After the Federal Reserve’s largest rate hike since 1994, the Dow Jones Industrial Average gained more than 300 points after several days of selling off. The Fed raised its benchmark overnight lending rate, the federal funds rate, by 75 basis points (0.75 percentage points) in an attempt to combat surging inflation, which showed no signs of slowing in May. The federal funds rate now sits within a range of 1.5% and 1.75%.
Furthermore, Fed Chairman Jerome Powell said that he expects the Fed’s rate-setting committee to do another rate hike of 50 or 75 basis points at its meeting in July.
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said at the post-meeting press conference. He added: “We want to see progress. Inflation can’t go down until it flattens out. If we don’t see progress … that could cause us to react. Soon enough, we will be seeing some progress.”
The news may have been priced in, with the Dow still down a whopping 2,160 points over the last five days. While the majority of stocks in the Dow finished higher today, one in particular led the day.
Boeing takes flight
Shares of the aviation and defense company Boeing (NYSE: BA) rose nearly 9.5% today after reports that potential clients in China have been testing out Boeing’s 737 MAX Jets, which are trying to make a comeback in the country.
The Boeing plane model, which has different versions, was on a one-way ticket toward success until two fatal crashes in 2018 and 2019 led the company to pull the model and correct issues. China was the first country to ground the model after the second crash.
Since then, Boeing appears to have corrected issues and the 737 MAX series now starting to gain traction again. Earlier this month, Delta Air Lines (NYSE: DAL) CEO Ed Bastain said the company was trying to reach terms with Boeing on a deal that could see the commercial airline purchase 100 of the 737 MAX 10 Jets.
Chinese regulators have since approved the 737 MAX but the planes have not yet taken flight in China. The China news is big because the country has made up roughly 20% of commercial deliveries by Boeing since 2017. The country is also expected to be one of the big growing players in the aviation industry going forward.
Is Boeing a buy?
While Boeing appears to be headed in the right direction in getting some of its models back into the skies, the company today said it did not have a specific date for when its 737 MAX 10, the largest in the MAX series, would be approved by the Federal Aviation Administration. If the FAA doesn’t grant approval on the MAX 10 by December, Boeing will face new cockpit requirements under a previous law passed by Congress.
Boeing also had close to $58 billion of debt at the end of March of this year, which could continue to strain operating cash flow, although the company still expects to be cash-flow positive this year.
While the China news is good for Boeing, there are still clearly some regulatory issues to sort through, which is why I would rate the stock as a hold for now but not a strong buy.
Also, while investors seemed to shake off the 75 basis-point hike today, they could change course tomorrow after further digesting the news, so watch out for continued volatility in the market this week.