What happened

As always, Wall Street is a battle between fear and greed. A day after fears about the coronavirus delta variant caused airline stocks to tumble, bargain hunters have stepped in looking for opportunities, causing the shares to rally higher.

JetBlue Airways (NASDAQ:JBLU) led the way on Tuesday, up as much as 6.8%, while American Airlines Group (NASDAQ:AAL), United Airlines Holdings (NASDAQ:UAL), Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), and Spirit Airlines (NYSE:SAVE) each gained 5% or more.

A plane rising above the clouds.

Image source: Getty Images.

So what

Airline investors have had to buckle up and ride through a lot of turbulence over the past year-plus. The pandemic's initial surge caused equities to plummet and raised fears about solvency, but the industry survived and rallied into 2021 as vaccine deployment picked up pace and pent-up demand for vacations caused sales to rebound.

We've been on the downswing of late, however, as investors fret about a resurgence in COVID-19 cases and look ahead to an uncertain fall travel season once summer vacations are in the past. Airline shares fell more than the market on Monday, a brutal day for equities, on reports that a growing number of cases could lead to new travel restrictions or border closings.

But a day later, markets are back in rally mode and the airlines are going along for the ride. A number of Wall Street analysts who cover the airlines put out notes downplaying the risk of new restrictions, and the stocks have apparently fallen to levels where investors are willing to take a little more risk. Delta, for example, at its lows Monday was actually down for the year. That's compared to May, when the shares were up more than 20% year to date.

AAL Chart

Airline data by YCharts

Now what

Truth is, more than a year into the pandemic we still aren't entirely sure what we are up against or when it will be behind us. But we have seen enough to have a reasonable amount of confidence that the airlines can weather the storm. The question is how fast a recovery will happen, and how many more bumps we'll have along the way.

Although dramatic swings like the ones that have happened over the last two days (hopefully) will not become the norm, investors should expect some turbulence up ahead. The stocks are going to move on sentiment and the latest headlines about the virus as well as what the pandemic might mean for the economy.

We said back in March that airlines looked overvalued relative to their recovery progress. After the recent sell-off that is no longer the case, and investors who have the stomach for some choppy air and are willing to hold for the long haul will find decent value in industry leaders like Southwest and Delta. Others are likely to take longer than their peers to recover and should be avoided.

If Monday was a brutal reminder that the pandemic still weighs heavily on investor sentiment, Tuesday would be an indication there are still optimists looking for opportunities to buy in.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.