What happened

Shares of travel and entertainment stocks were tumbling for the third day in a row on Wednesday as coronavirus fears continued to ripple through the market. Today, the broad market was relatively stable as the S&P 500 finished down just 0.4% after falling around 3% on both Monday and Tuesday. However, as the CDC warned Americans to brace themselves for the virus spreading in the U.S., investors punished stocks that would be particularly sensitive to a domestic outbreak, including businesses that depend on shared spaces like the travel, leisure, and tourism industry.

As a result, stocks including Expedia (NASDAQ:EXPE)TripAdvisor (NASDAQ:TRIP)Eldorado Resorts (NASDAQ:ERI), SeaWorld Entertainment (NYSE:SEAS)Six Flags Entertainment (NYSE:SIX), and Dave & Buster's Entertainment (NASDAQ:PLAY) all fell at least 7% today. The last four stocks were down more than 10% at one point while Dave & Buster's closed down 11.2%.

A woman sticking her head out of a moving train

Image source: Getty Images.

So what

The range of the stocks affected above shows that the coronavirus fears are weighing on all corners of the travel and entertainment sector. 

After two days of the virus threat pressuring the broad market, investors now seem to be predicting which companies would be most affected by an outbreak in the U.S., and may be getting ahead of themselves with today's movements. For example, even stocks like Uber and Lyft fell nearly 5%, a sign investors think the general public may be reluctant to ride in shared vehicles if the outbreak spreads in the U.S. However, stocks like Netflix and Peloton, whose businesses rely on customers staying at home, rose sharply today. That shows investors are already placing bets as if an outbreak in the U.S. is likely.

The travel and entertainment stocks that fell today all do most of their business in the U.S., and of the group, only Expedia and TripAdvisor have significant exposure to international markets. DA Davidson lowered its price target on Expedia and cut its price target from $130 to $123. It also lowered its revenue and profit forecast slightly due to potential effects from the coronavirus.

The negative pressure on travel and entertainment stocks was also enough to push the SeaWorld shares down 7%, even though the company beat revenue estimates in its fourth quarter earnings report as revenue rose 6.4% to $298 million, ahead of expectations at $289 million.  Seaworld management said the company had seen no effect from the coronavirus so far. Such news should be encouraging for investors in other entertainment, travel, and theme park stocks, but investors did not interpret it that way as fears of the virus's spread continue to loom.

Now what

Travel stocks like Expedia and TripAdvisor are likely to continue to be sensitive to coronavirus fears both in the U.S. and internationally. Both companies also face challenges from competition from Google, which has moved aggressively in travel bookings. TripAdvisor has struggled to overcome sluggish growth in its hotel segment, while Expedia announced layoffs earlier this week as Chairman Barry Diller said he believed the company was "bloated" and had lost its focus.

The group of entertainment stocks, on the other hand, seems more likely to bounce back sooner depending on how the coronavirus plays out in the U.S. Six Flags is a highly seasonal business, and counts on the third quarter to make more than 100% of its annual profits. While no one knows what the status of the virus will be by this summer, that gives the company at least a few months to develop a plan if it spreads. Eldorado just reported middling fourth-quarter results, but made no mention of the coronavirus. Seaworld said it's seen no effect from the disease, and Dave & Buster's shares recently spiked after an activist investor took a stake in the "eatertainment" chain.

How long the coronavirus dictates the market's movements remains to be seen, but unless there's a serious outbreak in the U.S., at least some of these stocks look oversold after today's pullback.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.