In one of the greater market ironies, General Motors (GM, news, msgs), perhaps the personification of American business in the 20th century, filed for bankruptcy protection today, and Wall Street didn't care.
Instead, investors bid stocks to their best levels since last fall on a bet that a falling dollar means higher prices for oil, metals and other commodities and the companies that produce them.
At the same time, investors also bet that companies with big exposures to overseas markets may also do very well in the months ahead. That's because a falling dollar boosts the value of profits earned outside the United States.
The Dow Jones industrials ($INDU) closed up 221 points, or 2.6%, to 8,721, its best close since Jan. 8.
The Standard & Poor's 500 Index ($INX) closed above its 200-day moving average for the first time since Dec. 26, 2007. For many investors who follow charts, that was a hugely bullish move. The index closed at 943, a gain of 24 points or 2.6%, its best finish since Nov. 5, the day after Barack Obama defeated John McCain for the presidency.
Not to be outdone, the Nasdaq Composite Index ($COMPX) shot up 54 points, or 3.1% to 1,829, its best close since Oct. 6.
And its sister index, the Nasdaq-100 Index ($NDX.X), was up 42 points, or 2.9%, to 1,477, its best finish since Oct. 2.
The index, which tracks the largest Nasdaq stocks, was paced by semiconductors and by Cisco Systems (CSCO, news, msgs), the world's largest manufacturer of computer networking products, up 5.4% to $19.50. Cisco will replace General Motors in the Dow next week.
In another big irony, Citigroup (C, news, msgs), down 0.8% to $3.69, will be replaced in the Dow on June 8 by Traveler's Companies (TRV, news, msgs), its former insurance subsidiary.
The dollar's fall in recent weeks helped crude oil surge to $68.58 a barrel today, up 3.4% from Friday and 53.8% for the year. Copper jumped 5.5% to $2.319 a pound.
Crude's gain helped Exxon Mobil (XOM, news, msgs) rise 3.5% to $71.76, and Chevron (CVX, news, msgs) added 3.8% to $69.21.
Copper's gain helped Freeport-McMoRan Copper & Gold (FCX, news, msgs) jump 6.8% to $58.12. Aluminum giant Alcoa (AA, news, msgs) led the 30 Dow stocks with a 6.6% gain to $9.83.
The dollar also helped such big American stocks as IBM (IBM, news, msgs), Boeing (BA, news, msgs) and Caterpillar (CAT, news, msgs), all of which generate more than half their revenue outside the United States. Boeing closed up 6.4% to $47.70. Caterpillar jumped 5.9% to $37.55. IBM was up a modest 2% to $108.37.
What's not clear from today's big jump is how long the rally can last.
Futures trading suggests a flat open on Tuesday even as JPMorgan Chase (JPM, news, msgs) said after the close that it wanted to raise $5 billion from a new offering of common stocks. (JPMorgan had finished down 2.1% to $36.11.)
The consensus on Wall Street is that a sell-off is due because of the market's enormous gains since its March 9 bottom. The Dow is up 33.2%, the S&P 500 39.4% and the Nasdaq up 44.1% since then.
The momentum is hard to stop. Critics of the rally will point to the big "reflation trade," the idea that rising commodity prices and economic recovery in India, China and elsewhere will move stocks higher.
They'll point to the rising interest rates. The yield on the 10-year Treasury note hit 3.72% today, up from 3.47% on Friday and 2.24% on Dec. 31. They'll point to the huge deficits governments in the U.S. and elsewhere face.
But many investors see something else. "The best news has been the growth in China," Alan Lancz, a money manager in Toledo, Ohio, told Reuters. "Investors are betting on growth stimulus from the emerging markets."
To show how totally the market has reversed, consider: On March 6, the Friday before the market bottom, only two of 42 domestic indexes that Market Dispatches tracks were higher for the year. As of today, just 11 of the indexes are lower. One of those losing indexes, the Dow itself, is off just 0.6%; on March 6, it was off 22.2.%.
The rally was quite broad. A total of 22 of the 30 Dow stocks were higher on the day. In addition, 450 S&P 500 stocks were higher, along with 93 Nasdaq-100 stocks.
