Monday’s Market Recap: Stocks Jump As GM Files For Bankruptcy

The first of June brought forth a huge day for the financial markets. With the markets gaining ground in the month of May and showing signs of a recovery, investors were unsure of how General Motors’ Chapter 11 filing would impact the markets. The Dow (^DJI: 8735.20 +13.76 +0.16%) jumped 221.11 points or 2.60% to 8,721.44, S&P 500 (^GSPC: 943.48 +0.61 +0.06%) up 2.58% to close at 942.87 and the NASDAQ (^IXIC: 1832.07 +3.39 +0.19%) soaring even higher to 1,828.68 or up 3.06%. The market seemed to feel a bit of relief regarding GMs drawn-out downfall finally coming to an end. President Barack Obama spoke on the bankruptcy filing and stated, “GM’s and its stakeholders have achieved a viable, achievable plan that will give this iconic American company a chance to rise again.” The plan outlined by President Obama calls for the United States government to take a 60% stake in GM (about $30 billion in loans and $19.8 billion General Motors has already received). In addition, Canada will also add another $9.5 billion reported Roger Runningen and Hans Nichols from Bloomberg.

As GM exits the Dow and Cisco Systems (CSCO: 19.72 +0.22 +1.13%) enters, the 30 stock index had another swap. Citigroup (C: 3.54 -0.15 -4.07%) is being replaced by Travelers Cos (TRV: 42.49 +0.58 +1.38%). TRV is a leading property and casualty insurer. “We were reluctant to remove Citigroup at the height of the financial frenzy,” Dow Jones Editor-in-Chief Robert Thomson said in a statement. “We genuinely hope that once the bank has refashioned itself that we will again be able to consider it for inclusion (in the Dow).

Oil also continued its upward trend on Monday by rising $1.75 per barrel to $68.06, the highest price since early November. Much of the rise in crude oil was due to China’s Purchasing Manager’s Index showing an increase in manufacturing in May. On a similar front, the Institute for Supply Management’s U.S. factory index strengthened to 42.8 from 40.1 in April. The housing market received some positive news with the Commerce Department showing that construction spending rose in April by 0.8%, the largest gain since August.

The Federal Reserve came out with rules for repaying TARP money for the nation’s largest 19 banks. Craig Torres from Bloomberg said on the new regulation, the 19 banks must be able to demonstrate they can sell new shares before they are allowed to repay their government stakes. The companies “must successfully demonstrate access to public equity markets,” the Fed said in a statement released today in Washington. They also need to sell debt without a Federal Deposit Insurance Corp. guarantee and reduce reliance on “government capital” and the FDIC’s program.” Banks have been trying to pay back the TARP money for a couple months now but the government has stepped in with additional regulations, slowing down this process.