Wall St. Upbeat, Despite GM Bankruptcy

Last updated 4:08 p.m. ET

Wall Street is starting June with a big gain, boosted by reports that paint a more upbeat picture of the global economy.

Investors looked past General Motors Corp.'s bankruptcy filing and instead focused on better-than-expected readings on U.S. manufacturing, consumer spending and construction spending. Stocks got off to a strong start Monday following upswings in Europe and Asia, where markets surged on surveys showing improvements in manufacturing in those regions.

The Dow Jones industrial average rose more than 200 points Monday, with other major indexes also advancing well over 2 percent.

It wasn't just fundamental economic data that encouraged buying on Monday, however. Some technical factors were at play, too. The first trading day of the month often brings with it a surge of new money from mutual funds. Also, the S&P broke through its 200-day moving average, a key development that hasn't occurred in over a year.

Kim Caughey, equity research analyst at Fort Pitt Capital Group, said she was skeptical about the strength of the market's move Monday. The economic data were "better than expected, but I wouldn't say they were great."

Even if the economy is stabilizing, there is little to drive demand once it bottoms, Caughey said. "I can't really buy into today's super-happy stock market."

Standard & Poor's chief economist David Wyss said Monday he expects the U.S. economy to bottom out late this summer or early in the fall, but then experience a "rather sluggish" recovery.

"It's not a pleasant outlook," Wyss said. He predicted U.S. gross domestic product - which measures the value of all goods and services produced in the country - to drop 3.1 percent this year, with even sharper declines in European economies and Japan.

According to preliminary figures, the Dow rose 221.03, or 2.60 percent, to 8,721.36. The Standard & Poor's 500 index rose 23.73, or 2.58 percent, to 942.87. The Nasdaq composite index rose 54.35, or 3.06 percent, to 1,828.68.

Because GM's bankruptcy filing was so well telegraphed in advance, the move did not faze investors.

"It's remarkable the degree of resilience that the equity markets have shown," said Jack A. Ablin, chief investment officer at Harris Private Bank, referring to the market's ability to look past GM and other disruptions. "We've had plant closings, we've had dealer shutdowns. I think the reverberations have already been felt."

The government will get a 60 percent stake in GM, and is expected to provide the automaker with an additional $30 billion on top of the $20 billion it has already received to help it restructure. Meanwhile Chrysler LLC, which filed for Chapter 11 protection in April, is expected to emerge from bankruptcy protection this week.

The Dow Jones industrial average announced Monday it is dropping GM as a component after the automaker filed for bankruptcy, as well as Citigroup Inc., in which the government now owns a significant stake. GM and Citi will be replaced with Travelers Cos. and Cisco Systems Inc. next week.

Positive economic data helped overshadow GM's bankruptcy filing.

Consumers trimmed spending by 0.1 percent, the Commerce Department reported, less than the 0.2 percent reduction forecast by economists. Personal income was also better than anticipated, coming in flat instead of negative.

The Commerce Department also reported that construction spending rose for the second straight month in April by 0.8 percent, far better than the 1.2 percent decline economists had expected.

U.S. manufacturing activity also shrank at a slower pace in May, according to the Institute for Supply Management. The ISM index came in at 42.8 - its highest since September and up from 40.1 in March. A reading above 50 indicates growth, and a reading below 50 indicates contraction.

Advancing stocks outnumbered decliners by 5 to 1 on the New York Stock Exchange, where volume came to 968 million shares, relatively low but up from 814 million around the same time on Friday.

The Russell 2000 index of smaller companies rose 16.44, or 3.3 percent, to 518.02.

Overseas, Japan's Nikkei stock average jumped 1.6 percent, while Hong Kong's Hang Seng index soared 4.0 percent. In Europe, Britain's FTSE 100 rose 2 percent, Germany's DAX index rose 4.1 percent and France's CAC-40 gained 3.1 percent.

The market's three-month surge has brought the S&P 500 about 39 percent above the 12-year lows it reached in early March. It's the fastest rise the market has seen since the 1930s.

But new worries have begun to seep into the market, including a sinking dollar and climbing interest rates, which some investors fear could threaten an economic recovery. A temporary spike in long-term bond yields to six-month highs last week brought a sharp decline in stock prices.

Government bonds fell again Monday, driving yields back near last week's highs. The yield on the 10-year Treasury note, which is used as a benchmark for home mortgages and other consumer loans, rose to 3.70 percent from 3.46 percent late Friday.

The dollar weakened further Monday against the euro and the British pound. Gold slipped, but oil jumped.

Another hurdle that's approaching later this summer: Second-quarter corporate earnings results. If those come in worse than investors anticipated, Caughey said, "we'll have a reason to hate the market again."

While Monday's move was strong, many long-view investors were unconvinced about its staying power. Ablin noted that returns are much better when the S&P 500 is trading above its 200-day moving average, but that the statistic itself can send "a number of false signals."

Also, trading on the first day of the month is generally much stronger than normal. The S&P 500 index was down about 34 percent in the 10 years leading up to May 1. But according to S&P data, if someone invested in the index only on the first day of the month over that time frame, he would have seen a gain of 21 percent.