What happened
Shares of consumer discretionary stocks including restaurants and other gathering places were rising broadly today. There was no particular news driving up that sector, though these stocks may have benefited from the perception that they're oversold.
Today, stocks were generally mixed, unlike most days during the recent sell-off, and the federal government said it would soon send $1,200 checks to most Americans in order to shore up their finances at a difficult time. President Trump also said that he would eliminate bureaucratic rules to speed up development of new COVID-19 coronavirus treatments.
Any news that gives investors hope that the crisis will end soon as well as giving financial support to average Americans should help lift consumer discretionary stocks like restaurants and gathering places. Small-cap and energy stocks, which have been hammered as well, were also big winners Thursday, showing that investors seemed to go bargain hunting.
Today, Shake Shack (SHAK 1.85%) closed up 12.1%, Chipotle Mexican Grill (CMG 6.33%) rose 15.3%, Live Nation Entertainment (LYV -1.29%) gained 11.6%, Planet Fitness (PLNT -1.98%) jumped 18.4%, and Darden Restaurants (DRI -0.04%) was up 24.1%.
Image source: Getty Images.
So what
Markets have been schizophrenic since the coronavirus crisis began, and there have been a number of single-day rallies amid the broader crash. Today, investors seemed to take a shine to the consumer discretionary sector as the Vanguard Consumer Discretionary ETF (VCR -0.18%) finished up 4.1%, while the S&P 500 gained just 0.5%, showing a bifurcation in the market.
Shake Shack shares have been volatile all week after the company announced that it was shifting to a "to go" model during the crisis, and will be relying on delivery apps like Grubhub. The stock is still down 50% since Feb. 21 as restaurants in its key New York City market have been shut down with the exception of takeout and delivery.
Chipotle, another fast-casual chain, is in a similar position to Shake Shack, but the burrito chain has seen strong growth in digital and delivery in recent quarters, which should pay off during the outbreak. The company also said it would partner with Uber Eats to provide delivery. With a strong balance sheet with no debt, Chipotle should manage this crisis better than most restaurant chains.
Live Nation Entertainment may be among the most threatened by the coronavirus as the concert organizer and Ticketmaster owner said last week that it would postpone concerts and events scheduled through the end of March. But its hiatus may go on significantly longer, and can jeopardize the peak concert season in the summer. Nonetheless, investors felt bullish on the concert promoter today, though the fundamentals remain the same as yesterday.
Planet Fitness said on Wednesday that it would close all its corporate-owned stores and encouraged its franchisees to do the same. The company also said it would suspend its share buyback program, which isn't surprising given that its stores are closed, and added that it has $436 million in cash and has sufficient liquidity to make it through the year. As a franchise business, Planet Fitness' risk is lower than it may seem, and its subscription model should also help it bounce back.
Finally, Olive Garden parent Darden Restaurants suspended its dividend and pulled its full-year guidance when it reported earnings this morning. The casual-dining specialist said it drew down $750 million in its credit facility, giving it approximately $1 billion in cash, which management said positions it well to deal with short-term volatility, as comparable-store sales were down 20% in the most recent week of the fourth quarter. Investors cheered the decision to shore up its balance sheet and seemed to appreciate the clarity.
Now what
Seeing as there wasn't any fundamental news pushing these stocks higher, these gains could easily disappear tomorrow or next week. But the rally does show that the market may see a bottom in these stocks, at least for now, since they should mostly recover well when the coronavirus crisis fades away. It remains very unclear when that will be, however, since some experts say it will be a year and a half before we have the vaccine that would be necessary to fully eradicate the disease.
