While the major U.S. equity indices have marched upward in late morning trading, airline stocks have outperformed after Bank of America shared encouraging data about travel sentiment. Major carriers like United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL) and Delta (NYSE:DAL) have all moved up at least 2.5% as of this writing, with the latter leading the charge up 6%.
Bank of America CEO Brian Moynihan provided a sharp contrast to rather pessimistic news about rising inflation and brewing recession fears. “Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels,” Moynihan said. Notably, he pointed out earlier this month that credit and debit spending increased 11% in June.
Further, the banking executive believes that travel sector spending will continue to remain strong. Indeed, other travel securities, such as Carnival (NYSE:CCL) and Royal Caribbean (NYSE:RCL), were both up around 9% during the late-morning hours.
However, real wages – or wages adjusted for the current inflation rate – represent the primary contrasting narrative to the buoyancy in airline stocks. After spiking early in the Covid-19 pandemic, real earnings for fulltime workers slipped nearly 8% between the second quarter of 2020 and Q4 2021.
Will Inflation Take Its Toll on Airline Stocks?
In many ways, airline stocks rising today represents how some Americans benefitted during the pandemic. As the Washington Post noted in July 2020, affluent individuals took advantage of incredibly cheap mortgage rates to expand their real estate portfolio. But one of the backend consequences of those cheap rates is inflation.
Inflation represents an obstacle that impacts anybody using the U.S. dollar. And secondhand sales of the ultra-exclusive Rolex Daytona timepiece may impose a harbinger on airline stocks.
Following a two-year run where luxury watches spiked in value alongside equities, real estate and cryptocurrencies, the iconic Rolex Daytona finally suffered double-digit losses in the resale market. Experts note that the “bling boom” that the wild crypto sector sparked has now come to an end, suggesting that airline stocks may be on a consumer sentiment lag.
In other words, the phenomenon known colloquially as revenge travel — or pent-up demand for experiences after two years of shutdowns — has sparked incredible momentum for airline stocks and other travel-related securities. However, as the Daytona demonstrated, at some point, inflation does take its toll, even among wealthy consumers.
Why It Matters
No matter how investors decide to interpret the Bank of America news regarding airline stocks, it’s important to realize that Wall Street wagers on what might be, not what is. True, the travel sector currently benefits from surprisingly robust consumer sentiment. However, that may or may not be the case in the months ahead.
If anything, declining sentiment in the luxury retail department demonstrates that inflation – if theoretically left unchecked – will eventually come for all of us.
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.