Stocks up despite weak manufacturing data

For now, bad news is good for the stock market.

Investors judged that the latest weak economic reports will make it more likely that the Federal Reserve will continue to stimulate the economy and support a rally on Wall Street.

Monday, a measure of U.S. manufacturing fell in May to its lowest level since June 2009 as overseas economies slumped and weak business spending reduced new orders to factories.

That helped convince investors that the Fed will maintain its $85-billion bond-buying program. Speculation that the Fed was set to ease that stimulus has caused trading to become volatile in the last two weeks.

The "good news is bad news" interpretation of economic reports may support stocks in the short term, but ultimately the economy has to keep improving for stocks to reach new highs, said Alec Young, a global equity strategist at S&P Capital IQ.

"This was a big miss on the [manufacturing] report," said Young. "Regardless of what it means for the Fed, ultimately you're buying a stream of earnings, and you want to see the economy doing well."

The Standard & Poor's 500 index rose 0.59 percent to 1,640.42. The Dow Jones industrial average was up 138.46 points to 15,254.03. The Nasdaq composite index rose 0.27 percent to 3,465.37.