Stocks kick off August with a rally
Economic reports, auto sales and corporate earnings push the Dow and S&P 500 to 9-month highs, the Nasdaq to a 10-month peak.
NEW YORK (CNNMoney.com) -- Stocks, coming off the best July in two decades, got a strong August start Monday after better-than-expected readings on manufacturing and car sales added to bets that the economy is starting to stabilize.
The Dow Jones industrial average (INDU) added 115 points, or 1.3%, ending at a fresh 9-month high.
The S&P 500 (SPX) index added 15 points, or 1.5%, ending above the 1,000 level for the first time since last November.
The Nasdaq composite (COMP) gained 30 points, or 1.5%, closing above 2,000 for the first time since last November.
Stocks are coming off the best July in years, after a spate of better-than-expected quarterly results reassured investors that the economy is getting closer to stabilizing. Last week, the first-quarter GDP report showed the economy shrank at a 1% rate, versus forecasts for a bigger contraction.
In July, the Dow gained 8.6%, its best July since 1989 and its best month overall since October 2002. The S&P 500 gained 7.4%, its best July since 1988 and its best month since April. The Nasdaq rose 7.8% in the month, its best July since 1997 and the best month overall since this past April.
The July advance -- now stretching into August -- has marked something of a second leg of the rally that started in the spring, said Mike Stanfield, chief investment officer at VSR Financial Services.
Between March 9 and June 12, the S&P 500 gained 40%. But for the next four weeks, stocks drifted lower as investors worried that the market had risen too far, too fast. Once the quarterly earnings reports came out better than expected, stocks resumed the climb.
"The continuation of a rally is going to be dependent on leading indicators showing strength," he said, such as Monday's manufacturing report.
Longer term, "I think Asia could lead us out of this worldwide slump," he said. "I think this time around we are not going to be the engines of growth, but we are going to benefit."
He said that the recent rally in oil and gold prices ties into that trend.
On Tuesday morning, the Commerce Department releases its June readings on personal income and spending. Also Tuesday morning, the National Association of Realtors releases the pending home sales index.
Economy: The Institute for Supply Management's manufacturing index rose to 48.9 in July from 44.8 in June. That was better than the 46.5 economists were expecting, but still short of the 50 level that indicates expansion in the sector.
Construction spending rose 0.3% in June versus forecasts for a decline of 0.5%, according to Briefing.com. Spending fell 0.9% in May.
Autos: Ford Motor reported a gain in July auto sales and other major automakers cut losses, as the government's Cash for Clunkers program helped stimulate sales of cars and trucks.
Ford (F, Fortune 500), the only one of the so-called Big Three automakers that didn't file for bankruptcy protection, said July sales rose 2% versus a year ago. It is the first U.S. automaker to report a rise in monthly sales since November 2007.
General Motors (GM, Fortune 500), Toyota Motor (TM), Chrysler Group and Honda Motor all said sales fell versus a year ago, but rose versus June levels, thanks to Cash for Clunkers.
The popular program gives consumers a rebate check for as much as $4,500 if they trade in their gas guzzlers and buy a fuel-efficient vehicle. But the program could run out of cash by mid-week if the Senate doesn't approve the additional $2 billion in funding the House of Representatives approved last week.
Quarterly results: With two-thirds of the S&P 500 having reported results, profits are on track to have fallen 29.5% from a year ago, according to the latest Thomson Reuters numbers. However, that's an improvement from a month ago, when profits were expected to fall more than 35%.
Profit reports have been topping expectations across the board, with roughly 74% of companies exceeding forecasts, versus the long-term average of 61% of companies. Should the figure hold up through the end of the reporting period, it would be the highest percentage of companies topping estimates in the 15 years Thomson Reuters has been tracking results.
On Monday, Humana (HUM, Fortune 500) reported higher quarterly earnings that topped estimates. Shares of the health insurance provider rose 2.8%.
Marathon Oil (MRO, Fortune 500) reported weaker quarterly earnings on lower oil prices. Nonetheless, results topped estimates. Shares gained 1.2%.
Other company news: Google (GOOG, Fortune 500) CEO Eric Schmidt has resigned from the Apple (AAPL, Fortune 500) board, as the Internet search leader is developing more and more products that compete with Apple's core businesses. Google gained 2%, while Apple gained 1.9%.
Bank of America (BAC, Fortune 500) has agreed to pay $33 million to settle charges that it mislead investors about Merrill Lynch's plans to pay bonuses to its executives. Bank of America completed its purchase of Merrill Lynch on Jan. 1.
Separately, BofA said Sallie Krawcheck, Citigroup's former head of global wealth management, will run BofA's global wealth and investment management operations.
Oil and gold: Commodity prices rallied as investors bet that a global recovery will boost demand for raw materials.
U.S. light crude oil for September delivery rose $2.13 to settle at $71.58 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery rose $2.90 to settle at $958.70 an ounce.
Bonds: Treasury prices tumbled as investors pulled money out of the safe-haven commodity. The slump raised the yield on the benchmark 10-year note to 3.63% from 3.48% late Friday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, European markets rallied after Barclays reported a rise in quarterly profit and HSBC reported a drop in profit that wasn't as steep as analysts had expected. Asian markets ended higher.
In currency trading, the dollar fell versus the euro and rose against the Japanese yen.
Market breadth was positive. On the New York Stock Exchange, winners beat losers four to one on volume of 1.21 billion shares. On the Nasdaq, advancers topped decliners by two to one on volume of 2.19 billion shares. 
