Airline Stocks Near Bear-Market Level as Covid Variants Spread

Investors who eagerly piled into reopening plays including airline stocks as the number of travelers grew are getting a harsh reminder that the pandemic remains far from over.

With the delta variant spreading around the globe, the New York Stock Exchange’s ARCA Airline Index plunged as much as 3.2% on Thursday, putting the gauge on the cusp of a 20% correction since its March peak. While the benchmark rebounded in midday trading, investors and analysts say the industry still faces obstacles.

News of the virus’s renewed surge is throwing cold water on reflation trades across markets, especially those reliant on easing pandemic restrictions and a sustained increase in travelers. Most recently, the Tokyo Olympics -- scheduled to begin in two weeks -- banned spectators at events in Japan’s capital, while U.S. Transportation Secretary Pete Buttigieg said America is not yet ready to ease restrictions on international travel.

Airline Stocks Near Bear-Market Level as Covid Variants Spread

“Everyone was so happy to see the vaccination rate increase so fast, but now we have leveled out on the vaccination rate, and this delta variant is causing some problems,” said Chris Gaffney, president of world markets at TIAA Bank. “That hit the airline stocks.”

The Dow Jones Transportation Average dropped 2.9% as of 1:35 p.m. in New York for its largest drawdown since October. United Airlines Holdings Inc. and Delta Air Lines Inc. were both down about 0.5%, while rental-car provider Avis Budget Group Inc. tumbled 4.2%.

“This pullback is generally tied to this concept of maybe the reopening not being as strong, maybe inflation not being as strong,” said Jason Pride, chief investment officer of private wealth at Glenmede. “We’re going to have some setbacks, but whether they are long lasting or not is the key.”

The true impact of the delta variant on markets may depend on its virulence, according to Todd Morgan, chairman of Bel Air Investment Advisers.

“It’s too early to know if this is something that’s going to be a substantial burden or a slowdown to our economy and businesses,” he said. “The market got overbought, had a hell of a run and it’s time probably to rest.”

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