Shares of General Motors Company barreled higher in Monday trading after the U.S. and Canada struck a new North American Free Trade Agreement (NAFTA), now officially known as the United States-Mexico-Canada agreement.
GM stock closed Monday (October 1st, 2018) at $34.20 per share, 1.57 percent higher than it opened that morning, but shed $0.15 (0.44 percent) in after-hours trading.
The new agreement ends months-long negotiations between the United States, Mexico and Canada, putting to rest significant uncertainty and doubt surrounding free trade in the North American region. In addition, the agreement also significantly reduces the possibility of tariffs on imported cars. Notably, the U.S. and Mexico were first to have reached a deal in late August, putting pressure on Canada to reach a deal of its own.
The stock rally wasn’t exclusive to GM, as U.S. manufacturing firms, including all three U.S. automakers, saw the value of their shares rise. Energy companies also saw gains in share value as crude oil and natural gas reached their highest prices in years. The rally ran out of steam as the day went on, as U.S. crude oil reached its highest price in almost four years, leaving major indexes mixed.
Most investors and analysts see the new trade deal not as a major overhaul of NAFTA, which was established in 1994, but rather as an update of sorts. The treaty calls for a higher percentage of auto content to be made in the United States and for an increase in wage standards for imported content.
Congress, which must approve new agreement, isn’t expected to review the new deal until December.
The GM Authority Take
GM stock needed this rally, and it needed it bad. In fact, GM shares were sitting just off their 52-week low prior to the Monday rally.
Even better is that The General – along with the auto industry at large – can now make plans for vehicle assembly, parts sourcing, production and labor with certainty – which is always a good thing.