The stock market's recent advance has impressed investors, and the Nasdaq Composite (NASDAQINDEX:^COMP) has been especially remarkable. A strong bounce from lows following the COVID-19 outbreak sent the index to record highs. Yet new concerns about whether investors have been too optimistic led to a major reassessment of risk in the financial markets on Thursday, and that sent both the composite index and the Nasdaq 100 index down roughly 5%.

Over the past several months, certain stocks have been more volatile than others, regardless of which direction they're moving. In general, the higher a stock climbs during a bullish move, the harder it falls when the market turns lower. That was especially true among the Nasdaq's leading travel stocks on Thursday, as it now appears that things might not get back to normal anywhere near as quickly as many had hoped as recently as earlier this week.

Beach resort with big white buildings, strip of beach with dozens of people, and boats anchored offshore.

Image source: Getty Images.

Big pain for the travel industry

Nearly every stock in the Nasdaq 100 was lower on Thursday, but some of the biggest downward moves came from companies connected to travel. Consider:

  • Top airlines were hit especially hard, with United Airlines Holdings (NASDAQ:UAL) falling 16% and American Airlines Group (NASDAQ:AAL) suffering a 15% decline.
  • On the hotel front, Marriott International (NASDAQ:MAR) ended lower by 11%.
  • Online travel portals moved sharply lower. Booking Holdings (NASDAQ:BKNG) dropped by 8%, and Expedia Group (NASDAQ:EXPE) took an 11% hit.
  • Beyond Nasdaq, cruise stocks suffered drops of around 15% as well.

The entire economy faces two key problems, and they particularly affect the travel industry. First, the latest report on jobless claims showed huge numbers of Americans still filing for unemployment benefits for the first time, and that's running counter to the idea that businesses are rehiring employees whom they laid off in anticipation of a full restart of the U.S. economy. The Federal Reserve's latest reading on the state of the economy suggested that it could take a lot longer for growth to return than many had expected, and travel could well be one of the last sectors of the economy to rebound fully.

Second, coronavirus concerns are still plaguing the industry. Even though overall numbers in the U.S. have flattened out, trends in many states are still moving higher, showing that containment efforts haven't produced perfect results. Meanwhile, internationally, big surges in case counts in Brazil, Russia, India, and many smaller countries in Latin America served as a reminder that there's still a lot of work to do before investors can put the pandemic behind them.

What a travel recovery will look like

There's little doubt that eventually, the travel industry as a whole will bounce back. People are tired of being stuck in place, and they're looking for any way they can to leave home and go out into the world.

What that means for individual companies, however, is far from clear. Passengers will still want to fly, but they might have to pay a lot more if airlines have to reduce seating capacity for health concerns. Cruise fans still want to take to the seas, but ship operators still have to persuade regulators that their vessels are safe. Hotels and accommodations may face new requirements on cleanliness and sanitation that boost costs and either eat into profits or force them to pass on higher prices to customers, threatening demand.

Stock market investors shouldn't necessarily give up on travel stocks entirely, as some will make it through the pandemic and emerge stronger than ever. But investors do need to take a close look at the fundamentals of their businesses. With the very real possibility that these companies will have to make major shifts to their business models, shareholders who are unprepared for the future could get a nasty surprise.