All 10 sectors of the S&P 500 finished higher on the day, with consumer discretionary stocks particularly strong. Macy's (M, news, msgs) jumped 15.1% to $13.44; J.C. Penney (JCP, news, msgs) rose 14.9% to $29.98, and Nordstrom (JWN, news, msgs) added 14% to $22.45.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Crude oil (NYMEX) (per barrel) | $68.58 | $66.31 | $2.27 | 3.42% | 53.77% |
Heating oil (per gallon) | $1.7765 | $1.6370 | $0.1395 | 8.52% | 26.38% |
Natural gas (per million BTU) | $4.2490 | $3.8710 | $0.3780 | 9.76% | -24.42% |
Unleaded gasoline (per gallon) | $1.9243 | $1.8954 | $0.0289 | 0.00% | 90.86% |
A new GM to emerge
GM's filing in New York had been expected for weeks, if not months. GM had suffered years of losses and sinking sales -- despite $19.8 billion in government loans.But CEO Frederick "Fritz" Henderson was optimistic about a new GM. "This is not the end of General Motors," Henderson said at a news conference this afternoon. "Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results."
Shares of GM were up 9 cents, or 12.1%, to 84 cents this afternoon. GM's bankruptcy is the third-biggest in U.S. history, following Lehman Bros. and WorldCom. Chrysler Group listed $39 billion in assets when it filed for bankruptcy on April 30.
GM said it will close 17 plants by the end of 2011, which will result in the loss of about 20,000 jobs. The auto industry has lost about 281,000 jobs since the recession began in December 2007. GM employs 92,000 people in the United States.
GM will also sell its Hummer, Pontiac, Saturn and Saab brands, keeping Cadillac, GMC, Chevrolet and Buick units, which are seen as the "healthy" part of the company to emerge from bankruptcy.
In its filing, GM said it had $82.29 billion in assets and $172.81 billion in debt. The company also said it has more than 100,000 creditors.
GM was the world's biggest automaker for 77 years, ending its reign last year. GM is expected to name turnaround specialist Al Koch as its new chief restructuring officer to steer it through bankruptcy. Koch, a managing director at the advisory company AlixPartners, will report to Henderson. Once the company's most valuable assets are forged into a new General Motors, Koch will head a separate management team to wind down the old GM.
President Barack Obama said at a press conference today that he has no interest in running GM and called the government a "reluctant shareholder."
The president said GM's warranties will be safe for anyone who buys a GM vehicle while it's undergoing the restructuring process. He said the steps today mark the beginning of a new GM, giving it a chance to "rise again."
- Tell us: Where did GM go wrong?
"GM going through bankruptcy is a very positive thing for the auto industry; they should emerge as a reasonable competitor," Len Blum, managing director at investment-banking firm Westwood Capital, told Bloomberg News. "The only thing that's been holding GM back is labor contracts and relationships with debtors and franchisees. All that should be cleansed in a bankruptcy."
Ford Motor (F, news, msgs), the last U.S. automaker standing -- and the one company that did not take any government loans -- is preparing to boost production of its cars and trucks by 10% in the third quarter, The Wall Street Journal reported this morning. Ford is targeting production of 460,000 vehicles in the quarter, up from 418,000 a year ago. Ford is banking on its profitable F-150 pickup trucks, the report said, which have been among the best-selling vehicles in the U.S. for years.
Shares of Ford rose 6.6% to $6.13 this morning.
At the end of April, Ford had about 13% of the U.S. market, according to the Journal.
GM's restructuring is also expected to create new opportunities for Toyota Motor (TM, news, msgs) and Honda Motor (HMC, news, msgs). Toyota was up 2% to $81.72 in New York; Honda was up 2.6% to $29.77.
| Index | Today | Chg. since March 9 | '09 loss on March 9 |
|---|---|---|---|
| Dow Jones Industrial Average | 8,721.44 | 33.21% | -25.40% |
| Standard & Poor's 500 Index | 942.87 | 39.37% | -25.10% |
| Nasdaq Composite Index | 1,828.68 | 44.14% | -19.56% |
| Nasdaq-100 Index | 1,477.12 | 41.50% | -13.85% |
| Russell 2000 Index | 521.33 | 51.88% | -31.27% |
Bondholders paved the path for GM bankruptcy
Over the weekend, a majority of GM's bondholders approved a debt-for-equity swap, which paved the way for a smoother entry into bankruptcy protection today.About 54% of the company's debt holders agreed to exchange their unsecured bonds for about 10% of a new GM, a spokesman for the bondholders' ad hoc committee said Sunday.
