Things looked a bit shaky on Monday morning as traders pushed the ‘sell’ buttons after a long Holiday weekend and sent the Dow down some 120 points.
Give credit to the financial stocks as the major averages clawed back and ended near the flat line.
Much attention was focused on GM as to whether they are closer to bankruptcy than previously assumed. Apparently, the automobile industry task force has in no uncertain terms told GM to prepare for a June 1 BK filing, just in case they can’t reach an agreement with UAW and its bondholders. Seems to me the thumbscrews have been tightened, but it remains to be seen if there is any adverse market reaction if a bankruptcy filing indeed takes place.
Markets typically react to unforeseen events; this one could be classified as the worst kept secret. There is more talk to possibly split the automaker into a ‘good’ and ‘bad’ company, with the good one retaining the successful automobile brands and the bad one being sold off over the next few years.
Either way, there will be some impact on the forthcoming unemployment numbers as a bankruptcy would certainly guarantee masses of direct and indirect lay-offs. I am not sure if this impact will be strong enough to have an effect on the current market rebound and put into question the preferred view that an economic recovery is looming on the horizon.