Stocks Climb on Rebound Hopes

With General Motors Corp. (GM) departing the Dow Jones industrial average Monday after its bankruptcy filing, the stock market decided to hold an Irish wake for the automaker. The Dow jumped over 2.5% Monday, with other major indexes following suit, after manufacturing reports in the U.S., Europe, and Asia supported investors' hopes for a global economic rebound.

The market may be showing some relief that GM finally filed for bankruptcy and may now be forced to make some hard business decisions, says Action Economics.

On Monday, the 30-stock Dow Jones industrial average finished higher by 221.11 points, or 2.60%, at 8,721.44. The broad Standard & Poor's 500 index gained 23.73 points, or 2.58%, to 942.87. The tech-heavy Nasdaq composite index rose 54.35 points, or 3.06%, to 1,828.68.

Despite occurring on relatively light volume, Monday's rally sent the Nasdaq to its highest close since November.

Crude oil spiked to above $68 per barrel, with shares of Exxon Mobil (XOM), Chervron (CVX), and other energy names moving higher.

Meanwhile, Treasuries plunged, the dollar index flattened, and gold lost ground.

GM filed for Chapter 11 bankruptcy protection Monday. The company said it has reached agreements with the U.S. Treasury and government of Canada and Ontario to accelerate its reinvention and create a "New GM" positioned for a profitable, self-sustaining and competitive future.

With the bankruptcy filing, the automaker has been dropped from the Dow Jones industrial average, ending an 83-year run. On Monday, Dow Jones & Co. announced Monday that Cisco Syestems (CSCO) would replace GM in the stock market benchmark. Also, Citigroup (C) is being removed from the average, to be replaced by Travelers Cos. (TRV).

Meanwhile, AFP reported that a U.S. bankruptcy judge has approved the sale of distressed U.S. automaker Chrysler to Fiat, saying this was the only way to save the company and paving the way for its rebirth. "The sale motion is granted in its entirety and entry into and performance under and in respect of the purchase agreement and the sale transaction is approved," judge Arthur Gonzalez wrote in his ruling. He added that despite extensive efforts over the last two years to seek various alliances for Chrysler, the Fiat transaction was "the only option that is currently viable."

Prudential Financial (PRU) announced that it has commenced a public offering of $1.25 billion of its common stock. The company said underwriters will have a 30-day option to purchase up to an additional 15% of the offered amount of common stock from Prudential.

Elan Corp. (ELN) shares were seen higher on talk the company may sell a stake to Bristol-Myers Squibb (BMY), says S&P MarketScope.

American Water Works (AWK) announced an offering of 26 million shares of stock. The company says it plans to use the proceeds of the sale to reduce its short-term debt.

U.S. construction spending rose 0.8% in April, contrary to expectations (the median forecast was for -1.5%) from a revised 0.4% in March (was 0.3%). Private residential spending picked up steam, rising 0.7% after a 3.6% March decline, although all of the improvement was due to an 8.9% surge in home improvement spending. Indeed, private single family spending fell 6.7% while private multi-family spending declined 2.6%. Meanwhile, total private spending rose 1.4% following a 0.2% increase in March. Public spending fell 0.6% after a 1.0% March increase.

The U.S. Institute for Supply Management manufacturing index rose to 42.8 in May, beating expectations (median 42.0) from 40.1 in April, extending the rebound from the 32.9 trough seen in December. New orders jumped to an expansionary reading at 51.1 from 47.2. Production also jumped, reaching 46.0 from 40.4. And prices paid spiked to 43.5 from 32.0. More downbeat, employment dipped to 34.3 from 34.4. And inventories continued to be cut at 32.9, versus 33.6.

"Overall, the data adds to evidence of economic recovery, supporting rotation into equity and commodity markets," says Action Economics.

Personal income rose 0.5% in April, while spending dropped 0.1%. Along with the drop in tax revenue, the income increase led to a 1.1% jump in personal income, and a rise in the saving rate to 5.7% from 4.5% in March. The income rise was unexpected; markets had anticipated a 0.2% drop. The decline in spending was near market expectations of a 0.2% decline. Wages were flat in April, but transfer payments jumped 2.3% and rents rose 3.1%.

Increases in unemployment benefits and Social Security and health care led the transfer rise; much was apparently the result of the extension of health care benefits under the stimulus plan, and rebates to Social Security recipients were included in these transfers, according to S&P Economics.

"[T]he level of disposable income is a bit higher than we expected at this point, which should be good news for consumer spending and the economy," says S&P Economics.

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