining, indicative of the broad based rally in the equity markets.

In Focus: Economic News, Earnings Data

As mentioned above, the ISM said its index of activity in the manufacturing sector rose to 48.9 in July from 44.8 in June, although a reading below 50 indicates a contraction. Economists had been expecting a more modest increase to a reading of 46.5.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue.

Separately, the U.S. Commerce Department revealed that construction spending rose 0.3 percent in June following a revised 0.8 percent slide in May. The figure surprised economists, who had expected a decline of 0.5 percent for the month.

The report also said that that private construction slipped 0.1 percent, though residential construction spending was up 0.5 percent. The report also showed that public construction spending was up 1.0 percent.

With earnings season coming to a close, Humana reported second-quarter net income of $1.67 per share, compared to $1.24 per share in the same quarter of last year. Wall Street analysts expected the company to report earnings of $1.64 per share for the quarter.

Humana's total revenues for the quarter rose to $7.90 billion from $7.35 billion in the prior year quarter. Twelve analysts had a consensus revenue estimate of $7.77 billion for the quarter.

Tyson Foods reported third-quarter net income of $0.35 per share compared to $0.03 per share in the year ago quarter. Sales for the quarter totaled $6.66 billion, compared to $6.85 billion in the prior year quarter. Analysts had expected the company to report earnings of $0.22 per share on revenues of $6.68 billion.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished Monday's trading mostly higher, with Hong Kong's Hang Seng Index posting a gain of 1.1 percent. Japan's benchmark Nikkei 225 Index bucked the uptrend, however, ending the day slightly lower.

The major European markets also closed notably higher, with the French CAC 40 Index and the German DAX Index posting gains of 1.5 percent and 1.8 percent, respectively, while the U.K.'s FTSE 100 Index rose by 1.6 percent.

In the bond markets, treasuries are seeing notable losses amid the rally on Wall Street. Subsequently, the yield on the benchmark ten-year note is trading at 3.641 percent, posting a gain of 14.0 basis points.

For comments and feedback: contact editorial@rttnews.com