Monday brought renewed enthusiasm to Wall Street as investors looked favorably on efforts to reopen the U.S. economy. With several states implementing new procedures to allow businesses to open, millions of Americans are looking forward to getting back to some semblance of normal life. Market participants also reacted positively to comments from Federal Reserve Chair Jerome Powell Sunday night that lent credibility to the idea that the central bank still has ways to help in the economic fight against the pandemic's effects. Just after 11 a.m. EDT, the Dow Jones Industrial Average (^DJI +0.50%) was up 806 points to 24,492. The S&P 500 (^GSPC +0.83%) rose 86 points to 2,950, and the Nasdaq Composite (^IXIC +1.38%) picked up 218 points to 9,233.
One of the things that buoyed sentiment among investors was the effort to develop a coronavirus vaccine. Shares of Moderna (MRNA +6.23%) were higher by 23% following positive results from early tests of its COVID-19 vaccine in humans. Certainly early-phase trials of vaccine candidates will have a direct impact on the pharmaceutical and biotech stocks sponsoring them. But in the long run, the three stocks that stand to gain the most from a coronavirus vaccine are cruise ship operators Carnival (CCL +2.15%), Norwegian Cruise Line Holdings (NCLH +3.29%), and Royal Caribbean (RCL +4.61%). That's a big part of why the three cruise ship stocks are up between 13% and 18% Monday morning.
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The special challenges cruise companies face
The key to the stock market rally over the past couple of months has been hope that returning to business as usual is still an option in the long run. In particular, the need to get businesses moving forward as soon as possible can be felt in communities across the nation.
Most businesses, with the guidance of health officials, could take steps to reopen while still offering some protection against coronavirus contagion. We'll see some of those steps in the months ahead, including limiting the number of people in stores at any one time, reserving certain times for customers at highest risk of serious illness, and requiring the use of personal protective equipment.
Yet cruise ship operators would have a difficult time adapting their business models to meet stopgap regulatory guidelines. Inherent in the cruise ship experience is large groups of people traveling together within an enclosed environment for several days and periodically going ashore at various locations to spend time interacting with locals.
Cruise companies could try to impose new restrictions on travelers, such as by keeping groups of passengers in their cabins to limit the number of people congregating at any one time. However, that would detract from the entire point of a cruise. Moreover, enforcing those requirements would bring up many of the same troubles that state and local governments have run into trying to enforce lockdown and stay-at-home orders.
The need for a vaccine
In that light, it makes sense that a full vaccine would be the best solution for cruise ship operators. That way, bullish investors figure, companies like Royal Caribbean, Norwegian, and Carnival can largely return to their former operating models. With protection against the coronavirus in place, passengers would feel just as comfortable as they did before the pandemic struck.
The big question is timing. Even with fast-tracked efforts to develop a vaccine, researchers are still only in the early stages. Meanwhile, cruise ship operators have canceled months' worth of voyages, and although they've raised capital to get through a period of essentially no revenue, there's a limit to how much liquidity they'll be able to get. That leaves these companies in a race against time, with no certainty about whether they'll outlast the outbreak.
The healthcare stocks developing a vaccine have been volatile, with prices soaring when prospects for a particular company's vaccine look good. But for cruise ship stocks, a vaccine is even more important -- because the industry's entire future could rest on a reliable way to prevent the illness from ever taking hold again.
