Boeing (BA 397.26, -25.28, -6.0%) will get top billing as
today's story stock. Shares of the Dow component fell as many as 57 points, or
13.5%, from Friday's close following an Ethiopian Airlines 737 MAX 8 crash over
That crash prompted China, Indonesia, and Ethiopia to ground all 737 MAX 8 planes to conduct a safety review.
The black box from the downed aircraft has been located, yet a cause of the crash has not yet been determined. Nevertheless, the knee-jerk selling reaction was as strong as it was for the following reasons:
- The latest crash has been said to have many similarities to
the Lion Air 737 MAX 8 crash in Indonesia last year. Consequently, there was heightened angst
about the potential for a systemic problem to be exposed that could ultimately
lead to the grounding of more 737 MAX 8 aircraft around the world and curtail
- Note: Boeing is going to let the investigation play out but did say, "...at this point, based on the information available, we do not have any basis to issue new guidance to operators."
- BA had risen as much as 52% from its December 24 low, which is an absolutely massive move for a company the size of Boeing. It has been backtracking some in recent sessions, yet a jarring headline like the one it is dealing with today, was an expedient for more aggressive selling interest from an overextended position that left this industrial stock trading at 22x estimated FY19 earnings a little more than a week ago.
- There was burgeoning concern that FY19 earnings estimates (and beyond) could be at risk of downward revision on the basis of this news and any potential adverse findings.
On a related note, shares of Southwest Airlines (LUV 51.19, 0.58, -1.1%), which only flies the 737, are underperforming today even though there hasn't been any move by the FAA to ground 737 planes here. The knee-jerk selling in LUV, though, underscores concerns that some passengers might be scared away by the 737 MAX 8 news.
Boeing, meanwhile, has made a huge recovery off of this morning's low, as it is now down "only" 25 points, or 6.0%. Investors presumably concluded that the knee-jerk selling was an overreaction and are using the weakness as a buying opportunity. Whatever the case may be, Boeing's comeback has helped the Dow rebound more than 300 points off today's low.