Stocks rode higher Monday ahead of General Motors' Tuesday earnings report, so you can bet it will be a big feature of Tuesday morning's trading.
With the help of GM and other blue chips, stocks shook off the latest scare from the financial sector. The Dow took a deep dive on AIG's early morning comments that its auditors found understated losses but recovered by afternoon. General Motors , Home Depot and Exxon Mobil were among the Dow winners. GM, expected to report a loss of $0.54 per share, was up more than 5 percent amid speculation its report would be better than expected.
Other companies reporting earnings Tuesday morning include Schering-Plough, Marsh McLennan and Taubman Centers. After the bell, Applied Materials reports. Economic news of note includes the 7:30 a.m. release of the NFIB survey, a health check on small business.
Also worth watching Tuesday will be "Squawk Box's" interview with Warren Buffett, who is expected to call in at around 8 a.m. New York time to discuss "the bond insurer situation." But, there's no doubt the Squawk team will have other questions for the oracle of Omaha.
If you didn't read this note on your Blackberry Monday night, blame Research in Motion . The company reported an outage in the late afternoon and said in early evening that it was working to fix the service disruption to millions of North American customers. The last major outage was in April, 2007.
Traders said it was a slow day in the equities market Monday, and the day was surprisingly calm despite the AIG news. AIG said its auditors had questioned "material weakness" in its valuation of credit derivatives, raising concerns about new writedowns. AIG had said its credit default swap portfolio had dropped in value between $1.05 and $1.15 billion in October and November, but now that figure could be $4.88 billion.
The Dow finished up 57.88 at 12,240. The S&P 500 rose 7.84 to 1339.13, and the Nasdaq was up 15 at 2320. The S&P financial sector was off 1.9 percent, with AIG down nearly 12 percent.
The corporate bond market was not nearly as calm. Traders reported a flight-to-quality on the AIG comments that widened out the spreads between corporate and Treasurys. CNBC's Rick Santelli said for instance, the credit default index (CDX) widened out to a measure of 132 from last week's mid 120s. The 10-year Treasury, meanwhile, rose 10/32 points, lowering its yield to 3.618 percent. The two-year rose 1/32, and its yield fell to 1.918 percent, the lowest level since April 12, 2004.
"When the smartest guys in the room are telling you their valuations are not necessarily accurate with respect to certain derivative values, the issue becomes are all the other mark to markets of some of these derivatives on the high side as well," said Santelli.
M.F. Global's Andy Brenner said the flight-to-quality today was AIG related, but that there is a bigger problem in the secondary corporate debt market. He said new issues are fine but there is some disarray when it comes to secondaries, even high grade. "The reason spreads are moving wider is because banks are getting sick of the fact they are stuck with leveraged loans. They've housed them long enough they, and they can't get them off their books," he said.
Santelli agrees that the inventory at firms is affecting the trading in corporates. "It isn't a real liquid market place. It's had its points over the last month and a half where it's been ok. It's not as liquid and it's not nearly as deep as it was a year ago," Santelli said.
We can be sure the ripples of the subprime tsunami will continue to swirl through markets Tuesday as Wall Street awaits the latest on the fate of the bond insurers. Interesting to watch will be a Hudson Institute conference in Washington which will focus on the future of bond insurers, the roles of structured finance, and the credit rating agencies. On the agenda are Pershing Square's William Ackman; Sean Egan of Egan-Jones and James Chanos of Kynikos Associates.
After its recent slump into the $80s, oil is back above $90 per barreland going strong. It finished Monday at $93.59, up $1.82, on supply concerns. Venezuela President Hugo Chavezthreatened to cut off the U.S. but there were other headlines unnerving the market, including an outage at a Valero refinery and violence in Nigeria.
Natural gas, meanwhile, was up 23 cents per million BTUs, or 2.8 percent, to $8.531. Natural gas was no doubt helped by cold weather in the Northeast. Heating oil was also up 2 percent, at $2.6044 per barrel.