Please ensure Javascript is enabled for purposes of website accessibility

Why AMC Entertainment Stock Rallied 6.5% on July 1

By Reuben Gregg Brewer – Jul 1, 2020 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors were feeling good about a healthy future when the market opened, pushing movie theater operator AMC higher.

What happened

Shares of movie theater operator AMC Entertainment Holdings (AMC -7.44%) rose 6.5% in the first hour of trading on July 1. By 2 p.m. Wall Street time, the stock had lost around half those gains, up a more modest 3.5% or so. There was no particular news out of the company today, despite a steady flow of news over the past few days. Indeed, it was a bigger-picture theme that pushed the stock higher.

So what

The last week or so hasn't been great for AMC on the news front. After setting a date for reopening its theaters, the company was hit by moviemakers that shifted out the release dates for key titles. That, in turn, would have left AMC with little to draw customers into its facilities. So, it was forced to push out its planned reopening date to the end of July, a change it announced on June 29. With a heavy debt burden, that's not particularly good news, and you'd expect investors to be in a generally negative mood for at least a few days.    

Two people drinking sodas in a movie theater

Image source: Getty Images.

However, emotions shift quickly in the market these days. News from Pfizer that it was having some success with a potential COVID-19 vaccine shifted investor sentiment regarding AMC's future in a positive direction. The logic here is pretty simple. The coronavirus spreads easily in group settings like movie theaters. That is why AMC's facilities are shut right now and indirectly why, with the resurgence of COVID-19 in a number of U.S. states, it has been forced to push out the date it plans to begin the reopening process. However, if there's a vaccine, then the concern about sitting among strangers to watch a movie isn't as big of a deal. AMC, despite the significant near-term headwinds it continues to face, rose as investors reconsidered the company's long-term outlook.   

Now what

Pfizer's news isn't the only positive information in the market about potential vaccines right now. China and India have also provided uplifting updates in recent days. However, it is still too early to suggest that a widely available, safe, and effective vaccine is imminent. Long-term investors should take the ups and downs in AMC's stock with a giant grain of salt. Until there is more material progress with a vaccine (not likely in the near term) or AMC successfully reopens its theaters, Wall Street speculation is all that's really driving the stock today. In fact, it's probably a good bet to expect heightened volatility until at least the end of July.  

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.