The U.S. economy is strong entering 2019, according to shares of the world’s biggest travel companies.
Despite a broader market that has gone in the tank since October 1 amid fears of a sharp economic growth slowdown and peak earnings, shares of cruise lines, airlines and hotels have been on fire. Norwegian Cruise Line (NCLH) and Carnival Cruise Line (CCL) have surged 20% and 13%, respectively, over the past month.
Norwegian Cruise Line CEO Frank Del Rio told me in August his ships were packed out into 2019, and at higher average daily rates. Apparently Mr. Market forgot that message amidst its fall heart attack.
The gains likely reflect several factors.
Behind the move
A strong start to the holiday shopping season this month has no doubt provided comfort to those on Wall Street worried about the state of the U.S. consumer. Households have come out in force, spending freely online and in stores for everything from pricey big-screen TVs to expensive laptops.
In large part, the spending spree — spurred by healthy wage gains this year and strong consumer confidence — has driven optimism on consumers taking vacations in the months ahead.
“The market seems to be coming back around to the conclusion that the fundamental supports of discretionary spending are healthy. Wages are rising at close to 10-year high levels (3.1% in October), there are more job openings than people to fill them, the housing market is healthy (in spite of rising mortgage rates), and consumer confidence has risen for five of the past six months. That translates into spending, and we got an early glimpse of that over the Thanksgiving shopping days. So yes, I think the performance of discretionary consumer stocks reflects this fundamental support,” Brown Brothers Harriman Chief Investment Strategist Scott Clemons told Yahoo Finance.
Ongoing consumer strength has coincided with a plunge in oil prices. For cruise line companies that count fuel as one of their top expenses, the nosedive in prices acts like a profit windfall. Also helping is that many of these companies have raised prices to compensate for higher oil prices earlier in the year.
The setup could equate to pretty strong results in the next two quarters with oil off 30% from the October peak.
SunTrust Chief Markets Strategist Keith Lerner points out that travel stocks often track the direction of oil prices.
As for more service-oriented travel companies such as Marriott, they are poised to benefit soon as the drop in oil translates to lower prices for consumers at the gas pumps. Thanksgiving weekend travel gave investors a taste of what could lay ahead.
The Transportation Security Administration (TSA) said Tuesday it processed a record 2.729 million travelers on the Sunday after Thanksgiving, which is a key travel day. The previous record was set on the Sunday after Thanksgiving in 2004.
A record 25.7 million people also flew from November 16 through November 26, said the TSA, marking a 6% increased from 2017.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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