Stock Charts (Year)
General Motors
Ford Motor
The government's latest investment will give it a 60.5% stake in the company that emerges from bankruptcy; the Canadian government will have a 12% share. The United Auto Workers union would end up with at least a 17.5% stake in the new company after agreeing to concessions regarding retiree health benefits and labor costs. More than 650,000 retirees and their family members depend on GM for health insurance and will experience cutbacks in their coverage.
In related news, the German government has completed the sale of GM's European division, Opel, to Canadian auto parts manufacturer Magna International (MGA, news, msgs), with the German government providing $2.1 billion in bridge financing.
Meanwhile, reports on automobile sales are forecast to show that annualized auto sales rose to 7 million in May from 6.9 million in April.
Chrysler to complete deal with Fiat
Just as GM enters bankruptcy, Chrysler is emerging from bankruptcy.A New York bankruptcy court judge ruled Friday that Chrysler may sell all of its most viable assets to a group led by Italian automaker Fiat (FIATY, news, msgs). Fiat will control 20% of the new company and will be allowed to increase its stake later. The UAW will own 68% of the new company.
Chrysler is expected to come out of bankruptcy this week.
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Will GM's bankruptcy send the market in reverse?News of GM's bankruptcy is unlikely to move the market much. But layoffs related to the company's restructuring could send the market tumbling, MSN Money's Catherine Holahan says.
Preparing for another month of job losses
May might have been a great month for stocks, but it will likely prove to be another month with a lot of lost jobs.The economy likely lost 500,000 jobs in May, which would be the seventh straight month with at least a half-million jobs lost, the Labor Department is expected to report Friday. Still, a monthly loss of 500,000 jobs would be the smallest number of jobs lost since October, when 380,000 were lost. In April, 539,000 jobs were lost.
The unemployment rate is expected to rise to 9.2% from 8.9%, which would be the highest level since 1983.
"The economy is decaying at a slower rate, and that is the best you can say," Steven Ricchiuto, chief economist at Mizuho Securities USA, told Bloomberg News. "I can't tell you we are out of the woods yet."
The U.S. economy has lost 5.7 million jobs since the recession began in December 2007.
The International Monetary Fund is also worried about high levels of unemployment. The IMF said high unemployment will last well after economic recovery has started in developed countries, The Wall Street Journal reported today.
Andrew Rosenbaum contributed to this report.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
Treasurys | |||||
13-week Treasury bill | 0.085% | 0.130% | -0.045 | -34.62% | -26.09% |
5-year Treasury note yield | 2.543% | 2.347% | 0.196 | 8.35% | 63.96% |
10-year Treasury note yield | 3.715% | 3.465% | 0.250 | 7.22% | 65.55% |
30-year Treasury bond yield | 4.575% | 4.338% | 0.237 | 5.46% | 70.01% |
Currencies | |||||
U.S. Dollar Index | 79.160 | 79.430 | -0.270 | -0.18% | -3.64% |
British pound in dollars | $1.6474 | $1.6194 | 0.0280 | 1.73% | 11.81% |
Dollar in British pounds | £0.6070 | £0.6175 | -0.0105 | -1.70% | -10.56% |
Euro in dollars | $1.4217 | $1.4162 | 0.0054 | 0.38% | 1.48% |
Dollar in euros | € 0.7034 | € 0.7061 | -0.0027 | -0.38% | -1.46% |
Dollar in yen | 96.34 | 95.32 | 1.02 | 1.07% | 6.28% |
Canadian dollar in U.S. dollars | $0.921 | $0.916 | $0.0045 | 0.49% | 12.60% |
U.S. dollar in Canadian dollars | $1.087 | $1.091 | -$0.0045 | -0.48% | -11.18% |
Commodities | |||||
Gold | $980.00 | $980.30 | -$0.30 | -0.03% | 10.82% |
Copper | $2.3190 | $2.1975 | $0.12 | 5.53% | 64.47% |
Silver | $15.7350 | $15.6100 | $0.13 | 0.80% | 38.20% |
Corn | $4.4575 | $4.3625 | $0.095 | 2.18% | 9.52% |
Crude oil (NYMEX) (per barrel) | $68.58 | $66.31 | $2.27 | 3.42% | 53.77% |
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