U.S. stocks defy data woes to close near day's high

US stocks rose for a second day in a row, with megacaps catching bids as investors digested weak data on New York manufacturing and the Chinese economy. Treasuries gained with the dollar, while commodities from oil to iron ore tumbled.

The S&P 500 closed near highs of the day, reversing losses of as much as 0.5 per cent , with only energy and materials sectors ending in the red. The tech-heavy Nasdaq 100 outperformed, with Tesla Inc., Apple Inc., Microsoft Corp. and Nvidia Corp. leading gains. Treasury yields declined and the bond curve remained deeply inverted, pointing to potential risks of a US recession as the Federal Reserve tightens monetary policy. 

US stocks are coming off a fourth straight weekly gain, the longest run this year, with sentiment buoyed by signs of slowing price pressures that stirred hopes of a shift by the Fed to less aggressive rate hikes and a gradual slowdown in the economy. Still, the rally has left market breadth looking stretched with stocks vulnerable to a pullback.

“The magnitude of this bear market rally has surprised many, including us,” Morgan Stanley strategists including Michael Wilson wrote in a note. “In our view, it’s been driven by a combination of better-than-feared 2Q earnings (although revisions/price came down into the quarter), light positioning and continued hope for a less hawkish Fed path.”