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Both the Nasdaq and the S&P 500 are hitting new recovery rally highs today. Part of the reason for today’s strength is the better than expected construction numbers released this morning.
The 0.8% gain in construction spending for April was the biggest gain in nearly a year. And it was far better than economists’ expectations of a 1.5% drop.
This is how it will be during an economic recovery. There will be wild swings in data. Don’t be surprised if construction contracts for May, and then picks up in June. Or vice versa. It really could go either way. And that won’t necessarily be bad news.
Of course, it would be great to see the numbers continue to steadily improve. But that’s not the way it works when an economy is recovering from the type of shocks the U.S. economy has received.
*****General Motors (NYSE:GM) ended the suspense. As expected, it filed for bankruptcy protection this morning. It’s the 4th largest bankruptcy filing in US history. GM has $82 billion in assets and $172 billion in debt.
GM stock is up +20% in the early going today. I want to know why. My guess is that shorts are covering their positions. Still, I don’t know why. It’s expected that GM common stock will be cancelled as part of the bankruptcy proceedings.
That would mean that shorts don’t have to cover their position. However, shorts may continue to incur borrowing fees from the shares they have sold. In order to be completely free of the trade, maybe covering is the way to go.
*****I’ve read that GM may resume trading as a new public company in 6-12 months. I don’t see why it should take that long. A motivated bankruptcy judge ought to be able to deal with GMs debt faster than that.
But I will say that, depending on the terms of the bankruptcy, GM stock should be a good buy when it comes public again. GM will be stripped of one of its major stumbling blocks – pension benefits.
It’s estimated that pension benefits add $1,500 in expenses for GM on each car it builds. Obviously, in today’s competitive environment, that’s insurmountable.
However, once these costs are gone, and GM can operate with leaner margins, the stock could be a good buy.
*****SmallCapInvestor PRO readers are enjoying their second +100% gain this year. The stock is Genco Shipping (NYSE:GNK) and it was recommended on April 9 at $14.20 a share. Please do not by the stock now. We will be taking our profits on it in the near future.
We’re holding our other triple digit winner. This domestic oil and gas stock is up +130%. But the strength in oil prices means that there should be more gains coming. Look to this sector to continue providing winning small caps in the months to come.
I’m getting ready to increase our exposure to China in SmallCapInvestor PRO. The two Chinese stocks in the portfolio now are up, and China is the best growth story in the world right now (indeed, some analysts and economists are calling for China, not the U.S., to lead us to recovery). For more on SmallCapInvestor PRO, please click HERE.
*****Graham Corp (AMEX:GHM) reported earnings on Friday. And they were not very good. The stock has lost nearly $3 over the past few days. That’s plenty for me. If you bought Graham on my recommendation in Daily Profit, it is now time to take your profits. I hope you did well.