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Stock Market Wrap-Up: Carnival Keeps Climbing; Dollar General Touches New High

By Dan Caplinger – Updated Apr 8, 2020 at 12:05PM

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The market's gains from earlier in the day evaporated.

The stock market started out on Tuesday with further gains, building on Monday's big advance. But by the end of the day, the Dow Jones Industrial Average (^DJI -1.71%) found itself struggling to hold onto any gains at all, and eventually, the Dow, S&P 500 (^GSPC -1.51%) and Nasdaq Composite (^IXIC -1.51%) all lost ground.

Today's stock market


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Data source: Yahoo! Finance.

Investors are trying to navigate the rapidly changing market environment as best they can, but it's hard to keep track of events. Carnival (CCL -23.25%) has seen its stock sink dramatically due to fears about the cruise-ship operator's long-term prospects, but upward momentum continued Tuesday in light of financing that the company received recently. Meanwhile, Dollar General (DG 0.16%) managed to hit a new all-time high earlier in the session before moving slightly lower as it takes advantage of shoppers looking for bargains in a tough economy.

Cruising higher

Shares of Carnival climbed 10%, adding to gains from Monday's session. The cruise-ship giant has gone through a lot of ups and downs during the coronavirus pandemic, and investors' recent optimism could prove short-lived if Carnival can't come up with a longer-term plan to return to operations soon.

Carnival logoed cruise ship at sea near islands and a port city.

Image source: Carnival.

Carnival's gains over the past few days have stemmed from its success in getting financing to make it through a period of not being able to operate its cruise ships. The company did a successful secondary stock offering last week to raise $500 million, and bond offerings added billions more in liquidity. Add to that news that the Saudi Arabian sovereign wealth fund reportedly took a more than 8% position in Carnival's stock Monday, and it's easy to see the bullish argument.

Yet Carnival's efforts will also make it more difficult for shareholders to reap the benefits of any recovery. Part of its capital-raising activity came from selling convertible bonds that will allow their holders to convert their debt to stock at a price of $10 per share -- below the $11.28 price at which Carnival shares closed Tuesday. That opens the door to even further dilution beyond what recent stock offerings have wrought, making it that much tougher for Carnival to get back to its past highs. Even if the cruise-ship operator gets back to business soon, further gains for shareholders could be hard to come by.

Discount retail keeps winning

Elsewhere, shares of Dollar General closed down a fraction of a percent Tuesday. Nevertheless, the stock had hit a new all-time high earlier in the day, showing the promise that discount retailers have in delivering strong returns, even during tough economic times.

Discounters have traditionally held up well when money's tight among consumers, and many investors are more concerned than ever about a possible recession. Rather than giving up on shopping entirely, many consumers simply move away from higher-priced retail chains and shop at cheaper locations like Dollar General's dollar stores.

If anything, Dollar General seems to be thriving in the tough environment. Late last month, the retailer said it would hire 50,000 more workers to deal with shoppers who are stuck staying close to their homes during the coronavirus outbreak. In particular, because of Dollar General's focus on smaller communities, its stores are often the only local option for necessities.

Investors who remember the financial crisis in 2008 and 2009 know how well discount retailers did during the Great Recession. If we're in for a repeat of those tough economic times, then Dollar General will likely continue to outperform.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dollar General Corporation Stock Quote
Dollar General Corporation
$239.86 (0.16%) $0.39
Carnival Corporation Stock Quote
Carnival Corporation
$7.03 (-23.25%) $-2.13
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,575.62 (-1.51%) $-161.89

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

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