Don’t Care About Boeing? You Should. It’s Gonna Cause Havoc on the Stock Market! Panic Coming! (wink)
“Founded in 1916, just a few years after the Wright brothers’ famous Kitty Hawk flight, The Boeing Company (BA) has grown to become a global leader in the aircraft manufacturing industry and one of the most well-known names in the aerospace and defense sectors in the United States. The company operates three business divisions: Commercial Airplanes, Defense, Space & Security, and Boeing Global Services. Boeing Capital Corporation supports all three divisions by providing financing for Boeing customers.” — Investopedia
“Pressure escalated inside the United States for a grounding of the Boeing 737 Max model that has crashed twice in the past six months. But the Federal Aviation Administration reiterated its position that the plane is considered safe and that it has “no basis to order grounding the aircraft.”
At least 34 airlines have now grounded the Max 8, which means roughly two-thirds of the Max 8 planes in operation are now idled. The major outliers are Southwest and American in the United States, and Air Canada.” — NYTimes
“In the wake of the second Boeing 737 Max 8 plane crash in Ethiopia on Sunday, the Chicago, Illinois-based aircraft maker’s stock has not only plummeted by over 10% but some of its customers are now reconsidering their orders for the narrow-body jet. So far over 5,000 orders worth more than $600 billion have been placed for the MAX narrow-body jets.
According to Bloomberg, airlines that are reviewing their orders for the Boeing 737 MAX are mostly in Asia. Indonesia’s largest airline by market share Lion Air has, however, gone a step further and suspended existing orders. Lion Air’s own 737 Max 8 plane crashed last year in October shortly after takeoff killing all 189 people on board.” — CCN
“The relationship between aircraft manufacturer and Lion Air worsened following the October crash. This was after Boeing seemed to blame human error and maintenance for the accident. Late last year Lion Air revealed plans to cancel Boeing plane orders worth $22 billion.” — CCN
When Boeing’s share price falls, it accounts for the largest percentage move of the DJIA (DOW). Why?
“The Dow is considered a price-weighted index. The higher a company’s stock price, the more influence it has on the Dow’s direction.” — CNBC
“Stocks with the largest per-share prices will have the biggest weight. That means a $1 move in Goldman Sachs stock is worth the same as a $1 move in Coca-Cola, even though it’s four times as different when measured in percent.
But here’s the thing: Not every stock is equally volatile. Some stocks just move a lot more than others. So when considering which stocks will have the biggest impact on how the Dow changes each day, it’s not just the price that matters, but also the volatility. A $20 stock that moves $10 per day will move the Dow more than a $100 stock that only moves $1 per day.” — CNBC
How Does the Dow Divisor Work?
“To calculate the DJIA, the current prices of the 30 stocks that make up the index are added and then divided by the Dow divisor, which is constantly modified. To demonstrate how this use of the divisor works, we will create an index, the Investopedia Mock Average (IMA). The IMA is composed of 10 stocks, which total $1,000 when their stock prices are added together. The IMA quoted in the media is therefore 100 ($1,000 ÷ 10). Note that the divisor in our example is 10.
To figure out how a change in any particular stock affects the index, divide the stock’s price change by the current divisor. For example, if Walmart (WMT) is up $5, divide five by current divisor (0.14523396877348), which equals 34.42. Thus, if the DJIA was up 100 points on the day, Walmart was responsible for 34.42 points of the move.” — Investopedia
Why be concerned with Boeing if I don’t own their stock? Because as mentioned, Boeing has the largest influence on the DJIA. Many investors use the DJIA for making investing decisions.
Hence, If the Dow breaks lower toward 24k again, it’s likely to cause some worry among investors. When investors get spooked, they sell whatever they can, not just Boeing. Psychology is a strange thing.
As the chart shows, 70% of Boeing shares are held by institutions (not individuals). If you’ve got a retirement account, it’s likely to take a hit when the index takes a hit. Regardless if Boeing itself is in the portfolio.
“Of the 10 largest U.S. companies, institutions own between 70% and 85.8%. Investment advisers are the largest institutional owner of equities through mutual funds and other investment vehicles. Apple, the largest company by market cap, is the most widely held company by institutions, with Vanguard, BlackRock (BLK) and State Street the largest holders.” — Pionline
The verdict: Anyone who’s got money in the stock market (pretty much anyone employed), should be concerned with DJIA.
Boeing’s current crisis could have a massive impact on the the overall market should the situation get any worse (How many airlines own the 727 Max?) Keep an eye on these Boeing stats.
“The Boeing 737 Max is the fastest-selling plane in the company’s history. And now it’s under immense global scrutiny after the plane has been involved in two deadly crashes soon after takeoff in less than five months.
Boeing has pinned high hopes on the 737 Max. “We expect 737 Max to account for approximately 90 percent of total 737 deliveries in 2019,” the company’s chief financial officer, Gregory Smith, said in January. “In all, [Boeing] is expected to deliver between 895 and 905 airplanes for the full year.”
So far, the manufacturer says it has received more than 5,000 orders for the fuel-efficient plane from more than 100 customers worldwide. The 737 Max has been key to its competition with top rival Airbus, which has found success with a similar model.” — NPR
As you can see (and probably already know), there’s quite a list of airline companies who own Boeing commercial airplanes.
