What happened

Shares of cruise line stocks Norwegian Cruise Line Holdings (NCLH -0.49%), Carnival Corporation (CCL -0.34%), and Royal Caribbean (RCL -0.21%) fell in near lockstep Monday morning, down 4.7%, 5.2%, and 5.4%, respectively, as investors succumbed to jitters ahead of the coming Q2 earnings season.

They may be right to be worried.

So what

A whole raft of disturbing economic news is shaking the market today, with Friday's strong jobs report -- which you might think investors would take as good news -- instead being taken as bad news because more workers earning and spending more money puts upward pressure on inflation. Analysts now think that May's moderating 8.6% inflation rate reversed and inched back up to about 8.8% in June -- a number that may or may not be confirmed as early as Wednesday.

If it is confirmed, the resumed rise in inflation will increase the likelihood that the Fed will continue tightening interest rates in order to damp down inflation. And for cruise stocks, which loaded up on billions upon billions in new debt to survive the pandemic, higher interest rates on all that debt will not be good news.

Already, we've seen Carnival Corporation dash hopes for a recovery of profits in Q3, and analysts now predict the company won't return to profitability until halfway through next year. And adding to investor misery, CNBC is reporting that the yield curve seems to have inverted again today, with two-year Treasury bonds now paying slightly more than 10-year Treasuries.  

Now what

As you've probably heard, Wall Street views an inverted yield curve as an early signal of a coming recession, in which economic activity contracts -- making it even harder for debt-laden companies like the cruise stocks to earn a profit. What you may not know is that there's also a widespread joke that inverted yield curves have predicted "10 of the last five recessions" -- so even if the curve did invert again this morning, that's not necessarily the end of the world.  

Granted, with interest rates rising, cruise investors have plenty to worry about even if the economy does manage to sidestep a recession. The good news is that, while bad news dominated Carnival Corporation's earnings report last month, the company also paid down about $600 million in long-term debt and added about $300 million to its cash reserves -- strengthening its balance sheet to help it deal with whatever comes down the pike next.  

For their parts, Royal Caribbean and Norwegian Cruise had about $2 billion and $2.1 billion in cash reserves, respectively, at last report. We'll want to take a close look at those numbers, and how they compare to debt, when these companies, too, report Q2 earnings early next month.

Royal Caribbean reports earnings on August 2, and Norwegian Cruise just a couple days later on August 4.