GM deal lifts small-cap index
The Russell 2000 (NYSE: IWM) and the Dow posted solid gains following news of a milestone deal between General Motors and the United Auto Workers. The small-cap index added 6.12 points, or 0.76%, to 809.12. The Dow Jones Industrial Average (INDU) moved up 99.50 points, or 0.72%, to 13,878.15.
Stocks began the day on a bullish note and stayed in positive territory throughout the session following news that the United Auto Workers union and General Motors Corp. (NYSE: GM) reached an agreement for a new national contract.
This afternoon, about 73,000 factory workers ended their two-day strike and began returning to work after it was announced that the Detroit-based company has promised to invest in UAW factories in the United States and make improvements to its retirement benefits. In return, General Motors will shift to an independent trust over $50 billion in debt that it owes to the UAW for the health benefits of retired workers.
Some observers are referring to the deal as a huge step forward for the automaker, which should now be able to operate under a cost structure similar to that of Japanese rival Toyota Motor Corp. (NYSE: TM). General Motors, a Dow component, has posted losses in the past two years while Toyota has been chipping away at its market share.
News of the deal dominated headlines today as investors apparently disregarded negative economic reports.
New orders for U.S. durable goods, a key barometer of business spending, fell a greater-than-expected 4.9% in August to a seasonally adjusted $219.53 billion, the Commerce Department reported before the opening. That’s the sharpest drop in seven months and another sign of an economic slowdown.
Economists were expecting orders for durable goods, goods intended to last more than three years, to decline 3.1% following an upwardly revised increase of 6.1% in July.
Elsewhere, the Mortgage Bankers Association reported that its weekly index of mortgage activity fell 2.8% for the week ended Sept. 21, reflecting the ongoing slump in the U.S. housing sector.
The meltdown in the subprime mortgage sector has been hard on lenders, many of which are struggling with losses or have declared bankruptcy. This morning, San Francisco-based Luminent Mortgage Capital, Inc. (Nasdaq: LUM), a small-cap company, announced a decline in its second-quarter earnings.
Equities were on track for modest gains until about an hour before the close, when the bulls gained strength and stocks started moving higher. The catalyst was news that financial services heavyweight Bear, Stearns & Co. Inc. (NYSE: BSC) is in serious talks with outside investors to sell as much as 20% of the company.
