The Wuhan coronavirus outbreak makes me think twice about leaving my house, let alone going on a big trip. And it looks like I’m not alone.
Hotel and travel stocks are plunging as news of quarantines, mass evacuations and infected cruise ships of doom make travelers reconsider going on vacation in this middle of a global pandemic.
With Covid-19’s unprecedented size and severity, it could take years for the sector to recover.
Shares in Marriot (NASDAQ: MAR) helped lead the S&P 500 to a negative close on Tuesday with a massive 7% drop. The Maryland-based hospitality giant is joined by others in the travel industry with Hilton and Hyatt both down 3.2%.
Cruise companies and airlines also take beating as new cases of Covid-19 spread across the globe.
Although Covid-19 started in central China, it’s supposedly spreading much faster in the rest of the world. The epidemic has grown to infect 92,872 people with 3,168 fatalities. And as major hot spots erupt in Italy, Iran and South Korea, global travel is slowing to a crawl.
The virus has had a massive impact on the market as a whole with the Dow dipping into correction territory amid a massive sell-off.
Travel and hospitality stocks face the brunt of the downturn as people decide to stay at home instead of taking the risk of catching the disease or getting quarantined on a cruise ship.
The brand-new “Travel Tech” ETF (AWAY) is already dramatically underperforming the wider market. This fund includes names like Uber, Trip.com and Expedia.
More traditional hospitality names like Marriott and Hilton are shedding value at an even faster rate.
Imagine being trapped in a 14 square-meter cabin with no windows, limited fresh air and questionable food for two weeks – this while a mysterious illness spreads among other passengers?
It doesn’t sound like an enjoyable vacation. But that is what cruise ship passengers experienced on the Diamond Princess when hundreds of Covid-19 cases were detected among its quarantined passengers.
It should come as no surprise to learn that the cruise ship industry is getting absolutely routed with cancellations and detours. While the industry is expected to recover when the Covid-19 crisis blows over, it could be years before these stocks regain their old valuations.
According to David Katz, an analyst at Jefferies, investors should expect negative earnings revisions in the hospitality sector in the first quarter of 2020.
If the coronavirus situation continues to worsen – and that looks like the case – many of these company’s could find themselves reporting full year losses. And if Covid-19 transitions into a persistent endemic disease threat, the sector could be suppressed for years.
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