Boeing Shareholders: Don't Sit Back and Relax

There's no doubt about it -- the liquidity rally is alive and well. The S&P 500 (SNPINDEX: ^GSPC  ) added another 0.3% today, making a new record (nominal) high, and extending its winning streak to seven days. The index also capped its best week since January. It has now risen 17.8% year to date (once you factor in dividends, the total return is 19.2%). If the index were to tread water for the next five-and-half months, that would remain a very respectable annual gain.

The narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) eked out a 0.02% gain, while the Russell 2000 Index of small-capitalization stocks rose 0.3%. Both indexes also established new record highs.

With stock indexes setting new highs right and left, it's not surprising that the CBOE Volatility Index (VIX) (VOLATILITYINDICES: ^VIX  ) , Wall Street's "fear index," fell another 1.2% to close at 13.84, its lowest closing level since May 22 -- the day on which the market first got wind that the Fed was considering slowing its bond purchases this year. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Boeing's latest incident could be a genuine crisis
It's been a rough seven days for Dow component Boeing (NYSE: BA  ) . Last Saturday, a crash at San Francisco International Airport became the first fatal crash of the company's 777 long-haul jet. However, while that accident looks like a case of pilot error, the flagship 787 "Dreamliner," operated by Ethiopian Airlines, which caught fire at London's Heathrow Airport, was parked at the time.

The 787 is the same model that was grounded by regulators worldwide in January after a series of incidents that originated with the sophisticated aircraft's lithium-unit battery unit.

Back in mid-March, when the Federal Aviation Administration approved Boeing's proposed "fix" to its batteries, I wrote:

"Nevertheless, something still doesn't sit right with me... Where is the fix? These measures address the effects of the problem, not its cause. Indeed, the latter is, at this stage, impossible to resolve. On Monday, The Wall Street Journal reported that the National Transportation Safety Board has so far been unable to determine the root cause of the lithium-ion battery fire on a parked 787 at Boston's Logan Airport."

I want to be absolutely clear that we don't yet know whether today's fire is linked to the battery unit. In fact, Reuters is reporting that the visible damage to the Ethiopian Airlines aircraft appears to be higher up and further back than the location of the 787's battery compartments.

Boeing shareholders were exceptionally even-keeled throughout the Dreamliner "crisis" this year. In fact, Boeing is the third-best performer in the Dow, year-to date:

BA Chart

BA data by YCharts

However, today's 4.7% decline -- the shares were down 7.4% at one point during the day -- shows that investors are genuinely concerned about this latest problem. Rightly so, in my opinion. If today's fire does turn out to be connected the battery unit, the uplifting air Boeing investors have ridden this year could quickly turn turbulent.

Boeing is one of three companies that stands to reap windfall profits as the global economy gains steam -- that's a tremendous advantage over companies that rely solely on the domestic economy. To find out the other two companies, get your copy of The Motley Fool's new report, "3 Strong Buys for a Global Economic Recovery." Click here to read the full report!


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  • Report this Comment On July 12, 2013, at 11:23 PM, bburr4307 wrote:

    Typical chicken little mentality of the stock world. Having been part of United's 787 return to service project back in May, and after reading the description about the associated damage to the Ethiopian a/c in London, I cannot see the battery having any thing to do with the current incident. It's a shame that people react with such spontaneous negative sentiment before it's known what has actually happened in any given instance. I never have liked this part of the financial world, and will never understand the "shoot first" mentality that the head lemmings cause every time they percieve something occurring that is not in perfect harmony with their view of safe money management. Normally, the pundits cause more damage by the panic they instill (i.e., the massive sell offs that occur) than by far, any good that comes out of them claiming the sky is falling. The losses people suffer due to these claims, not to mention the bad publicity that the companies involved have to endure, are for the most part needless side trips that have to be endured and navigated, taking away resources better spent in other places and on better things. Having been caught up in an instance of such news that generated massive losses to a company stock and a personal holding, it's hard for me to imagine that anything (save the total obliviation of the world) could make a stock worth half as much in the matter of a few hours or minutes. Luckily it was only about 5% for Boeing in the end, but approximately what, 7.5 % in the first 1/2 hour? No other industry in the country reacts to situations in the manner of the financial world, and if you are unfortunate enough to happen and own a stock that has news come out that could be potentially negatively impacting, you could see years of hard work and patience disappear in an instance! This is one of the things that causes the "little guys" (of which I'm one) to distrust the stock market, because in the end, your personal plans for the future and the future of your dependents can go awry in the time it takes to go to the bathroom and there is not anything you can do about it unless your boss lets you stay connected to the markets to where you can react in an instance the same way those connected in the financial world can. There is just no moderation when dealing in matters of the Wall Street kind. Risk accessment is the most important part of your due diligence, but you can't access the risk that Wall Street will impose for any given circumstance.

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