What happened
Tuesday was supposed to be a good day for cruise stock investors -- but that's not how it's working out anymore.
In early trading, shares of Royal Caribbean (RCL 0.54%) climbed as much as 4.3%, while Carnival (CCL 1.13%) and Norwegian Cruise Line Holdings (NCLH -0.21%) notched gains as high as 5%.
Norwegian itself seems to have been the catalyst for the share price spikes, powering ahead on the strength of positive comments from the company's president, Harry Sommer. But confusing reports on the jobs front appear to be making investors jittery, and as we approach the noonday mark, stocks of Royal Caribbean, Carnival, and Norwegian are all now in the red.
So what
So what's the jobs news that's shaking up the stock market today? The Labor Department just reported that job openings are on the rise, indicating a tight labor market that could fuel wage inflation (and inflation, period) -- leading the Federal Reserve to keep raising interest rates in an attempt to push inflation back down. That's not great news for cruise line stocks carrying massive debt loads, which will incur higher interest costs if rates keep rising.
On the other hand, The Wall Street Journal is reporting that hiring also slowed in July, suggesting wage inflation might not happen. That could be good news for interest rate watchers, but it might also be bad news for companies selling discretionary cruise ship vacations if it means the jobs market is actually cooling and workers will have less disposable income to spend.
So the news is confusing, and it's not surprising to see the stock market is having some difficulty figuring out what to make of it.
Now what
So what's an investor to do in a situation like this? If you can't figure out the macro picture, it might be best to focus on the more micro situation for cruise stocks in particular -- and as it so happens, that may have been what was driving cruise stocks higher earlier in the day.
Quoting Norwegian's Sommer yesterday, travel website TravelPulse noted, "Bookings for 2022 are actually higher than the same weeks in 2019 across all three of our brands." Although Sommer says he's "learned better than to predict the future" over the course of his career, he then proceeded to do just that, saying, "If current trends continue, 2023 will absolutely be a record year" for Norwegian.
And that of course sounds very good for cruise investors, at least from a revenue perspective.
It still remains to be seen how well "record" numbers of cruisers will translate into profits for Norwegian and its peer cruise companies. More revenues are great, but while revenues are rising, so too are fuel costs (from more expensive oil), labor costs (from the tight job market), and of course interest costs on debt. When you get right down to it, the micro picture on cruise stocks is entirely as mixed up and confusing as the macro picture for the economy at large.
And until investors get more clarity about just when cruise stocks will turn profitable again, I doubt we'll see any real sustained stock price gains in the sector.
