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Why Travel and Entertainment Stocks Dove on Wednesday

By Jeremy Bowman – Jun 25, 2020 at 6:57AM

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Rising coronavirus cases in the U.S. pushed sector stocks down.

What happened

Shares of travel and entertainment stocks got hammered Wednesday as the coronavirus case growth continued to accelerate in the U.S., and news about the struggling global economy also doused hopes for a rapid recovery.

Florida reported more than 5,500 new coronavirus cases this morning, a new daily record, as a number of states are seeing new cases spike to an all-time high. At the same time, New York, New Jersey, and Connecticut -- the first U.S. epicenter of the outbreak -- said they would require visitors from states with severe outbreaks to quarantine for two weeks, cooling off hopes for increased tourism. The European Union also said that it may ban travel from the U.S. when it reopens its borders on July 1.

This news makes a quick economic recovery unlikely, and travel is the most sensitive sector as the industry won't return to full health until people feel safe again. The more the pandemic spreads, the less likely that will be.

Separately, the International Monetary Fund lowered its forecast for global GDP and projected it will drop 4.9% for the year. The IMF also said the recovery would be slower than it had previously expected. Data from the U.S. Transportation Security Administration also shows that air passenger throughput is still down about 80% from a year ago.  

Among the stocks getting hit on the news were TripAdvisor (TRIP -0.38%), which closed down 9.8%, Liberty TripAdvisor Holdings (LTRPA 3.33%), which fell 16%, Wynn Resorts (WYNN -1.38%), which lost 11%, and Red Rock Resorts (RRR -0.49%), which gave up 9%. The S&P 500, meanwhile, fell 2.6%. 

Two travelers taking photos with a camera

Image source: Getty Images.

So what

There was no company-specific news out on any of these stocks today. Rather, the stocks pulled back on concerns about the macroeconomic climate.

TripAdvisor said earlier this week in an update that traffic on its website had improved since hitting bottom in April. Monthly unique visitors in April and May were only at 33% and 45% of year-ago totals, respectively, meaning traffic increased 38% from April to May. The company said that based on current trends, it estimates June would show improvement over May. Revenue for April and May was just around 10% of year-ago totals, however, while June is trending closer to 20%. That sharp pullback shows how catastrophic the pandemic has been for the travel industry, especially for companies like TripAdvisor that rely on advertising spending.

Las Vegas casinos only reopened earlier this month but rising case counts across much of the country threatened to torch any potential recovery in the industry. Casinos are particularly vulnerable to virus transmission, being large, high-traffic, high-touch, indoor environments. Though casinos have reopened in Macao, another key market for Wynn, customers have been slow to return due to safety returns. Casino operator Red Rock Resorts is almost entirely dependent on the Las Vegas market, so that company's fortunes are likely to track with the Las Vegas recovery as well as progress in containing the pandemic. Case counts have remained relatively low in Nevada, but Las Vegas tourists tend to come from all around the country, so casinos in the area will be sensitive to coronavirus trends across the U.S.

Now what

Travel stocks like TripAdvisor, Wynn, and Red Rock Resorts have been sensitive to news about the pandemic since the crisis started, and that relationship will continue as consumers pull back on travel due to safety concerns. That means that investors will want to follow trends around the virus spread as that is most likely to dictate the recovery in the travel industry. In all likelihood, these stocks won't make a full recovery until a vaccine is discovered or the virus is no longer a safety concern, which may not be until next year.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
$63.46 (-1.38%) $0.89
TripAdvisor, Inc. Stock Quote
TripAdvisor, Inc.
$22.29 (-0.38%) $0.09
Liberty TripAdvisor Holdings, Inc. Stock Quote
Liberty TripAdvisor Holdings, Inc.
$1.08 (3.33%) $0.04
Red Rock Resorts, Inc. Stock Quote
Red Rock Resorts, Inc.
$34.64 (-0.49%) $0.17

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

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