Halftime Report: Markets Shake Off The GM Bankruptcy
The headline of the day was GM’s official bankruptcy announcement, but this didn’t stop the bulls in the market, and the Dow jumped over 200 points in intraday trading. The question of the moment: Will the GM bankruptcy mark the bottom for the US economy?
But with all the buzz surrounding GM, the importantance of several headlines could have been overlooked. In short, new economic data shows that things aren’t getting much worse, although it’s also not exactly getting better.
First, the better-than-expected China PMI data pushed Asian markets higher overnight and had some thinking that this positive sentiment could indicate that the GM bankruptcy is the final hurdle before economic recovery. Second, yields on Treasuries are on the rise, in support of equities.
People are seeing that they can get more from their money right now, so they’re demanding more from the Treasury, says Jon Najarian. He also sees the PMI data, which is up for a third month in a row, as a very strong and telling number for China.
What Does The GM Bankruptcy Mean?
According to the AP, the General Motors bankruptcy will be the fourth largest in history, at $93 billion, which is expected to wrap up between 60-90 days from today. Zachary Karabell points out that negative economic data arising from the GM bankruptcy – unemployment and subsequent loss in GDP for example - will lag months behind the actual completion of bankruptcy proceedings. These negative numbers are in lieu of the constructive action of the large-scale bankruptcy, however.
Jared Levy of PEAKG Investments doesn’t parse words when it comes to GM, and he’d be a huge seller of GM. Stay away from GM and definitely look at Ford, he says, which is very cheap right now.
Katie Stockton of MKM partners weighed in with her plays surrounding the bankruptcy, citing auto parts retailer names like Autozone , Advance Auto Parts and O’Reilly Auto, which she thinks are overextended in the intermediate term. She’d be a “very aggressive” buyer down to the 200 day moving average. She also thinks Ford could test $8 coming out of the GM news.
Zachary Karabell is a little more cautious, however, pointing out that investment into US auto or auto parts companies is a dicey move.
Commodities Leading the Way
Commodity markets were also experiencing a bullish run today, with Oil off its 7 month high and Copper , Soybeans and Wheat are also near their 7-month highs.
We’ve seen a base-breakout in crude oil, says Katie Stockton, who points out that both Oil and the S&P 500 have broken above their 200 day moving averages. However, Jared Levy urges caution in the short term after dramatic gains like the ones we’ve seen, as there could be a pullback.
Another indirect way to profit in this market could be with agricultural stocks. The idea being that when crop prices go up as they have been, farmers are more willing to invest in planting operations including the purchase of fertilizers. Jon Najarian agrees with this assertion, pointing to companies like Mosaic and Agria. Zachary Karabell also recommends Monsanto , a global agricultural provider, with this dynamic in mind.
The Foreign Auto Trade
The GM bankruptcy begs the question of who will be the biggest beneficiaries? Tim Seymour points to the foreign automakers like Toyota, who stands to gain in a big way with bad news from General Motors. Tata Motors is also an interesting play, as the Indian automaker has received government support to help clean up the company’s balance sheet. In Europe, Seymour sees Volkswagen as the strongest player, with Ford and Fiat being the other important global players.
Halftime Final Pick
With GM in trouble and the Hummer line closing up, Jon Najarian looks at Force Protection to cover the loss in market share, with the company’s vehicles replacing the Hummer in military service. Around the horn, the traders were bullish on the remainder of the trading day.
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CNBC.com with wires