Investors came into Tuesday's trading session on Wall Street in a good mood, but they certainly didn't leave feeling the same way. Major market benchmarks fell sharply as worries on multiple fronts once again came into play.
Signals from the bond market continued to suggest a possible recession in the U.S., and it's unclear whether policy makers can really do anything to attack the root causes of a slowdown in the economy. By the end of the day, the Dow Jones Industrial Average (^DJI 0.08%) and S&P 500 (^GSPC -0.17%) were down as much as 2%, and the Nasdaq Composite (^IXIC -0.41%) saw even larger declines.
|
Index |
Daily Percentage Change (Decline) |
Daily Point Change |
|---|---|---|
|
Dow |
(1.56%) |
(491) |
|
S&P 500 |
(2.01%) |
(79) |
|
Nasdaq |
(2.98%) |
(343) |
Data source: Yahoo! Finance.
Surprisingly, though, one set of stocks managed to post solid gains on the day. Las Vegas Sands (LVS -9.17%), Wynn Resorts (WYNN -1.81%), and Melco Resorts & Entertainment (MLCO -2.81%) were all solidly higher on Tuesday, and the thing driving their performance is the same thing that investors have liked about them for years now. Below, we'll look more closely at why these three companies might actually not have as much exposure to a potential U.S. recession as one might think.
Good news for China means good news for Macao
Shares of all three casino stocks were up considerably in Tuesday's trading session. Melco picked up 5%, while Wynn was higher by 3%, and Las Vegas Sands made a 4% move higher. All three had been up even further earlier in the day, before the broader market sell-off took hold.
The big news came from China, where restrictions related to the pandemic started to ease somewhat. The Chinese government decided to shorten some of the quarantine restrictions for international visitors coming into the country. Travel between mainland China and Macao has been restricted for quite awhile, but investors in the casino stocks hope that the latest signs of easing domestically will both improve the odds of travel to Macao opening up and make potential Chinese visitors more likely to come to the casino resorts.
Casinos aren't all about the U.S. anymore
It's not immediately obvious to investors in U.S. casino stocks like Las Vegas Sands and Wynn Resorts that the U.S. market isn't of paramount importance to either of the two companies. In 2019, Wynn got about triple the revenue from Macao as it did from its Las Vegas properties, and pre-tax operating income was well over triple. Even under 2021's restricted conditions, Wynn got more revenue from its Macao operations than from Las Vegas.
Sands has taken even more aggressive steps to concentrate on Macao and its other international properties. In early 2021, the casino resort operator sold its Las Vegas operations to a group of private equity investors. As a result, the company's 2021 annual report lists only revenue from properties in Macao as well as its Marina Bay Sands casino resort in Singapore. For its part, Melco has no U.S. operations.
In the long run, economic conditions in the U.S. won't matter at all to Sands or Melco, and it'll have only a limited impact on Wynn. Instead, China's woes have been holding the companies back.
If China and the broader Asia-Pacific region can regain their momentum and finally emerge once and for all from the pandemic, then it could finally get things moving back toward normal for the casino industry in Asia's gambling capital. That would help these hard-hit casino stocks make even more progress toward a fuller recovery.
