What Happened?

Shares of automotive manufacturer General Motors (NYSE:GM) jumped 9.2% in the afternoon session after the company reported strong third-quarter earnings results that blew past analysts' revenue and EPS expectations. Guidance was solid as its full-year EPS guidance exceeded Wall Street's estimates. Notably, the company raised the lower end of guidance for key operating metrics, including net income, adjusted operating income, free cash flow, and EPS. Overall, we think this was a solid quarter with some key areas of upside.

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What The Market Is Telling Us

General Motors’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 27 days ago when the stock dropped 5.6% on the news that Morgan Stanley analyst Adam Jonas downgraded the stock's rating from Overweight to Equal-Weight and lowered the price target from $47 to $42, citing worries about competition from automakers in China. 

He added, "The China capacity 'butterfly' has emerged and is flapping its wings. China produces 9 million more cars than it buys, upsetting the competitive balance in the West." 

This is related to the butterfly metaphor where small changes in one region (China's overcapacity) can trigger broader consequences elsewhere (Western markets). 

Jonas continued, "Even if these units don't end up directly on U.S. shores, the 'fungibility' of lost share and profit by key U.S. players adds pressure here at home." 

Overall, the downgrade reflects a growing anxiety about the ability of some of the U.S. automakers to sustain market dominance, given the intense competition from China.

General Motors is up 48.2% since the beginning of the year, and at $53.40 per share, has set a new 52-week high. Investors who bought $1,000 worth of General Motors’s shares 5 years ago would now be looking at an investment worth $1,471.

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