Boeing Shares Likely to Recover After Ethiopia Jet Crash
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whelan at The Wall Street Journal in New York.
How did the Ethiopian Airlines 737 MAX 8 crash affect Boeing stock initially?
The deadly crash of a Boeing 737 in Ethiopia, followed by the grounding of those planes by several countries, caused the company's stock to plummet on Monday. But past instances with Boeing tell us the stock is likely to recover. We'll explain why in a moment. First, these money and market stories you should know.
What broader economic signals and mortgage trends were reported before discussing Boeing?
The 30-year fixed rate mortgage averaged 4.41% on the week of March 7th. That was up six basis points during the week and marked only the second time it has shown a gain in 2019. Meanwhile, the 15-year adjustable rate mortgage averaged 3.83%, also up six basis points. After a pullback in consumer spending in the fourth quarter of last year, consumers only opened their wallets a bit more in January. Retail sales rose 0.2% in January. That points to an overall deceleration in economic growth.
How are consumer spending and inflation expectations shifting in early 2019?
Analysts think that growth will slow in 2019 mostly due to the fiscal stimulus. from the late 2017 tax cuts going away. Plus, tax refunds in 2019 have been smaller than in previous years because of withholding changes made in the tax law. Higher interest rates could also impact spending negatively, as purchasing big-ticket items such as appliances, homes, and vehicles gets more expensive. And expectations about inflation by the public fell in February, specifically inflation one year from now and three years from now. The Journal's economic team says that softer inflation expectations call into question whether future inflation could be even weaker than expected. In the survey by the Federal Reserve, consumers said they're expecting relative price stability for gasoline, rent, and college costs, but they expect a substantial drop in medical costs.
For the most part, inflation expectations have been steady and near target over recent years. That gave officials confidence that inflation would eventually return to the Fed's target of 2%. But weaker readings now suggest inflation may in fact remain below 2%.
Why does history suggest Boeing shares could recover after safety incidents?
And if that's true, It could further reduce the odds the Fed will boost interest rates at all in the coming years.
Investors sold Boeing stock in droves on Monday after Indonesia and China grounded the company's 737 MAX jets following Sunday's deadly Ethiopian Airlines crash. But the journalist heard on the street team says as tragic as the accident was, history tells us the longer term impact of the crash on Boeing. should not be expected to be severe, and columnist John Sindru is on the line with us to discuss. So John, Sunday's crash was the second deadly incident in the past six months involving Boeing's 737 MAX. The other one was the Lion Air crash in Indonesia, but Boeing has been here before involving incidents with its 787 Dreamliner aircraft.
Yes, they were not as tragic to be clear, but they did have back in 2013 a bunch of problems and emergency landings that were caused by, you know, the Dreamliner's faulty lithium-ion batteries. And, you know, the Federal Aviation Administration ended up sort of halting all flights that were using the 787, and the plane spent four months on the ground while Boeing was designing a fix and, you know, waited for the, you know, upgrades to get the green light, and then regulators allowed the airlines to start updating all the all the planes.
What past Boeing and competitor examples illustrate resilience after aviation crises?
And what we learned from that is that, yes, at the beginning, Boeing shares started doing pretty badly. They were lagging the S&P 500 for a couple of months. But as it was clear that nothing else was going on, by the time that the problem was fixed in May of 2013, they had more than made up for the underperformance already. They ended up rising far more than the S&P 500. So the lesson here really is that, you know, these disruptions and even, you know, deadly crashes, which are tragic and sort of, you know, they affect the reputation of the company a bit more, don't really end up mattering that much for, you know, the plane models that are involved.
You say another sign that the impact on Boeing might not be as severe is that shares of its rival Airbus did not rise significantly following the Boeing sell-off on Monday morning.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
How did the Ethiopian Airlines 737 MAX 8 crash affect Boeing stock initially?
0:09–0:27
3
What broader economic signals and mortgage trends were reported before discussing Boeing?
0:27–1:00
4
How are consumer spending and inflation expectations shifting in early 2019?
1:00–2:09
5
Why does history suggest Boeing shares could recover after safety incidents?
2:09–3:39
6
What past Boeing and competitor examples illustrate resilience after aviation crises?
3:39–4:50
7
Could airlines seek compensation or cancel orders if the MAX is grounded?
4:50–5:15
8
What is the overall verdict from John Sindreu on Boeing’s long-term outlook?
5:15–9:02
Speakers
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