Inspired by fresh signs the U.S. economy is slowly healing, the Dow climbed more than 200 points on Monday even as General Motors became the largest industrial bankruptcy in American history.
Today's Markets
The Dow Jones Industrial Average rose 221.11 points, or 2.60%, to 8721.44, the Standard & Poor's 500 gained 23.73 points, or 2.58%, to 942.87 and the Nasdaq Composite jumped 54.35 points, or 3.06%, to 1828.68. The consumer-friendly FOX 50 added 16.15 points, or 2.41%, to 687.58.
Monday's major rally, the third-straight up day on Wall Street, pushed the S&P 500 and Nasdaq Composite to their best closing levels of 2009. It also marked the best one-day performance for the Dow in two weeks.
The markets barely shuddered at the collapse of General Motors (GM), which filed for Chapter 11 bankruptcy protection Monday morning, putting an end to the worst-kept secret on Wall Street.
“Obviously people knew [the GM filing] would happen. Now that it’s out of the way, there’s almost some relief. Everyone can stop focusing on it,” said Ryan Detrick, equity analyst at Schaeffer’s Investment Research.
At the same time, the markets received new evidence the U.S. economy could be headed for a second-half rebound. Specifically, the new orders component of the ISM manufacturing report eclipsed the 50 level, indicating growth for the first time since November 2007 -- one month before the recession began.
“Six months from now they are going to note that new orders went above 50 and May was the end of the recession,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “Forget about employment and housing. Those are lagging indicators. The party will begin long before those things turn around.”
The vast majority of the Dow's 30 components closed in the green, led by Alcoa (AA), Caterpillar (CAT) and Boeing (BA). Defensive stocks like Pfizer (PFE) and Merck (MRK) ended in negative territory.
“This market keeps defying all skeptics. The rally looks it’s going to continue,” said Detrick.
Monday's surge comes after the Dow enjoyed a pair of strong rallies at the end of last week, capping off the best three-month performance in nearly a decade. The benchmark index has surged 33% since hitting a 12-year low on March 9 -- representing one of the strongest rallies from a bear-market low on record.
“I suspect there are a lot of folks on the sidelines with piles of cash, scratching their heads wishing for a selloff so they can put that money to work. But the selloff just doesn’t seem to come,” NYSE trader Ted Weisberg of Seaport Securities told FOX Business.
It's also worth noting the S&P nearly closed above its 200-day moving average, a very important technical barrier.
Data, Commodities Spark Rally
Economic hopes were bolstered by a trio of economic reports released Monday morning, led by a better-than-expected 42.8 reading for the ISM manufacturing report.
Similarly, the Commerce Department said overall construction spending unexpectedly rose 0.8% in April, building on March's 0.4% increase. The markets had been bracing for a decline of 0.9%.
Also, new data showed personal spending declined by 0.1% in April, improving on March's 0.3% decline and better than the 0.2% fall economists had forecasted. At the same time, the U.S. savings rate jumping to its highest level since 1995.
Bolstered by the data and the tumbling greenback, commodities like crude oil stayed red-hot, lifting energy and basic materials stocks like ExxonMobil (XOM) and U.S. Steel (X).
In its sixth-straight up day, crude climbed $2.27 per barrel, or 3.42%, to $68.58 -- a fresh 2009 high. Amid signs of an economic recovery, crude oil surged 30% in May -- its best one-month rally since 1999.
Positive economic news out of China helped start Monday's rally overseas as European and Asian markets soared by as much as 4%.
GM Goes Bust
While the world awaited the Chapter 11 filing from GM, the markets weren't particularly worried about the fallout as the collapse had been widely telegraphed for weeks. Some argue it's a bullish sign that the markets were unfazed by the failure of the American industrial icon, especially considering how last fall stocks routinely swung on the latest rumors of the Big Three's demise.
GM became the third-largest bankruptcy in U.S. history on Monday, claiming total liabilities of $172.81 billion and $82.29 billion in assets. The auto maker has said there is no role for common shareholders in the New GM, which will be spun off from the company's "bad" assets through a 363 sale.The U.S. plans to inject another $30 billion into the company, bringing its total aid package to $50 billion.
Minutes before the opening bell, Dow Jones Indexes said GM and Citigroup (C) will be kicked out of the Dow on June 8, to be replaced by tech bellwether Cisco (CSCO) and insurer Travelers (TRV). Dow Jones, like FOX Business, is owned by News Corp. (NWS).
“It’s a reflection of the changing economy and the changing world which we live in,” said Weisberg.
Corporate Movers
Chrysler's sale to a new company owned by the U.S., Canada, Italian auto maker Fiat and a UAW trust was approved Sunday by a bankruptcy court judge. The move allows Chrysler’s “good assets” to emerge from bankruptcy at a faster rate than anticipated. The old company will remain in bankruptcy and liquidate.
Ford (F) looks to capitalize on the failure of its two domestic rivals by ramping up production by about 10% from a year ago, The Wall Street Journal reported. The output boost comes as GM and Chrysler plan to shut their plans for almost the entire quarter.
JPMorgan Chase (JPM) is planning a $5 billion capital raise as part of its effort to repay its TARP funds, the Journal reported. The bank plans to return the bailout cash by the end of the month, the paper reported.
Elan (ELN) saw its shares jump after the Journal reported the Irish biotech firm is in talks to sell a minority stake to Bristol-Myers Squibb (BMY) and one other unnamed suitor. The potential deal could be a prelude to a full takeover of Elan, the paper reported.
Air France said a plane en route to Paris from Rio de Janeiro went missing overnight with 228 people on board. The airline said the plane was likely struck by lightning and suffered an electric failure while over the Atlantic Ocean.
News Corp. (NWS) is in talks with DirecTV (DTV) CEO Chase Carey to replace Peter Chernin as chief operating officer, Dow Jones Newswires reported.
Playboy Enterprises (PLA) is expected to tap Scott Flanders, CEO of Freedom Communications, as its next CEO as early as this week, the Journal reported.
Deere (DE) said Samuel Allen, president and chief operating officer, will replace Robert Lane as CEO on August 1.
Global Markets
European markets also added to their three-month rally. London'sFTSE 100rose 2% to 4506.19, Germany'sDAXgained 4.08% to 5142.56 and France'sCAC 40added 3.11% to 3379.49.
Asian stocks surged overnight. Japan's Nikkei 225 rallied 1.63% to 9677.75 and Hong Kong's Hang Seng closed up 3.95% to 1888.59
