Stocks Up on ISM; Treasurys Fall
PETER A. MCKAY GEOFFREY ROGOW
Better-than-expected data on personal income, manufacturing and construction propelled the S&P 500 to a new 2009 high on Monday, but renewed inflation fears continued to chill the bond market.
Stock investors' sentiment was also lifted by a landmark bankruptcy filing by General Motors. The filing had been expected for months, with market veterans hoping to move on quickly.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
"There is a positive, relief reaction to this filing. It's been hanging over all of our heads and pulling the trigger on this bankruptcy just eliminates one major cloud of question," said Elizabeth Miller, president of Summit Place Financial Advisors.
The S&P jumped 23.73 points, or 2.6%, to 942.87, the highest close for the index since Nov. 5, 2008. The measure has now risen 4.4% for 2009 to date.
The Dow Jones Industrial Average gained 221.11 points, or 2.6%, to 8721.44. It was the highest close for the benchmark, which is now down by just 0.6% for the year, since January 8. Exxon Mobil and Chevron jumped 3.5% and 3.8%, boosted by strong gains in oil and other commodities. Other big winners among the blue chips included Caterpillar, up 5.9%, and Alcoa, up 6.6%.
The market opened higher as a government report on personal income came in above analysts' views, with the market also lifted by a positive report on April construction. Gains accelerate 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 Nasdaq Composite Index gained 54.35 points, or 3.1%, to 1828.68. It is up 16% for the year. The Russell 2000 jumped 19.75, or 3.9%, to 521.33, leaving it up 4.4% for the year so far.
The market also seemed to benefit on Monday from early-month buying by money managers putting cash to work in June's first trading session. But the market could soon be due for a pullback, especially since bond yields are creeping high enough that they may soon draw buyers' attention away from stocks, said Roger Volz, director of equities at BGC Partners in New York.
"This market move has some real power that could take the S&P to the 1000 area," said Mr. Volz. But he added, referring to the yield on benchmark 10-year Treasury notes: "Once you get to the 3.90% area, you could start to get rate jitters in the stock market."
The 10-year note dropped 1-24/32 to yield 3.675%. The two year note was down 2/32 to yield 0.954%.
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.
The dollar was mixed, strengthening versus the Japanese yen but falling to $1.4144 versus the euro.
![[stocks]](http://s.wsj.net/public/resources/images/OB-DU130_pan060_D_20090601150933.jpg)
Bloomberg News/Landov A television monitor broadcasts a live speech by Fritz Henderson, CEO of General Motors, as traders work at the New York Stock Exchange June 1.
Crude futures settled at $68.58 a barrel, up $2.27 or 3.4% on the New York Mercantile Exchange. 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 also rose. The Dow Jones-UBS Commodity Index was up 3.4%.
GM 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.
The car maker will be removed from the Dow along with ailing Citigroup. The companies will be replaced by Cisco Systems and Travelers Co. effective June 8, according to Dow Jones & Co., which owns the average and is also publisher of The Wall Street Journal. Cisco rose 5.4%, while Travelers shares rose 3.1%.
Though Monday's gains in major averages were impressive, they took place on relatively light volume. Strategist Carmine J. Grigoli, of Mizuho Securities in New York, said that the muted activity reflected lingering skepticism among investors that corporate profits will rebound sufficiently in the months ahead to warrant buying stock to hold onto for the long term.
"There are some promising signs in the economy, but don't fool yourself," said Mr. Grigoli. "A lot of what we're seeing here is the correction of extreme risk aversion," after a period in which stocks and bonds were priced as if the U.S. were headed into a depression.
In a recent research note, Mr. Grigoli was bullish on stocks but also warned clients: "Concern about interest rates could set the stage for the first meaningful correction of this bull market" in the near future.
No comments:
Post a Comment