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Why AMC and Entertainment stocks are down sharply today


What happened

Actions of entertainment actions are down sharply on Friday as the market sells off risky assets, especially those that could be affected by a new strain of COVID-19.

In the first hour of trading today, AMC Entertainment (NYSE: AMC) fell to 7.2%, Dave & Buster Entertainment (NASDAQ: PLAY) was down 9.7%, and casino stocks MGM Resorts (NYSE: MGM) and Melco Resorts & Entertainment (NASDAQ: MLCO) fell 8.6% and 11.2%, respectively. As of 10:10 a.m. ET, those stocks were down 3.1%, 8.3%, 5.3% and 10.2%, respectively.

Image source: Getty Images.

So what

The news of the day is that a new variant of COVID-19 has been discovered in South Africa that shows the ability to spread rapidly. Much remains to be learned about the variant, but initial information from the World Health Organization is worrying to say the least.

In previous variants of the coronavirus, there was a tangible impact on companies, especially in the entertainment industry. In the spring of 2020, businesses around the world were closed, including theaters, restaurants and casinos. The delta variant did not bring the same level of downtime, but some restrictions have been put in place in some areas, and there is certainly an impact on consumer behavior. With the all-important holidays now underway, businesses like theaters and restaurants must capitalize on a consumer spending boom before it’s too late.

There may also not be much appetite for another stimulus, which has cost trillions of US dollars over the past 18 months. Stimulus funding led to a rapid economic recovery as vaccines rolled out and COVID-19 cases slowed, but the threat of more cases could face greater resistance to control measures. relaunch this time. This can mean that the economy and entertainment stocks are on their own, which could be costly.

Now what

The big move in the market today is speculative given the early data on this new variant and no real impact on the economy yet. In the United States, where AMC, Dave & Buster’s, and MGM have most of their locations, we’ve also seen less and less of an impact on the economy as cases have increased in recent months. Blockages or restrictions meet more resistance, and customer behavior appears to be less cautious, especially if you watch Las Vegas gambling record right now.

Macau may be a different story, as both local and Chinese restrictions have held back business in the region for almost two years now. More variations likely mean a longer payback horizon, which will hurt how the casinos operate. For Melco Resorts and MGM’s Macau operations, this is not good news.

The market response to this new variant is understandable given the high valuations of many stocks and the potential disruption of a new variant. But keep in mind that the market has reached record highs despite the pandemic, so today may be a hit in the long term trend.

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Travis Hoium owns shares of MGM Resorts International. The Motley Fool recommends Dave & Busters Entertainment. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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