The markets seemingly entered Superman's "Bizarro-World" Thursday. With (of all things) General Motors ( GM) leading the way, the spotlight fell on the Dow Jones Industrial Average while the Nasdaq Composite and Russell 2000 lagged, as did several of the year's heretofore strongest stocks, commodities and related stocks.

GM rallied 10.06%, or $2.07, to end the day at $22.64, helping the Dow rise 64.12 points, or 0.57%, to 11,342.89, its highest close since January 2000.

GM's bonds were less bullish, but bumped up against their first-quarter highs. Its 8.75% bonds due 2033 gained about 1.5 points, or 1.5 cents on the dollar, quoted at a bid-offer midpoint of 74 cents on the dollar, according to MarketAxess. But the trading activity in its nearer-term maturities demonstrated the delinking (for now) of GM to bankruptcy after the two appeared together in about 150 news headlines over the course of the past six months. Its 7.125% bonds due in 2013 were up more sharply, up over 4 points at one point, and ending up 3.125 points, quoted at 74.125.

"There was somewhat of a perfect storm helping GM today,'' said Gregg Klein, high yield analyst at BNP Paribas.

Plagued by massive labor costs and legacy liabilities, GM reported first-quarter earnings absent any negative shocks -- a veritable victory despite missing Wall Street estimates. Its $323 million loss amounted to 57 cents a share, falling short of Wall Street estimates of a loss of 44 cents per share. Still, the loss pales in comparison to last year's first-quarter loss of $1.3 billion, or $2.22 per share.

Now, GM just has to get through the summer without a strike by bankrupt auto parts supplier Delphi's workers, and make it through 2007 and the next round of contract negotiations with the United Auto Workers. No easy task, but GM's insistence that it will meet these challenges and stave off a bankruptcy filing finally may be sinking in with investors -- maybe like the Fed's insistence that inflation is contained . The rhetoric over the UAW negotiations have mellowed of late, and the GM board's public vote of confidence in CEO Rick Wagoner last month have improved confidence in the company.

The earnings media blitz included Wagoner on CNBC Thursday rejecting questions about how damaging a strike by bankrupt auto supplier Delphi workers might be for the company. Wagoner said a strike wouldn't help anyone, and that "everyone is focused on getting the deal done." The talk was certainly in sharp contrast to the combative Delphi CEO Robert "Steve" Miller's public statements regarding Delphi's workers -- about bitter pills and difficult, yet necessary, decisions.

The good cop in this drama, GM's Wagoner also concurred with his Vice Chairman Robert Lutz that bankruptcy talk is frustrating to hear while the company is working to improve liquidity -- through its cost-cutting measures, but also through asset sales and improved revenue. GM has announced plans to sell a majority stake in its financing unit General Motors Acceptance Corp. in a deal with Cerberus Capital Management that would raise approximately $14 billion over the next three years. It also has offloaded much of its stake in Suzuki to raise about $2 billion. GM ended the first quarter with $21.6 billion in cash.

"I think people have gotten more comfortable this year that bankruptcy is less likely," said Brian Hessel, managing partner at Stonegate Capital Management, which has $300 million in high-yield assets under management. He does not own GM bonds at this point, but "thinks GM bonds are undervalued."

Finding Balance

GM was the most obvious example of the "backward" nature of the market Thursday, which saw the S&P 500 rise 1.53 points, or 0.12% to 1311.46, once again failing to sustain a move much beyond resistance at 1310 after trading as high as 1318.16 intraday.

Meanwhile, the Nasdaq took a breather, dropping 8.33 points or 0.35% to close at 2362.55, and the Russell 2000 fell 0.5% to 774.68. Heading into Thursday's session, the Dow was up 5.2%, trailing gains of 7.5% for the Nasdaq and 15.6% for the Russell this year.

"It was a balancing day," said Art Hogan, chief market analyst at Jefferies & Co. "The Dow is playing catch-up with the Nasdaq," thanks to some of the tech sector's earnings flops, most notably Intel ( INTC) and eBay ( EBAY). Meanwhile, PortalPlayer ( PLAY) was hammered by an Apple ( AAPL)-related setback, falling 42% on 16 times its average daily volume of the past three months.

Elsewhere, gold stocks fell along with the price of the precious metal. Newmont Mining ( NEM) fell 5.2% while gold dropped sharply after hitting another 25-year high intraday, ending up down 2%, or $12.90 per ounce to $623.10 an ounce.

The price of oil was off its highs Thursday as well, in an odd twist, considering political tensions surrounding Iran's nuclear program didn't cool. Both China and Russia were clear Thursday about their opposition to imposing U.N. Security Council sanctions. The price of crude oil futures fell to $71.95 per barrel, down 22 cents, while sector favorites such as Sunoco ( SUN) fell 2.27%.

Steelmaker Nucor ( NUE), another big gainer this year, was down 5.6%, while construction and equipment giant Caterpillar ( CAT) fell 1%; coal bellwether Peabody Energy ( BTU) fell 4%.

The suffering by previous highfliers continued after the close with F-5 Networks ( FFIV) recently down 15.7% after hours after posting disappointing results and guidance. Google ( GOOG), however, was recently up 7% after posting blowout results .
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.