Boeing Shares Weigh on Dow Futures After Ethiopia Crash
Boeing's $55 Billion Rally Put to the Test After Ethiopia Crash
(Bloomberg) -- Boeing Co.’s share decline dragged futures on the Dow Jones Industrial Average lower after one of the company’s 737 Max jets operated by Ethiopian Airlines crashed, killing 157 people on board.
Futures contracts on the Dow -- where Boeing has the largest weighting -- slid as much as 0.9 percent on Monday after Flight ET302 plunged to the ground minutes after leaving Addis Ababa en route to Nairobi, Kenya. This is Boeing’s second 737 Max crash in five months.
To make matters worse, China asked domestic airlines to temporarily ground those jets by 6 p.m. local time, and Ethiopian Airlines said it would ground them until further notice.
Boeing shares slumped 9.7 percent to $381.70 in pre-market U.S. trading. The stock could slide in U.S. trading as concerns are increasing over the jet, said Eleanor Creagh, a Sydney-based market strategist at Saxo Capital Markets. Even a 5 percent fall would cut more than 100 points from the Dow, she estimated. When a Lion Air plane of the same model sank into the Java Sea off the coast of Indonesia last year, killing 189 passengers and crew, the shares lost almost 7 percent.
“Weakness transpiring in Boeing’s share price will hit the Dow,” Creagh said by phone. The stock has been responsible for about a third of the gains as markets recovered since the December low, she said.
Shares of the U.S. manufacturer have gained 31 percent this year, the most among Dow components and adding more than $55 billion in market cap. While that’s partly due to the improving sentiment over the U.S.-China trade talks, the company also reported a record cash pile for 2018 with sales reaching $100 billion for the first time in its 102 years.
The weekend accident happened as the U.S. stock-market rebound is showing signs of strain. The S&P 500 Index just posted its biggest weekly loss of the year as concerns surrounding global economic growth mounted. Risk appetite has weakened and the bar for positive surprises is now higher after a more than $9 trillion global equity rally since a December low. The Dow, where Boeing has an 11 percent weighting, dropped 2.2 percent last week.
In a March 11 report, Morgan Stanley said it expects a “degree of weakness and volatility” in the shares until there is clarity on what happened with this crash, adding it is premature to make any linkage to the Lion Air accident. Analyst Rajeev Lalwani wrote last month that the company’s stock has a “clear path” to $500 given broadly higher market multiples along with a potential order boost from a resolution in the China trade situation.
To contact the reporters on this story: Divya Balji in Singapore at dbalji1@bloomberg.net;Matthew Burgess in Sydney at mburgess46@bloomberg.net
To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Cecile Vannucci, Naoto Hosoda
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