- Carnival (CCL) might attract increased demand due to revenge traveling.
- In this manner, inflation provides an impetus to vacation but also a headwind.
- Speculators might try their luck, but conservative investors should be cautious.
At the start of the coronavirus pandemic, Carnival (NYSE:CCL) became the posterchild for the devastation caused by the global health crisis, with CCL stock sputtering to a halt as government agencies temporarily cracked down on non-essential activities. However, millions of consumers cooped up in their homes accrued pent-up demand, thus theoretically benefitting the cruise liner industry.
Known as revenge travel, after around two years or so of denied social experiences, people are simply read to reclaim their lives. As the Washington Post detailed in February of this year, declining fears of Covid-19 contributed to a surge in travel intentions. Indeed, a Post op-ed from the summer of 2020 argued that suppressed demand could spring back, sparking a tourism boom.
Of course, that’s welcome news for CCL stock, which has also suffered from macroeconomic conditions, most notably soaring inflation. Naturally, with the declining purchasing power of the U.S. dollar, some households may not want to splurge for a vacation. At the same time, it could also provide a catalyst for Carnival and its ilk.
Here are two ways of looking at the present monetary circumstance.
CCL Stock Might Benefit From a ‘Buy Now’ Mentality
If anybody is wracking their brains during this inflationary cycle, it’s got to be personal finance advisors. Under normal economic conditions, you want to minimize your spending and maximize your savings. Indeed, prior to Covid-19, a common piece of advice was to avoid buying a home at the top of one’s budget.
Primarily, stretching yourself to buy real estate could leave you “house poor,” being unable to adequately address other life needs. Plus, the more you pay for your home, the higher the property taxes will be. Unfortunately, in an inflationary environment, all the prudent rules can get thrown out the window. Therefore, the implicit — and sometimes explicit — advice is to buy a house now because prices won’t decline.
Of course, with the steep nominal prices associated with real estate, that’s a tricky proposition. But taking a vacation? That’s something much more approachable. Now that many consumers are acclimating to the new monetary normal, it’s quite possible that they’ll fork over the money now for a cruise ship vacation. Theoretically, that bodes well for CCL stock.
Currently, government data isn’t just telling us that inflation is high; rather, it’s accelerating, particularly for energy prices. Therefore, it behooves would-be vacationers to book their tickets now, which is a cynical catalyst for CCL stock.
Rising Inflation Usually Isn’t a Good Sign
Although inflationary environments support an acquisitive ethos, this narrative has its limits. For one thing, if the inflation rate significantly outpaces wage growth, then people will necessarily have to mitigate their discretionary cash outflows.
And that’s exactly what’s happening right now, according to a CNBC report earlier this year. Although hourly wages increased by 4.7% in 2021, inflation grew to the point where the average worker suffered a 2.4% pay cut. More than likely, 2022 will be worse unless conditions radically change. Therefore, consumers might not want to be in consumption mode.
Second, companies with large payrolls won’t exactly be in a mood to adjust for the higher prices unless they experience a corresponding lift in revenues. But higher prices tends to close wallets, not open them. Therefore, it’s quite possible that, unless the Federal Reserve and policymakers present a workable solution to the inflation problem, a recession could be the end result.
Of course, in that case, CCL stock would be one of the last investments to benefit as consumers focus on the necessities. Therefore, the inflation argument isn’t clear-cut and dry as one might initially think.
What to Do With CCL Stock
The approach to CCL stock will largely depend on your risk-reward profile. For speculators, it might make sense to throw in some funds toward Carnival shares while keeping the powder keg dry for additional discounted opportunities. Consumers have been tired of Covid-19 for years now. With fears out of the way and discretionary savings accumulated from not commuting as much, the cruise ship industry is appealing on some levels.
On the other hand, too much inflation is never a good outcome — and that might be what we have here. For the Fed to control inflation would likely mean raising the benchmark interest rate above the inflation rate. That might cause a recession. Then again, not doing anything could also cause a recession as consumers balk at soaring prices.
Therefore, the conservative investor may want to wait out for a few weeks at least to determine the broader economic trajectory. Personally, I don’t think there’s a pressing need to buy CCL stock right away.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.