Shares of space pioneer Virgin Galactic (SPCE 11.11%) jumped as much as 17% in trading on Tuesday as the stock market recovered and bond yields fell. At 3:40 p.m. ET shares were still up 9.8% on the day.
Virgin Galactic is a volatile stock, and as a result it tends to magnify the market’s moves, whether they’re positive or negative. The Nasdaq Composite was up over 1% early in trading Tuesday and is currently up 0.7%.
The other big factor driving high-risk stocks is the bond market. Bond yields are dropping in the U.S., with the 10-year government bond yield down 15 basis points to 4.65% today. This has a couple of implications for Virgin Galactic. One is that traders looking at risk may find a high-risk stock like Virgin Galactic more attractive as bond yields fall. The second is that the company will find it easier to raise funds in an environment of lower interest rates.
There’s simply a lot of volatility for Virgin Galactic, and after the stock was falling for months, investors were looking for a day to buy it. Short-sellers may have been caught and helped push the stock even higher. These are day-to-day trading dynamics, but they’re not sustainable long-term.
What Virgin Galactic needs to do now is improve its cash flow and balance sheet in order to invest in the Delta spacecraft that may actually get it to profitability. Until that happens, investors should treat this stock with caution.
Travis Hoium has positions in Virgin Galactic. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.