Recapping the day's news and newsmakers through the lens of CNBC.
The Devil's in the Data
The Institute for Supply Management (ISM) said its index of national factory activity in May fell to 49.0 from 50.7 in April. A reading below 50 indicates contraction in the manufacturing sector. The last time the ISM manufacturing index fell below 50 was shortly after the East Coast was hit by Hurricane Sandy. A slip in new orders and slackening demand for exports were behind the surprise manufacturing contraction.
A separate report showed construction outlays slightly higher, but less than expected. And turbulence in overseas markets, including another drop in the Nikkei and a slowdown in economic activity in China, weighed on markets.
Bad news could equal good news for the markets, in what's become a recurrent trading argument. More weak economic data could mean a delay to the Fed tapering off its bond-buying program, which has bolstered stocks.
"It [the data] could be greeted positively by the market because as we saw in the past week, when you get a lot of positive economic data or some good economic data points, the market, while it initially reacts positively, begins to get nervous that it may be the beginning of Fed tapering. So ironically, this could be greeted with positive fervor by the market."—Kristina Hooper, Allianz Global Investors
"We always felt that the Fed, at the earliest, was going to begin tapering towards the end of this year because the news, economically, is good, but it's just okay. It's not great. There are headwinds […] with the sequestration cuts hitting the market. We think the economy will get through it and we think we'll start seeing greater acceleration of the economic data in the second half."—Erik Ristuben, Russell
Apple Bottom Is Up?
Apple is back in the news, with the Department of Justice case alleging price fixing in the e-book market under way in New York federal court. But traders and investors are speculating that as court action heats up Apple's share price may have found a bottom after starting its fall in September.
Apple bulls say Tim Cook has stepped out from Steve Jobs' shadow, leading investors like David Einhorn and John Calamos to load up on shares. There's also a pipeline of new innovations, as shown by a flood of patents, which could include a watch, an electronic wallet, a smart pen and greater automotive integration. There were also reports on Monday that Apple is soon to debut a streaming music service.
Apple bears contend the high end of the smartphone market is tapped out and that consumers are showing less demand for incremental innovation (opting to keep their old iPhone 4S when the 5 is available, for example).
"The smart money is buying and some say the technicals and fundamentals suggest reasons […] to celebrate."—CNBC's Josh Lipton
Car Sales Pick Up
More evidence of a recovery? Car sales were up a little more than Wall Street expected in May: Nissan was up 24.7 percent, Ford 14 percent, Chrysler 11 percent and Honda, General Motors and Toyota up more modestly. The housing recovery has propped up sales of large pickup trucks as small businesses restock fleets, automakers said, and pent up demand remains for full-size pickups.
Meanwhile, one strategist expects higher oil prices later this year.
"We think the market has fundamentally misanalyzed this segment for years. There's a wide consensus view that the pickup segment in the U.S. is structurally impaired because there is a group of buyers who bought during the peak who people think are out of the market forever. And our data shows that that theory may be completely wrong. We think there's pent up demand left in the segment."—Itay Michaeli, Citibank auto analyst
Bond Yield Canary
The recent run-up in bond yields is a potential alarm bell for a sour second half. Investors are using surging yields to justify some portfolio changes away from defensive plays and toward underperforming cyclical stocks.
At least one economist believes now is the time to take your money off the table.
This week, there is a lot of economic data due, including Friday's nonfarm payroll report, which could make or break the stock market rally.
"I think the question comes from a money manager, what do you want to buy right here? Do you want to buy cyclicals when the growth isn't evident? Do you want to buy defensives when you have rising interest rates? I think we're in for a period of 30 days of frustration and exiting from risk assets."—Joe Terranova of Virtus Investment Partners
"I'm still in the camp that said that the market is not strong enough, the economy is not strong enough to see any significant tapering. We could talk about the market we want or the market we've got. A lot of folks think that the Fed has done too much already but the simple fact is they are going to continue to do it."—Jon Najarian, CBOETV
_ By Doug Cubberley, Special to CNBC.com