What happened?
Shares of fast-food restaurants joined in the bull run on today's news that Congress was closing in on approving $2 trillion as an economic stimulus as America moves closer to what is likely to be its fastest fall into recession in decades.
Shares of Jack in the Box (JACK 2.54%) and Restaurant Brands International (QSR 0.08%) finished Wednesday up more than 13%, while YUM! Brands (YUM 0.46%) gained more than 5%. Wendy's (WEN 1.32%) and McDonald's (MCD 0.37%) finished trading with modest gains after spending most of the afternoon up more than 5%.
Image source: Getty Images.
So what
While the S&P 500 and Dow Jones Industrial Average finished the day with relatively modest 1.2% and 2.4% gains, respectively, both major indexes were rallying much higher in afternoon trading on word that Congress was close to reaching a deal. This news moved trading sharply higher, on expectations that the government's plan to provide direct support to individuals as well as businesses would soften the blow from the coming (or likely already happening) recession.
The restaurant industry has been one of the hardest hit from actions intended to slow the spread of COVID-19, with statewide orders to reduce public contact requiring thousands of restaurants to close their dining rooms and only offer takeout or delivery. In addition to the blow of no eat-in service, millions of Americans are expected to have lost their jobs or been laid off already, and this loss of income will affect every restaurant to some degree.
Government funds to keep people spending during the coming downturn, and to help more businesses remain solvent, are expected to soften the coming blow of recession to some degree.
Now what
There's no telling how long it will take to restrict the spread of COVID-19, which is far more deadly than influenza and potentially more contagious due to the number of asymptomatic spreaders. While President Trump is optimistic that some limits on personal contact could be lifted as soon as Easter, healthcare and infectious-disease experts say that is highly unlikely.
In other words, today's optimism by the markets, on top of Tuesday's huge move higher, may not last very long. The number of COVID-19 cases in the U.S. continues to climb, with nearly 64,000 at this writing, and the number of fatalities approaching 1,000. As more cases are diagnosed, the healthcare system could approach a tipping point that sees healthy people start dying simply because there isn't enough capacity to provide adequate treatment.
The message here isn't that investors should sell on Tuesday's and today's big jumps. Yes, there could be bad days to come, but stocks are most appropriate as long-term investments, and these fast-food stocks are still down between 25% (McDonald's) and 57% (Jack in the Box) from their highs at this writing.
So while it's possible we see prices fall again in the days and weeks to come, history makes it clear that market downturns like this are the best time to buy, as long as you're willing and able to hold through the volatility so you can enjoy the big profits when things return to normal.
We don't know when that will happen, but it will. And when it does, you can rest assured that all five of these fast-food companies will be worth far more than their stocks trade for today.
