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Why Virgin Galactic, Boeing, and General Electric Stocks Just Collapsed

By Rich Smith – Jun 24, 2020 at 3:17PM

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The coronavirus and a trade war are a double whammy.

What happened

It's Wednesday, and aerospace stocks are a shambles.

Actually, most stocks are having a pretty bad day, with the S&P 500 falling as far as 2.7% at 1:35 p.m. EDT today. But aerospace stocks are doing even worse. Shares of Boeing (BA -3.39%), for example, have fallen 5.5%. General Electric (GE -1.31%), which gets more revenue from the sale of jet engines than from any of its other businesses, is down 6%. Even start-up space tourism company Virgin Galactic (SPCE -3.29%), which isn't actually doing much of anything just yet, is still down a sizable 4.9%.

3 red arrows going down and crashing through the floor

Image source: Getty Images.

So what

There is really no bad news from any of the three companies themselves. To the contrary, Reuters recently wrote that Boeing is on track to begin a key flight certification test that could help put its 737 MAX back in service, as early as next week. So we need to look to macroeconomic news for a reason. And two answers seem most likely.  

First and foremost are the latest coronavirus statistics: 9.3 million patients infected with COVID-19 worldwide, with 2.35 million in the United States. There were 5,000 new infections reported in a single day in Texas. And across the nation, more states reported an acceleration in the spread of the virus than reported a successful flattening of the curve.  

Because an uncontained virus is a health risk for anyone leaving the front door, none of this is good news for travel and tourism demand. Unless we get the coronavirus under control, it's likely to cut short the revival in air travel, depress demand for new airplanes (Boeing) and new jet engines (GE), and stifle demand for novel ways to fly (Virgin Galactic).

Adding to investor worries, there's word now that the Trump Administration is contemplating $3.1 billion in new tariffs on European trade goods, a tit-for-tat response to EU plans to tax digital transactions of U.S. tech companies like Facebook, Google, and Amazon.com. Rightly or wrongly, the president's plan opens up the potential for Europe to respond in kind with tariffs of its own on U.S. trade goods.

Now what

Given how stressed aerospace companies are already, and the high profile of Boeing and GE, I wouldn't be surprised if those two companies bear the brunt of European sanctions. Such a move would, after all, serve the dual purpose of both responding to U.S. sanctions, and at the same time help to protect a fragile European aerospace sector from competition from Boeing and GE -- probably a politically popular move in Brussels at a time like this.

And there you have it, folks: Coronavirus plus a brewing trade war with Europe are adding up to drive down the value of U.S. aerospace stocks today. For them to move back up again, I suspect we're going to need to see either renewed progress on the coronavirus, or a lessening of trade tensions with the EU.

Until one of those two things happens, expect the stock market to remain cantankerous.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Amazon, Facebook, and Virgin Galactic Holdings Inc and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
BA
$121.08 (-3.39%) $-4.25
General Electric Company Stock Quote
General Electric Company
GE
$61.91 (-1.31%) $0.82
Virgin Galactic Holdings, Inc. Stock Quote
Virgin Galactic Holdings, Inc.
SPCE
$4.71 (-3.29%) $0.16

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

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