Stocks have reached records on hopes that stimulus spending and vaccination programs will trigger a recovery in corporate earnings later this year. But for companies like United Airlines, the situation is only becoming more dire.
What’s happening: The airline told investors after markets closed on Wednesday that its losses are mounting and emphasized plans to keep cutting costs. Shares are down more than 2% in premarket trading.
Such news is in sharp contrast to the view from the broader market. The S&P 500 and tech-heavy Nasdaq Composite both hit all-time highs on Wednesday as tech stocks continued their ascent.
Of particular note was Netflix, whose shares rallied nearly 17% on Wednesday after the company said it had passed 200 million subscribers as people stayed home during the pandemic. It’s considering using extra cash to fund stock buybacks.
“After internet access, Netflix may be the most important subscription we have at home,” Ed Yardeni, chief investment strategist at Yardeni Research, said in a research note Thursday.
United, meanwhile, is struggling just to make it to the other side of the crisis, which has triggered a plunge in demand for flights. The company has borrowed billions of dollars to keep funding its operations, but still burned through an average of $33 million per day last quarter. It doesn’t expect its profit margins to exceed 2019 levels until 2023.
Investor insight: While Netflix shares have rallied 73% over the past year, United Airlines’ stock is down 47%.
Such divergence is a reminder that a huge gap still exists between those that can take part in the pandemic economy and the companies still stuck on the sidelines as vaccination efforts ramp up.
Plus, while the US economy may experience rapid growth in the second half of 2021, any boom won’t be felt evenly across sectors.
“Admittedly, analysts’ forecasts for earnings in sectors that have benefited from the restrictions to activity during the pandemic, like communication services, health care and information technology, are quite upbeat,” Simona Gambarini of Capital Economics told clients this week. “But the earnings of firms in sectors like real estate, energy and financials, which have been hit really hard by the crisis, are still expected by analysts to be much lower on average in 2021 than in 2019.”
