Usual Thanksgiving trade spoiled by pandemic; travel stocks refuse to fly any higher

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Updated: November 26, 2020 12:52 PM

Earlier last week, the US Centers For Disease Control and Prevention (CDC) urged American people to stay put and avoid traveling this holiday season.

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It is the start of the much-awaited holiday season in the western world. With Thanksgiving today and Christmas right around the corner just ahead of the New Year, it is that time of the year when millions pack their bags and travel thousands and thousands of miles to meet their loved ones. This is usually when the travel and leisure stocks start gaining momentum. However, this year, the pandemic is forcing people to sit home and enjoy only virtual family gatherings. This might not be great news for stocks that usually rally from now till the beginning of the next year in hopes of higher travel spending.

Avoiding travel

Earlier last week, the US Centers For Disease Control and Prevention (CDC) urged American people to stay put and avoid traveling this holiday season. The move is aimed at controlling the spread of the pandemic that has wreaked havoc across the globe. This is likely to affect the revenue hospitality firms, aviation stock, and cruise lines.

Historically, the period between the middle of November and the beginning of January helps travel and leisure stocks zoom. Earlier, stocks of Ryanair gained 8% between November 15, 2019 and January 3, 2020. Expedia zoomed 14% during the same time period, Royal Caribbean Cruises jumped 13%, Marriott International surged 10% while Delta Air soared 4%.

Stocks already maxed out?

This year, just ahead of the holiday season, shares of these travel firms have already sky-rocketed. The recent sharp take-off by stocks such as Delta Air, Royal Caribbean Cruises, American Airlines, Marriott International, among others came after Pfizer and Moderna announced the success of their coronavirus vaccine trials. However, with still a long way to go before travel comes back to normalcy, it is only the stock price that has jumped, not the fundamentals.

“The market is discounting an absolutely perfect scenario that hasn’t even occurred yet, which is the idea that a vaccine is going to immunize everybody and we’re all going to go back to travel,” Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC this week. Travel related stocks are now in the overbought region with no immediate relief for them. Shares of Royal Caribbean Cruises have gained 42% since October end, Ryanair gained 30%, Expedia jumped 30%, while Marriott International gained 39%. However, weakness might be emerging in such stocks now with most of them falling more than 2% so far this week.

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