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Dow Jones Rallies 400 Points as Boeing 737 Max Certification Flights Approved, Apple Predicted to Keep iPhone Prices Flat

By Timothy Green – Updated Jun 29, 2020 at 2:28PM

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Boeing is one step closer to getting its 737 Max flying again, and an analyst expects Apple to offset higher iPhone production costs by dropping accessories.

Looking at the stock market, you wouldn't know there was a raging pandemic in many U.S. states. The Dow Jones Industrial Average (^DJI 1.99%) was up 1.8% at 1 p.m. EDT Monday, despite a rapid rise in confirmed cases of COVID-19 in the U.S. There have now been more than 2.5 million confirmed cases, and the daily case count has hit new all-time highs in recent days.

A big part of the Dow's rally on Monday was thanks to Boeing (BA 3.44%), which rallied after the Federal Aviation Administration (FAA) approved certification flights for the grounded 737 Max. Apple (AAPL 1.53%) also contributed after an analyst predicted the tech giant would keep iPhone prices roughly the same this year while removing accessories to cut costs.

A passenger jet airliner in flight.

Image source: Getty Images.

737 Max certification flights approved

Reuters reported on Sunday that the FAA had approved certification test flights for Boeing's 737 Max, which has been grounded since early 2019 due to two fatal crashes. The flights could begin as early as today.

Shares of Boeing were up 7.7% by early Monday afternoon on the news. Boeing stock has rebounded hard since bottoming out in March -- more than doubling -- but it has lost some of those gains over the past few weeks.

Certification flights are the next step toward getting the 737 Max flying again. However, the world has changed dramatically since the plane was first grounded. Demand for commercial aircraft has cratered amid the novel coronavirus pandemic. A major U.S. airline bankruptcy is possible, and even perhaps likely, as the virus continues to spread rapidly in some parts of the country. Air travel has started to recover, but it may be years before it returns to pre-pandemic levels.

What demand will look like for the 737 Max in the coming years is impossible to predict. If there is a significant drop in demand, then global air travel volumes will likely settle at a much lower level than before the pandemic.

Apple may drop accessories from next iPhone

Apple is expected to launch 5G-enabled iPhones later this year. Analyst Ming-Chi Kuo of TF International Securities believes that Apple's production costs on these new iPhones will be significantly higher due to the inclusion of 5G technology. Add to that a potentially difficult demand environment, given the impact of the pandemic on the global economy, and you have a recipe for slumping margins.

One way Apple could cut costs, according to Kuo, is to remove certain accessories that normally come with new iPhones. Kuo believes that Apple will keep iPhone prices roughly the same this year but will knock down costs by no longer including EarPods or a power adapter. Kau still expects Apple to include a USB-C to Lightning cable but nothing else other than the iPhone itself.

In a normal year, Apple may have been able to push through a price increase, touting the benefits of 5G. But this year, with economies reeling and consumers struggling, a price increase would likely be a bad idea. How eager iPhone users will be to upgrade, especially if a second wave of the virus hits later this year, remains to be seen.

Shares of Apple were in rally mode on Monday, up 2.1% by early afternoon. How the 5G iPhone launch goes later this year will likely determine whether the stock can remain near its all-time high.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
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The Boeing Company Stock Quote
The Boeing Company
BA
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Dow Jones Industrial Average (Price Return)
^DJI
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