Already embattled industrial firm General Electric (NYSE:GE) really didn’t need the novel coronavirus to add any more excitement to its journey. After tumbling into ignominy, the company appeared to be turning a corner. Then, the Covid-19 pandemic scuttered that momentum, sending GE stock plummeting back down to earth in March of this year.
However, many publicly traded entities were able to enjoy a strong recovery tailwind at that time. Unfortunately, that didn’t apply to GE stock. True to form, shares tumbled even lower in May, undoubtedly frustrating contrarians to no end.
Still, General Electric finally appears to have caught a break. Recently, Boeing (NYSE:BA) was able to keep two of its 737 Max jetliner customers on its books. First, SMBC Aviation Capital, a Japan-based aircraft leasing company will defer delivery of 68 Max jets. Second, AerCap (NYSE:AER), also an aircraft leasing firm, will defer 37 jets.
True, order deferrals are not the greatest news ever. However, amid a wave of cancellations for the Max jetliners, this provides a much-needed glimmer of hope for Boeing. Of course, whatever is good for Boeing is absolutely pivotal for GE stock. As you might know, General Electric is one of the top airplane engine manufacturers, with this business representing a bright spot in an otherwise dour portfolio.
Furthermore, air travel is slowly but surely mounting a comeback effort. Admittedly, air passenger volume remains in the doldrums relative to year-over-year comparisons. But against the lows of this year, this volume has increased substantially on a percentage-basis.
Plus, the fact that a Japanese lessor was willing to keep its Max orders suggests that this recovery has gone international. It’s a great time to consider selling General Electric’s stock.
Good But Not Good Enough for GE Stock
I’m not trying to be cute with my assessment of General Electric. Some of the news is certainly encouraging. But the overwhelming impact that Covid-19 has had on the air travel supply chain means that this recovery narrative will take time. That’s something that the company doesn’t have.
For one thing, although millions of Americans have decided that they’ve had enough, millions have also adopted a cautionary approach regarding this health crisis. Even in the best of times, airplanes are flying Petri dishes. When you factor in the pandemic, it’s invariable that many would-be passengers are put off.
But that’s only one headwind affecting GE stock. The other is the economic environment. According to the U.S. Bureau of Economic Analysis, the personal saving rate in April hit a whopping 33%. Not only is this an all-time record since records were kept, it dwarfs the second-highest reading of 17.3% in May 1975.
In other words, the coronavirus has had an immediate and gut-wrenching effect on millions of American households. While this ridiculous metric will fade — as history demonstrates — you cannot deny that the average consumer’s psyche has shifted dramatically.
And don’t think that I’m just reaching based on an isolated piece of data. According to a Gallup poll, most people planned to pay bills with their direct emergency relief related to the coronavirus. Others planned to save it or spend the funds on essential products, such as groceries.
Frankly, this is what you would expect given the magnitude of the crisis. But unfortunately, this shift in consumer behavior doesn’t align well with GE stock.
Due to decimated travel demand, airliners ended up parking much of their fleet. Until we see consumers truly become confident in the economy, this dynamic won’t change much.
Hurting an Already Vulnerable Organization
Basically, it comes down to a math problem. GE needs a reason to keep building airplane engines. But doing so will unnecessarily flood a suddenly saturated market with more supply. It’s the present-day oil crisis, but for the aircraft supply chain.
Prior to the pandemic, General Electric made a concerted effort to turn its business around. Some of their initiatives clearly attracted Wall Street. However, the organization remained vulnerable. In order to complete this longshot recovery, most if not everything had to go right.
Here, everything seems to be going wrong. Atop the health and economic crisis, a brewing geopolitical conflict between the U.S. and China has direct implications toward international air travel. Realistically, this tension may not ease anytime soon given the already heated backdrop.
Therefore, the best thing you can do with GE stock is to sell this name into strength. While I wish I had better suggestions, now is not the time to take unnecessary risks.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.