Debt Worm Turns for a Day

Goldman Sachs was up 1.6% Monday while the broad Amex Securities Broker Dealer Index gained 1.3%.

The bottom-fishing wasn't limited to the credit markets. Several stock market strategists came out with recommendations to buy stocks after last week's rout. Goldman published a report identifying several buyout targets trading below their bid prices on fears that buyout deals will not succeed.

Bank of America's chief equities strategist Thomas McManus increased his recommended equity allocation by 5% to 60%, and cut his recommended allocation in Treasury bonds by 5% to 15%. He says a surge of put-buying amid broad market fear could instigate a short-covering rally.

On Friday, McManus forecast a short-term bounce, writing: "Some sectors that have been pummeled recently are now more attractive, in our view; we are looking at increasing our banks and utilities exposure -- two areas where our model portfolio has had zero weighting."

Also, Citigroup's Tobias Levkovich recommends buying diversified financials, including Merrill Lynch(MER Quote), Charles Schwab(SCHW Quote), Goldman, JPMorgan Chase(JPM Quote), and Bank of America(BAC Quote). "Valuation is attractive," he writes. "We believe fear levels have gone too far."

Schwab gained 2.7%, while JPMorgan gained 1.2%, and Bank of America added 0.6%.

In addition to dip-buying, an unusual stream of relatively decent news trickled out of the credit markets Monday, including fewer losses than in the first quarter from General Motors'(GM Quote) mortgage financing unit ResCap. GM's financing unit, GMAC, overall reported a 63% decline in second-quarter profits. General Motors gained 4% Monday. Ford (F Quote) added 6.2%.