What's Bad for GM Is Bad for the Market

The year's biggest "Dogs of the Dow" stock, General Motors(GM Quote), was indeed a dog Tuesday, as the automaker led the Dow Jones Industrial Average to a triple-digit loss.

In a classic "buy the rumor, sell the news" trade, GM fell 6.2% after the automaker announced late Monday that 35,000 hourly workers have agreed to early retirement or contract buyouts. The stock had rallied dramatically in anticipation of the announcement.

GM's slide helped send the Dow down 1.09% to 10,924.74 Tuesday. The S&P 500 slumped 0.9% to 1239.21, and the Nasdaq Composite tumbled 1.6% to 2100.25.

Marvell Technology (MRVL Quote) was another notable loser, down 15% after announcing plans to purchase Intel's (INTC Quote) communications and application-processor arm for $600 million.

Trading volume was up from Monday's session and tilted to the sell side. Of the the 1.8 billion shares traded on the Nasdaq, 86% were lower; 78% of the 2.2 billion traded on the NYSE were lower.

But Can They Sell Cars?

GM's stock was a complete loser Tuesday, but for the year, it is still up 37.6%. Indeed, for General Motors and investors in the struggling automaker's securities, many of its comparisons to last year are tricky at best.

GM's chief market analyst Paul Ballew said Tuesday that its auto sales for 2006 are likely to come in low, and that comparisons to last year's sales will be particularly dismal due to the discounting and incentives the company offered consumers in 2005 to boost its sales.

Nonetheless, GM's earnings are expected to show growth in the second half of the year, according to Thomson Financial, but that compares with two of its most dismal earnings quarters in 2005.

In terms of its restructuring, GM's hourly employee costs may be tempered by the success of its buyout offer to its employees, but those costs may show up as increases in retiree benefit payments, as those workers roll into a different pool of costs, writes Glenn Reynolds, analyst at CreditSights, an independent research firm.

"That brutal financial trap also will keep the pressure on GM to try to make even more changes to future retirees' benefits in the coming labor round," writes Reynolds. GM renegotiates its labor contract with the United Autoworkers Union in 2007.