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Why Restaurant Stocks Are Surging Tuesday

By Rich Smith - Mar 24, 2020 at 3:47PM

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The coronavirus relief bill could be just "hours" away.

What happened

Congress didn't pass its promised $1 trillion-plus Coronavirus relief package on Sunday -- or on Monday, either, for that matter. Legislators will try to get the job done today, with House Speaker Nancy Pelosi saying something could be passed "in the next few hours."  

In theory at least, what comes out of Congress will be an economic stimulus of epic proportions, including hundreds of billions of dollars in cash advances to taxpayers, loans for industries crushed by the coronavirus, and money to help small businesses make payroll this month.

Small businesses like restaurants.

Encouraged by the news that their companies will soon receive government cash to tide them over through the crisis, and taking passage of the relief bill as a foregone (if somewhat delayed) conclusion, investors are bidding up shares of restaurant stocks today. As of 2:30 p.m. EDT, shares of The Cheesecake Factory (CAKE -2.65%) are up 18%, Darden Restaurants (DRI -1.23%) is up 23%, Bloomin' Brands (BLMN -3.39%) 25.6%, and Dine Brands Global (DIN -2.00%) 28.8%.

Couple toasting with champagne at a restaurant

Image source: Getty Images.

So what

Clearly, investors are optimistic -- and perhaps not just about the stimulus package. Earlier today, President Trump announced at a town hall meeting his hope "to have the country opened up, and rarin' to go, by Easter," with Americans finally released from quarantine and able to "go back to work and practice good judgment" by April 12.  

Assuming this is the plan, the end of the nationwide shutdown forced by the coronavirus outbreak could be less than three weeks away.

Now what

Of course, a lot of this depends on whether the coronavirus cooperates -- and it may not. At last report, Johns Hopkins University had tallied more than 407,000 cases of COVID-19 around the world, with U.S. infections topping 50,000.  

The pace of new infections being reported is still accelerating. If it turns out that the president spoke too soon today, this crisis could last a lot longer than just April 12. And even when it does end, the aftereffects could linger as the U.S. economy slips into an official recession.

These same restaurant stocks that surged today could be liable to new declines as these realizations sink in.

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Stocks Mentioned

Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
$113.68 (-1.23%) $-1.42
Bloomin' Brands Stock Quote
Bloomin' Brands
$16.83 (-3.39%) $0.59
DineEquity, Inc. Stock Quote
DineEquity, Inc.
$64.69 (-2.00%) $-1.32
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
$27.24 (-2.65%) $0.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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