The Fed's rate cut to 0% couldn't save the Dow Monday, but Boeing stock led losses because of the airline maker's severe vulnerabilities.
The Dow Jones Industrial average is faring worst so far out of the three main benchmarks. By the early afternoon, the S&P 500 Index had crashed over 7%. The Nasdaq Composite was down over 7% as well. But the Dow was down over 9%, down to a three-year low.
Boeing (NYSE:BA) led the Dow’s decline with an excruciating 17% loss.
The Federal Reserve’s desperate emergency rate cut to 0% Sunday did little to stem the stock market’s losses. It certainly forebode a dark day for stocks to open the week.
Here are three reasons why Boeing stock is in even worse shape than the Dow.
The coronavirus is crashing stock prices back to reality. The coronavirus’ massive worldwide economic disruptions have humbled a euphoric decade-long rally in under a month.
But Boeing stock in particular has the most to lose from coronavirus out of any Dow component. While U.S. airlines are waiving fees and canceling flights, the White House banned all travel from Europe last week. Airline travel is so hard hit by the pandemic that Boeing may have to cut production and lay off workers.
The 737 MAX has now been grounded by the Federal Aviation Administration (FAA) for one year. The anniversary was Friday. And there’s no end in sight to the FAA’s ban on MAXs in the sky.
A week ago the FAA told Boeing the wiring bundles on the 737 MAX are not compliant. The FAA rejected the plane manufacturer’s request to move forward with certifying the MAX airworthy again with no modifications to the wiring bundles.
But perhaps the biggest worry for investors dumping Boeing stock Monday is the weekend news that a 737 developed a 12-inch crack in flight last week:
The 12-inch break in the outer aluminum surface caused the craft to lose cabin pressure and drop 20,000 feet, according to the Wall Street Journal. No one was injured.
The Wall Street Journal broke the story Friday. Between coronavirus and 737 MAX, credit rating agency Fitch placed Boeing on “credit watch – negative” status last week.
Boeing stock’s out-sized influence on Dow levels is likely what pushed the benchmark lower than its broader peers Monday. Because the Dow 30 companies are weighted into the Dow by stock price rather than market cap, BA price action often pushes the Dow around.
Boeing’s share price has a strangely large impact on the Dow Jones Industrial Average.
That’s why Boeing stock’s 11.5% rally Friday also led the Dow’s Friday bounce. The airplane maker’s woes seem as long term as its business cycle, so investors considering Boeing stock at value are also cautioned that a bad situation might get worse.
This article was edited by Sam Bourgi.