Please ensure Javascript is enabled for purposes of website accessibility

6 Restaurant Stocks That Moved Up on Today's Fed Announcement

By Jason Hall – Apr 9, 2020 at 2:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The U.S. Federal Reserve is stepping up lending to support more businesses.

What happened?

Shares of restaurant stocks are surging today on news that the Federal Reserve is taking more action to help provide access to capital for more businesses. The Fed said it would provide $2.3 trillion in loans, mainly to small and midsize businesses, and expand its corporate lending program to some companies with riskier debt that had been excluded before. 

As a result of this news, investors are feeling much more optimistic about the prospects for the restaurant industry to ride out the coronavirus recession. The following six restaurant stocks were up big in early trading -- several by double-digits -- though they've given up some of those gains this afternoon:

Restaurant stock Price change on 4/9/20
Wendy's Company (WEN -0.37%) 5.6%
Dave & Buster's Entertainment, Inc. (PLAY -1.40%) 8.5%
BJ's Restaurants, Inc. (BJRI -0.25%) 6.2%
Texas Roadhouse, Inc. (TXRH -1.99%) 2.8%
Darden Restaurants, Inc. (DRI -2.32%) (1%)
Yum! Brands, Inc. (YUM -0.81%) 6.5%

As of 2:54 p.m. EDT. Data source: YCharts.

So what

Today's Fed news doesn't necessarily extend a direct lifeline to these restaurants, but it's a signal that the central bank is prepared to continue taking extraordinary steps to keep capital flowing into the market. In other words, today's move higher by restaurant stocks is a product of sentiment, not necessarily a material change in the situation. 

Sandwich and a beer on a restaurant table.

Image source: Getty Images.

You should be able to tell by Darden's share price reversal -- the stock was up over 5% at one point but is now down almost 1.3% -- that sentiment continues to play a huge role in what stocks do from one day to the next. That's certainly the case for restaurants. 

Restaurants that count on dine-in (or in Dave & Buster's case, play-in) business in particular are subject to big speculative moves. We saw that only two days ago, when casual dining restaurants outpaced the market in a move up, on news that daily COVID-19 cases in the U.S. were beginning to slow. 

Now what

While sentiment continues to drive the bus, the business environment is unchanged. The outlook for the coming weeks -- and likely months in many cases -- is not good. Dine-in service is likely to remain closed in many markets, even as COVID-19 cases decline. The risk of reigniting the spread of this deadly disease is just too great to simply go back to "business as usual" before there are effective treatments or a vaccine in place. 

That's not to say restaurant stocks are a bad investment. To the contrary, takeout and drive-through chains are still doing some business, and they will likely see the quickest recovery as parts of the economy start to come back online. Moreover, we will eventually beat COVID-19, and chains like Darden, BJ's, Texas Roadhouse and Dave & Buster's will reopen their doors. When that happens, investors who buy at recent prices and sit on their hands for the recovery will likely do very well.

The question you must ask yourself now, however, is are you willing and able to ride out what could be a very volatile period? If not, your best bet may be waiting for more signs that the economy is opening back up for business before investing. 

Jason Hall owns shares of BJ's Restaurants and Yum! Brands. The Motley Fool owns shares of and recommends Texas Roadhouse. The Motley Fool recommends BJ's Restaurants and Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
$31.03 (-1.40%) $0.44
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
$106.34 (-0.81%) $0.87
The Wendy's Company Stock Quote
The Wendy's Company
$18.69 (-0.37%) $0.07
Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
$126.32 (-2.32%) $-3.00
BJ's Restaurants, Inc. Stock Quote
BJ's Restaurants, Inc.
$23.85 (-0.25%) $0.06
Texas Roadhouse, Inc. Stock Quote
Texas Roadhouse, Inc.
$87.26 (-1.99%) $-1.77

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.