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Dow Jones Surges 600 Points as Merck Works on Vaccine, Restaurant Activity Picks Up

By Timothy Green – May 26, 2020 at 11:19AM

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Merck is going after COVID-19 from multiple angles, and McDonald's should benefit from rising restaurant visits.

The Dow Jones Industrial Average (^DJI 0.00%) started off the holiday-shortened week with a bang, up about 2.5% by 10:35 a.m. EDT Tuesday. While the U.S. economy remains depressed due to the pandemic and the resulting stay-at-home orders, the worst may be over as businesses are slowly allowed to reopen across the country. Whether the worst is actually over depends on the trajectory of the virus in the coming months.

One reason for the optimism is increased activity around vaccine development. Merck (MRK 1.09%) stock rose on Tuesday after the company embarked on two collaborations, one for a vaccine and one for an antiviral to treat COVID-19. Shares of McDonald's (MCD 0.10%) were also higher as diners began to slowly return to restaurants, although the recovery is still in its early stages.

Merck announces COVID-19 collaborations

A safe and effective vaccine to prevent COVID-19, the disease caused by the novel coronavirus that has killed nearly 100,000 people in the U.S., may be the only way for the economy to fully recover. Until people feel safe going about their day, economic activity will likely remain suppressed.

A scientist inserts a syringe into a vaccine bottle.

Image source: Getty Images.

Many companies are actively working on vaccines, although there's no telling when or if those efforts will bear fruit. On Tuesday, pharmaceutical giant Merck announced that it was getting involved in the race to bring a vaccine to market. The company is collaborating with IAVI, a nonprofit scientific research organization, to develop an investigational vaccine aimed at preventing COVID-19. The vaccine uses the same recombinant vesicular stomatitis virus (rVSV) technology that underlies Merck's Ebola Zaire virus vaccine.

The vaccine candidate is currently in preclinical development, and clinical studies are planned to start later this year. "We believe an rVSV-based vaccine strategy represents a promising approach to combating the novel coronavirus pandemic and look forward to implementing an accelerated development program, together with Merck, to evaluate the potential of our vaccine candidate against SARS-CoV-2," said IAVI CEO Dr. Mark Feinberg.

Also on Tuesday, Merck announced a collaboration with Ridgeback Biotherapeutics to develop an orally available antiviral candidate for the treatment of patients with COVID-19. The antiviral is currently in early clinical development. Under the agreement, Merck gets exclusive worldwide rights to develop and commercialize the antiviral, while Ridgeback Bio will receive an upfront payment and a share of the proceeds if the antiviral is approved.

Shares of Merck were up about 1.4% Tuesday morning. While the stock has surged since bottoming out in March, it remains down about 16% from its 52-week high.

Restaurant activity begins to recover

Fast food chain McDonald's has been hit hard by the pandemic, even though its drive-thru-focused restaurants are far better suited for a world with no dine-in service than many of its peers. Comparable sales tumbled 13.4% at U.S. locations in March, and the numbers for April will likely look even worse.

For McDonald's sales to recover, would-be diners need to feel comfortable venturing out for a meal. While it may be quite a while before restaurant activity returns to pre-pandemic levels, data from OpenTable suggests that the situation is improving.

OpenTable publishes data on seated diners at restaurants on the OpenTable network, including online reservations, phone reservations, and walk-ins. While this isn't directly related to a fast food chain like McDonald's, the data provides some insight into how comfortable consumers are going to restaurants. Here's the bad news: OpenTable activity in the U.S. was down a whopping 87.88% on a year-over-year basis on May 24. The silver lining: That represents a significant recovery. As recently as April 28, OpenTable activity was down 99.9%.

If the virus begins to spread more quickly as economic activity picks up and restaurants are allowed to reopen, or if there's a second wave later this year, this recovery in restaurant visits may be undone. But the trend suggests that the worst is over for the restaurant industry. That's good news for McDonald's, especially as it grapples with financially supporting its franchisees.

Shares of McDonald's were up about 2.4% Tuesday morning. The stock sits about 15% below its 52-week high.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$236.94 (0.10%) $0.24
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
MRK
$86.78 (1.09%) $0.94
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,134.99 (0.00%) $0.00

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