What happened
The stock market woke up on the right side of the bed Tuesday, and shares of many companies pushed higher. Among those that gained notably were cruise lines, which have faced a number of headwinds as interest rates rose, fear of recession increased, and high oil prices further boosted their expenses. But there was at least a little good news for those companies from the consumer side Tuesday.
Shares of Carnival (CCL 4.92%) were up as much as 7.3% in early trading, Norwegian Cruise Line Holdings (NCLH 4.06%) was up by as much as 7.2%, and Royal Caribbean Cruises (RCL 1.14%) led the way, climbing 8.5%. Shares of the stocks were up 1.8%, 2.7%, and 2.5%, respectively, at 1:30 p.m. ET.
NYSE: CCL
Key Data Points
So what
The market pushed higher Tuesday morning before heading back into the red, with the S&P 500 and the Nasdaq down fractionally in mid-afternoon trading.
But for cruise lines, I think the biggest news was that The Conference Board's index of consumer confidence in the U.S. rose to 108 in September from 103.6 in August. Its six-month outlook reading of 80.3 hit the highest level since February.
NYSE: NCLH
Key Data Points
The job market continues to be strong, wages are increasing, and inflation pressure from gas prices is declining. The market may not be seeing this as positive, given that Federal Reserve continues to raise interest rates, but consumers are telling a different story.
This data is particularly important for cruise lines because it's consumers who control demand, and their willingness to spend impacts the prices companies can charge for cruises. Executives across the industry have said there's strong demand and an improved environment on pricing. Maybe the reason is that consumers are feeling better about their finances right now than investors realize.
The other thing on investors' minds is Hurricane Ian, which is expected to make landfall in Florida over the next day or two. In response, cruise lines have cancelled sailings and changed itineraries. It's not clear what the full impact of the storm will be on that industry specifically, but it doesn't appear that it will be a big issue along the most traveled cruise routes.
NYSE: RCL
Key Data Points
Now what
Volatility seems to be the only thing we can count on from cruise line stocks. These companies' business operations remain in flux, and they face a host of headwinds from factors that are beyond their control, such as oil prices and interest rates.
Rising interest rates will be a particular headache because of the heavy levels of debt the companies took on just to stay afloat through their pandemic shutdowns, but if consumers are willing to spend again on cruises, the impact of that may not be as bad as feared.
I'm still not bullish on cruise line stocks long term, but it will be worth watching what management reports about their demand and pricing in coming quarters. These companies will have to increase their prices to above what they charged pre-pandemic if they're going to reach margins that are not just profitable but also allow them to pay down their debts. But that may be possible in this environment, which offers a small ray of hope for investors in cruise line stocks.
