What happened
Shares of Delta (DAL 5.55%), United Airlines (UAL 7.54%), and American Airlines (AAL 7.09%) each surged on Friday, up 5.2%, 6.8%, and 7%, respectively, as of 3:02 p.m. ET.
There wasn’t much in the way of company-specific news today, but virtually all economically sensitive stocks, like airlines, were surging higher today after recession fears had caused a big sell-off over the past week. But there may be more to this than just an oversold bounce, as some macroeconomic data showed inflation expectations may not be as bad as feared.
So what
Ever since the market got June inflation data, as well as results of the preliminary University of Michigan consumer-sentiment readings earlier this month, the market has taken another leg down. That’s because the official Consumer Price Index (CPI) report showed higher-than-expected core inflation, and the University of Michigan survey showed inflation expectations over the next five years ticking up, possibly becoming “un-tethered” to the long-run targets set by the Federal Reserve.
This caused investors to panic that inflation was becoming more entrenched, which would mean the Federal Reserve might have to hike interest rates faster and cause a bigger slowdown or recession to get things under control. Recessions are never good for stocks like airlines, which depend on having capacity as full as possible in order to be profitable.
However, the Michigan consumer survey was just a preliminary report, and the final version came out today, showing long-run expectations of inflation at just 3.1%, down from the 3.3% reading in the preliminary results. Expectations for inflation for the upcoming year ahead was also revised down to 5.3% from the initial reading of 5.4%.
After markets sold off so much based on the preliminary survey earlier this month, the cyclical stocks that sold off especially hard rallied harder in response today, including airlines. Earlier this week, Citi analyst Stephen Trent…