Earnings season is working out reasonably well for U.S. stocks so far. The S&P 500 set an all-time closing high on Friday, and then posted a 0.56% gain on Monday.
Of course, there’s still work left to do. Key earnings reports from the likes of Apple (NASDAQ:) and Facebook (NASDAQ:) loom. But the fear in the last couple of weeks has been that history would repeat. Stocks plunged at the beginning of last year’s fourth quarter and fell sharply during the heart of last quarter’s earning season.
So far, investors have shrugged off those fears. And there’s some logic to the gains. The U.S. economy, and the U.S. consumer, both remain strong. External risks like the and Brexit persist. But they should be resolved at some point, leaving potential catalysts for more upside in the not-too-distant future.
Of course, this also is the eleventh year of both a bull market and an American economic recovery. A downturn on both fronts, too, should arrive at some point. Valuations have recovered since last year’s sell-off, with cyclical stocks in particular posting huge gains in 2019.
This week’s three big stock charts focus on a sector that highlights the potential risks and rewards of the broader market: the airline industry. Stocks in the space, like the market as a whole, seem cheap enough that the rally can continue. But external pressures create risks both near-term and long-term — just like the rest of the market.
Boeing (NYSE:) quite obviously has risks beyond those facing the rest of the market. The pair of 737 MAX 8 tragedies have weighed on BA stock since March. That said, the first of our three big stock charts still highlights broader market questions. For BA stock itself, however, there’s one pressing question at the moment:
Southwest Airlines (LUV)
Southwest Airlines (NYSE:) is one of those frustrated Boeing customers. In fact, Southwest was the world’s largest operator of the 737 MAX 8. The grounding has created significant costs, including some $210 million in the third quarter alone. Those costs will continue for several more months: the company already has from its schedule through February.
But thanks to , investors are starting to look ahead for LUV stock. Shares now have bounced 20% from August lows, and the second of our big stock charts shows more potential upside ahead:
- From a longer-term perspective, there’s still reason for upside here. February highs at $59 offer the next level of resistance, but Southwest Airlines stock still sits well below past highs. There’s little reason at the moment to believe that LUV stock can challenge late 2017 peaks above $65.
- Fundamental arguments buttress that case. Competition in the U.S. airline industry finally seems rational, to the point that Berkshire Hathaway (NYSE:,NYSE:BRK.B) and bought airline stocks. That includes Southwest, which has sparked rumors that Berkshire might actually buy the entire company.
Delta Air Lines (DAL)
For Delta Air Lines (NYSE:), the broad case seems similar to that of LUV stock. DAL stock in fact is even cheaper, at 8x forward earnings. Delta has a bigger international business, which should give it more exposure to developing markets. Rational U.S. competition should be a benefit as well.
But both technically and fundamentally, DAL looks potential weaker at the moment:
As of this writing, Vince Martin has no positions in any securities mentioned.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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