What happened
Shares of casino operator MGM Resorts International (MGM -1.24%) fell 5% at the open of trading on Dec. 21. That said, the stock has been on something of a run since falling more than 75% in the early 2020 bear market. At this point the stock is down just about 10% or so for the year. That's the setup for what seems to be spooking investors today.
So what
MGM is hardly alone in its price dip today, with other entertainment, vacation, and service related stocks also falling, including casino stock peers, cruise lines, and movie theater chains. That said, for many of these companies, investor sentiment has improved materially since the depths of the coronavirus-led bear market early in the year. The price move of MGM's own stock is clear evidence of that. Positive vaccine developments, including the approval and initial distribution efforts of multiple candidates, have helped back the thesis that "this too shall pass." Of course that would be very good for companies like MGM that rely on bringing people together in group settings.
Image source: Getty Images.
The problem is that over the last few days Great Britain revealed that it was dealing with a new variant of the coronavirus. This mutation appears to be spreading even more quickly than previous strains. That news has already resulted in travel restrictions being imposed against the U.K. by other countries. And it appears to have reignited the fear that the pandemic may last longer than some had hoped. Even in a best case scenario it will be months, if not quarters, before a vaccine is distributed widely enough to have a material impact on the trajectory of the coronavirus pandemic. If the strain hitting the U.K. spreads to other countries, it could mean much larger near-term headwinds.
Now what
To some extent, MGM's drop on the negative U.K. coronavirus news is simply a little bit of profit-taking after a good run. But it's also a statement about the reality of the situation. There has been much positive news on the COVID-19 front, but this journey is clearly far from over. In fact, after such an impressive run-up of its early year lows, long-term investors should probably tread with caution here since a material amount of business recovery, which has yet to be seen in the company's financials, appears to have been priced in.
