Why General Motors and American Apparel Lost a Step Today
Major indexes all made solid gains for the second quarter but closed out the period with a relative whimper as stocks were essentially flat today. For the day, the Dow Jones Industrial Average finished down 25 points, or 0.15%, while the S&P 500 dropped 0.04%, and the Nasdaq gained 0.2%.
Economic reports were positive today as the Chicago PMI edged down from 65.5 to 62.6 in June, but still beat estimates at 61. The report indicated that GDP rebounded in the second quarter as this was the index's 14th straight month of expansion, led by strong growth in new orders and production. The PMI reading is only the latest report to show rapid expansion in the manufacturing sector as the labor market has improved. In housing, pending home sales hit an eight-month in May, climbing 6.1% as lower mortgage rates and increased inventory have spurred increased homebuying. While some data has indicated the housing recovery has flattened, the overall trend still appears to be upward, and the National Association of Realtors is predicting improved home sales for the second half of the year.
Turning to individual stocks, General Motors shares dove in afternoon trading after the car-maker expanded its vehicle recall once again and the death toll from failed ignition switches grew from 13 to 16. Today, the company added 8.23 million vehicles to the recall list, making the grand total 29 million. Some industry experts expect the number of deaths from the faulty ignition switches to rise as the automaker says it knows of 61 crashes related to the malfunction, and a Reuters investigation found that least 74 people had died in accidents similar to those that sparked the recall. Despite the bad publicity and legal problems resulting from the recall, GM stock has been essentially flat since the recall. Consumers also seem to be indifferent to the recall as GM sales soared in May, up 12.6% from a year ago. June auto sales are due out tomorrow afternoon, and I wouldn't be surprised to see another strong performance from the company as the economic recovery seems to be driving increased car-buying.
Elsewhere, American Apparel shares lost 7% as the clothing seller continued to deal with the fallout from the board's decision to terminate CEO Dov Charney, who also founded the company. Today's sell-off seemed to stem from the board's decision to adopt a shareholder rights plan, or "poison pill" as it sometimes known, in response to Charney's expressed intent to acquire the company. The plan is designed to block any entity from acquiring more than 15% of the company. On Friday, Charney said he had partnered with hedge fund Standard General, which was planning to buy more 10% of the company's stock to sell to Charney, prompting the board's decision. Shares are actually up nearly 35% since the board first announced its intention to part ways with Charney. Investors have bid the stock up on hopes that Charney or another company will acquire the retailer or take it private. While American Apparel's financials have been disappointing lately, the company still has a strong brand and shares could easily move higher as this saga plays out.
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The article Why General Motors and American Apparel Lost a Step Today originally appeared on Fool.com.Jeremy Bowman owns shares of General Motors. The Motley Fool recommends General Motors and Tesla Motors and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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