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Why General Electric Stock Just Popped 7%

By Rich Smith - May 26, 2020 at 2:18PM

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A vaccine will eliminate the coronavirus, permitting travel, encouraging airplane sales and airplane engine sales, too -- or so the theory goes.

What happened

Shares of General Electric (GE -0.74%) stock soared along with the rest of the stock market Tuesday, and are up a healthy 7.4% as of 1:40 p.m. EDT. Surprisingly, GE stock appears to be moving on no news whatsoever, specific to GE.

Or perhaps that's not so surprising.

As you may have heard, biotech Novavax has a new vaccine candidate called NVX-CoV2373 ready, and it's begun enrolling participants to begin a clinical trial to determine if it's safe and effective to combat the SARS-CoV-2 coronavirus. Other drugmakers have other vaccines in the works as well -- more than 120 in either preclinical or clinical trials, according to researcher Fundstrat.  

Collage of an airplane, coronaviruses, and a world map

Image source: Getty Images.

So what

Why does any of that matter to General Electric? The thinking goes like this:

Currently, people may be afraid to fly in airplanes because they might contract the coronavirus, either wherever they're flying to, or on the airplane itself. Because of this, no one is flying, and airline traffic is off by about 90%. That has caused airlines to stop buying airplanes, which means airplane manufacturers are not buying airplane engines from General Electric.  

Airplane engines comprised 34.5% of GE's annual sales last year, according to data from S&P Global Market Intelligence, and accounted for 87% of GE's operating profit.

Now what

In order for GE to return to that level of airplane engine sales, and resume reaping those airplane engine profits, therefore, airplane manufacturers must be enticed to resume buying airplane engines. For that to happen, airlines must resume buying airplanes. For that to happen, people need to start flying again -- but they won't do that until they feel safe.

Thus, everything hinges on the discovery of a vaccine. Whenever progress is seen to be made on that front, GE stock goes up -- just as we're seeing today.

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