The “Santa Claus Rally” was hit by the Grinch on Thursday. Dow Jones Industrial Average It fell more than 700 points in the latest data that has investors worried about the next few quarters. Air travel, which has far outpaced the economic downturn so far, has been hit harder by concerns that a weaker economy will reduce demand.
shares of Boeing (BA -3.95%) Shares fell as much as 5.3% on Thursday. United Airlines Holdings (UAL -1.85%) decreased by 4.7%, engine manufacturers general electric (GE -1.46%) 3.3% decrease.
The aviation sector performed very well this year, given the circumstances. During economic downturns, air fares typically become a procrastination expense for leisure and corporate customers, leading to lower demand. But his two-year travel restrictions due to the pandemic are going well so far and should be able to keep things going.
Of course, there is no guarantee that these gains will continue if the economy continues to falter. Stocks plunged Thursday after relatively good economic data showed a strong labor market and faster-than-expected economic growth. The theory among investors is that such numbers could force the Federal Reserve to fight inflation, leading to higher interest rates designed to slow the economy and plunge the economy into recession. There is.
United Airlines is one of the loudest voices of confidence heading into 2023, and its business-focused network is arguably the most vulnerable to corporate exits. . Boeing, on the other hand, is in dire need of solid commercial deliveries over the next few years to generate cash flow and repair its balance sheet, with total debt ballooning by about 400% during the pandemic. If demand recedes, airlines may become more defensive and delay new aircraft deliveries, which could slow Boeing’s recovery.
General Electric was in the midst of a turnaround long before the pandemic hit, but CEO Larry Culp’s plans for 2020 are for a relatively strong aviation division, including a strong engine business. was to be used to fund the restructuring of GE Energy and others. will notice.
Days like Thursday are a reminder of how often markets boomerang with each new data point and why it’s so important not to be too bullish or too bearish based on one headline. increase. The truth is the airline industry, and companies like Boeing and GE that depend on it for their revenues are on the rise post-pandemic. It’s also true that a full business recovery will take time, and there are many pitfalls along the way.
It remains to be seen what the economy will look like in 2023 and what travel demand will be like. Given the uncertainty, expect greater equity volatility in the coming months. For long-term investors looking to navigate short-term turmoil, stocks such as United, Boeing and General Electric appear to be heading in the right direction and should rise over time. But that time frame is likely to be years rather than months, and given the challenges these companies face, other sectors of the economy are likely to recover before aviation.
These stocks, even on the upside, are not for the faint of heart at this point. Those interested in embracing volatility and waiting are advised to fasten their seatbelts and prepare for the turbulence to come.
Lou Whiteman has no positions in any of the stocks mentioned. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.