What happened
America is mired in a recession. The economy's still not fully open (indeed, a few states have begun to roll back their reopenings), and the coronavirus is still a threat. Despite all this bad news, hotel and resort stocks got a big pop this morning, with shares of Marriott International (MAR -0.87%) rising more than 6%, MGM Resorts (MGM -1.24%) climbing 7%, and Eldorado Resorts (ERI) up most of all, more than 10%.
Crazily, the only news directly affecting any of these stocks today was arguably bad news.
Image source: Getty Images.
So what
Last night, after trading had closed for the day, Eldorado Resorts announced the sale of as many as 20.7 million shares of common stock in a play to raise potentially more than $800 million in cash to tide it over through the pandemic. It also said that after merging with Caesars Entertainment (CZR), it will mortgage the Caesars Forum Convention Center in order to raise another $400 million.
None of that sounds like the actions of a financially healthy company, and indeed, Eldorado Resorts reported a $176 million loss last quarter -- after losing $13 million in the final quarter of 2019, even before COVID-19 hit. Despite all this, at 1:25 p.m. EDT, it's Eldorado holding on to the greatest gains of this group of stocks, its shares up 5.4%. (Marriott's were up 3.6%, and MGM 0.4%, by the way.)
Other than Eldorado's dilutive share issuance, and its mortgaging of a key asset, there's been no other news directly relevant to any of these companies today. Instead, what we've got is a report out of England about how a certain steroid drug appears to be helpful in keeping a certain segment of the sickest COVID-19 patients alive, and a separate report describing how President Donald Trump wants to spend $1 trillion on infrastructure to boost the economy.
Now what
Are these news items really enough to support the rally we see in hotel and resort stocks today? I don't think so, and I'll tell you why not:
The use of steroids to reduce inflammation caused by the novel coronavirus is a positive development, but it's a rather niche treatment of just one symptom of the disease -- not a cure-all, and certainly not a prophylactic against the virus. As such, I don't believe that news today is going to be the kind of thing that gets consumers out of the house and back on the road, traveling to resorts and casinos.
The news might lift the stocks -- but it won't save the businesses.
Moreover, unfortunately, I don't see an infrastructure spending program directly benefiting the travel and vacation industries. Yes, flooding the economy with more money could help to plump up the stock market at large. But I simply don't see it as a reason to rush out and buy hotel and casino stocks today. (Even more so given that President Trump has been promising to deliver a "$1 trillion infrastructure plan" since his very first days as president -- and it's still yet to see the light of day.)
Long story short, as fast as these stocks went up today, I think they could go right back down tomorrow.