“The Boeing Co. 737 Max crash in Ethiopia looks increasingly likely to hit the plane maker’s order book as mounting safety concerns prompt airlines to reconsider purchases worth about $57 billion.” — Bloomberg
Ouch! A major hit to Boeing revenues, airline companies revenues, and investor profits. Investors may be worried that customers could shy away from flying on the 737 MAX. Makes sense to me.
Would you drive a car that’s been “grounded” or “recalled”? Ummm.. Not a chance! (Maybe if you were drunk?) But ultimately, not until you’re confident that any and all problems have been resolved.
In Boeing’s case, resolving all the issues could take a very long time. Suppose they do find the problem. They’ve still got to inspect every single 737 Max for damage, fix them, then re-inspect them. That process could take months.
Only after that, will airline companies reconsider buying from Boeing. It’s also when travelers won’t shit their pants when they have to fly on one.
I wouldn’t buy this ten year bull market top anyway (double top, triple top? neither is bullish), but now I sure as hell wouldn’t touch a U.S. stock! Not with a 10 ft. pole. Not ANY pole!
The above image isn’t an indicator of stock prices, if that’s what you were thinking. Rather, it’s the flight pattern of the Boeing 737 Max. (too soon?)
Former U.S. budget director from the Ronald Reagan era David Stockman says, “The doom and gloom pontificator predicts the market is about to fall off a cliff, telling CNBC he is bracing for another 40% decline in stock prices from current levels. Meanwhile, the broader market indices remain higher by double-digits year-to-date, with tech stocks from Apple to Amazon leading the way.
Stockman calls it an “arbitrary starting point,” chalking it up to “day traders, chart monkeys, [and] robo machines,” saying it has “nothing to do with rationality or investment analysis.”
He would much rather take a longer-term view of the stock market over the past 14 months when the S&P 500 was hovering at about the same level as where it is trading today.” — CCN
It just so happens, I share the same opinion as Mr. Stockman. I think U.S. stocks have been pumped harder than Jenna Jameson. No thanks to Jim Cramer and friends. Buy! Buy! Buy! (in Cramer’s annoying AF voice).
“One of the most important factors that determines stock market returns over the next 10 years is how expensive stocks are today.
Periods of low stock valuations, measured by various ratios such as a low cyclically-adjusted price-to-earnings ratio, low price-to-book ratio, low market-capitalization-to-GDP ratio, or high average dividend yield, have historically been associated with good stock market returns over the next 10–20 years. This is because there is plenty of room for corporate performance to grow and valuation multiples to increase.
Despite the recent 10%+ price decline we’ve seen in many U.S. market indices over the past few months (Dec. 2017 article), U.S. stocks are still at historically elevated levels based on most metrics.
This is partly due to historically low interest rates, but also likely has to do with where we are in the business cycle.” — FedWeek
The Dow was 23,xxx during the writing of that article! They’re saying stocks were historically expensive at even those levels? Yep!
Goldman Sachs was kind enough (or so you’d think) to warn investors that stocks were expensive PRIORto the December ’18 dump.
Mid September 2018 (when the Dow was sitting at 26k) Goldman Sachs said, “The S&P 500 is expensive on most metrics, but fairly valued on FCF [free cash flow],” said Goldman Sachs strategist David Kostin in a new note. The call out is particularly interesting in a market continuing to be dominated by wild-eye bulls. But with trade tensions between the U.S. and China ratcheting higher, Goldman’s valuation call should be taken seriously by those same bulls.
Goldman expects U.S. GDP growth to decelerateto 2.6% in 2019 and 1.6% in 2020 as the effects of the Trump tax cuts wear off and the Fed lifts interest rates.” — thestreet
Hot damn, Goldman’s convinced the markets are TOO EXPENSIVE at 26k?! Sell! Sell! Sell! (more annoying Cramer)
But wait…. There’s more!
February 13th, 2019 (Dow at 25.5k) Goldman Sachs said, “It’s a great time to be a stock picker, since the market has mostly priced in the ‘macro’ environment of a steady economy and dovish Fed, for now.
Stock pickers could find the most opportunities in the health care, consumer discretionary, and communications services sectors.” — CNBC
Am I missing something? Too expensive at 26k but a good deal at 25.5k? WTF
Oh, I know… They’ll say anything that benefits THEM. You thought they were looking out for individuals? I’m laughing!
I’d bet more often than not, when a large financial services company or analyst recommends buying or selling stock, they’ve already done so.
Their motive? Because they’ve already taken a position themselves earlier and want the crowds to follow. Pump, pump, pump it up! That’s when they sell, leaving only unsuspecting bag-holders.
In the end, when financial institutions recommend buying a certain stock, you should probably consider SELLING. Unless you’re prepared to be a bag-holder.
What am I invested in if I’m avoiding U.S. stocks? Cannabis and Crypto! Call me crazy. The Green Organic Dutchman (TGODF) will be double digits (DDs) by EOY. “Mark it!” (currently $3.31)
Crypto? Brave Browser and Basic Attention Token (BAT)! Big Things a Comin’!
Good luck Stockboys! You’re lookin’ pretty toppy!