Monday, June 1, 2009

US Stocks Post Strong Gains On Positive Manufacturing Data

U.S. stocks posted strong gains early Monday as better than-expected manufacturing data and gains in the raw-materials sector trumped a landmark bankruptcy filing by General Motors.

The Dow Jones Industrial Average was up about 182 points, or 2.1%, at 8690. Its energy components Exxon Mobil and Chevron were up nearly 3% each, boosted by strong gains in oil. Other big winners among the blue chips included Caterpillar, up 4.6%, and United Technologies, up 3.2%.

The Dow's gains accelerated after the Institute of Supply Management said its index of U.S. manufacturing activity rose to 42.8 in May from 40.1 in April. The increase was bigger than analysts expected, though the latest reading was still low enough to signal that the manufacturing sector remains in contraction.

The S&P 500 was up 2.3%, flirting with a new high for 2009. The gauge is now up more than 4% on the year. The Nasdaq Composite Index was up 1.9%.

Crude futures were recently up $1.30 at $67.61 a barrel in New York. Traders' hopes for a turnaround in global fuel demand were bolstered by both the ISM report and data showing that China's manufacturing sector grew moderately last month.

Other raw materials traded higher. The broad Dow Jones-AIG Commodity Index was up more than 2%.

GM shares slid 2.7% to 73 cents a share after the automaker filed for Chapter 11 protection early Monday. The Obama administration is promising that the company can move quickly through reorganization, much like Chrysler, which could exit bankruptcy as soon as Monday. A judge approved the sale of most of Chrysler's assets to alliance partner Fiat.

GM's Chapter 11 filing has been long anticipated by investors, who bid the Dow up nearly 3% last week even as talk swirled that bankruptcy was imminent at GM. The car maker will soon be removed from the Dow along with ailing Citigroup. The two will be replaced by Cisco Systems and Travelers Co. effective June 8, according to an announcement from Dow Jones & Co., which owns the average and is also publisher of The Wall Street Journal.

Renewed risk appetite among investors lately has generally helped stocks and hurt bonds, with some participants even beginning to grumble that a wave of inflation may be on the way.

Ed Yardeni, president of Yardeni Research, said in a note to clients on Monday that several hedge funds he's been in contact with have begun to short Treasurys more aggressively.

"They've joined other bond vigilantes in recent weeks to push yields higher," said Yardeni. "The ones I met in Connecticut believe that fiscal and monetary policies are out of control. They see huge federal deficits putting a great deal of pressure on the Fed to monetize the debt," by effectively printing money to pay off the Treasury's obligations.

Treasury prices continued to head lower on Monday, with the 10-year note off 1-12/32 to yield 3.630%.

In overseas action, Hong Kong's Hang Seng Index jumped to an eight-month high due to uptick in China's manufacturing sector, and most European benchmarks were up by more than 1% in recent trading.

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