What happened
Stocks plunged on Thursday as Wall Street continued to worry about a possible recession in the United States, the growing impact of a war in Europe and tensions between China and the West. Shares of Boeing (BA -6.08%)one of the companies most closely linked to international trade, fell more than broader markets, as much as 5% on Thursday morning.
So what
Boeing’s core business is to supply the planes that connect the world, but it is becoming increasingly difficult to prove that there will be strong demand for these planes in the coming quarters. The S&P500 fell more than 2% on Thursday on fresh comments from Federal Reserve leadership saying the Fed is committed to controlling inflation even if it means stalling the economy.
Elsewhere, tensions are running high in Europe after the alleged sabotage of a key gas pipeline. The pipeline issue, if nothing else, will mean less natural gas transport to Western Europe this winter, which could lead to further reductions in economic output. At worst, it could be the start of an escalation of tensions between Russia and European countries supporting Ukraine.
Boeing had hoped to see plane orders and sales rebound in 2022 after a few tough years due to problems with the 737 MAX and the impact of the pandemic on airlines. The company’s total debt has skyrocketed by 400% during the crisis, and Boeing desperately needs a surge in new orders and the cash flow that comes with those orders to rebuild its balance sheet.
Instead, all investors can see today is uncertainty. Airlines are less likely to commit to massive orders for new planes in such an uncertain environment, where there are no clear signs that demand will pick up from here.
Now what
Boeing today shares the trade below where it did on March 31, 2020, near the peak of the pandemic. At that time, the question was whether the airlines would survive. As bad as things are today, the outlook is almost certainly better today than it was then.
The problem is that there is no real catalyst on the horizon to provide a boost. For investors focused on the long term, there are reasons for optimism: Boeing is part of a global duopoly with Airbus and over the coming decades there will be strong demand for new, greener replacement aircraft and to meet new demand from emerging markets.
But right now, that future seems a long way off. And potential buyers seem content to see how it unfolds from the sidelines instead of jumping on board and riding through the turbulence.
Lou Whiteman has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
