Casino Stocks Slump: A Warning Sign for the US Economy?
US stocks have been facing a rough patch lately, and the casino sector seems to be taking the biggest hit. Publicly listed casino owners and operators have witnessed a significant decline in their share prices since the beginning of August. This slump has been so severe that some stocks have entered bear-market territory by dropping over 20%. Leading gambling stocks like Las Vegas Sands and MGM Resorts have suffered the most. Out of the 10 largest-cap gambling stocks in the US, only one has managed to maintain a slight gain. Light & Wonder, a slot machine maker, has seen its shares go up by a mere 0.5%. Unfortunately, casino stocks have performed even worse than the overall market, underperforming the S&P 500.
This downward spiral in casino stocks is believed to be a reflection of Wall Street’s growing concerns about the economy. Despite a promising first seven months of the year, recent releases of key data have rattled investors. Inflation has been on the rise, and the unemployment rate is starting to creep up toward 4%. Adding to the worry is the fact that Americans currently have record-high credit card debt, indicating that many are struggling to make ends meet amidst soaring prices.
The casino industry is particularly sensitive to economic conditions. When people have less disposable income, they are more likely to prioritize essential expenses such as food and housing rather than resort to gambling. Top investor Jim Chanos has even suggested that the Las Vegas strip can serve as an economic indicator. He has observed that spending on gambling slowed down prior to the dot-com crash and the 2008 financial crisis. Based on historical data, highlighting the revenue generated by Las Vegas’ famous hotels and casinos, Chanos argues that it offers insights into the state of the US consumer.
As the third-quarter earnings season approaches, casino operators face a crucial test. Disappointing financial results could further confirm concerns about the economy’s direction, paralleling the decline in gambling stocks. All eyes are on these results, as they may foreshadow challenging times ahead.
