What happened

Stocks were solidly higher on Friday, thanks to new data that suggests the economy remains strong, as well as talk of a potential China post-COVID reopening. Both pieces of news are positives for the airlines and their major suppliers, and the sector is outperforming the market as a result.

Shares of Boeing (BA -1.90%) traded up as much as 3% on Friday, while shares of United Airlines Holdings (UAL -4.57%) and American Airlines Group (AAL -1.40%) were up as much as 5% apiece.

So what

After a difficult few years, the airlines are on the upswing, but questions remain about how long the good times can last. Demand for air travel has come soaring back post-pandemic, putting the airlines in a position to begin rebuilding their balance sheets and thinking ahead to new aircraft orders.

The fear now is that inflation, and the Federal Reserve's campaign to keep it under control, will take the steam out of the economy and eat into future demand for plane tickets. The airlines have historically been a cyclical group, meaning they typically do not do well in times of economic distress.

With that in mind, the latest economic data was understandably treated as good news by airline investors. The U.S. economy added 261,000 jobs in October, well ahead of expectations. And the September reading was revised upward. The results suggest that the Fed's efforts to date have not hindered the economy to the point where potential travelers are feeling distress.

There is also talk that China might ease COVID restrictions that have kept large portions of the country on lockdown for weeks at a time over the past year and a half. China is a huge market for large airlines like United and American, as well as an important potential market for Boeing airplanes. The global travel and aerospace businesses are unlikely to fully recover until China normalizes.

For Boeing, which has had a strong week already thanks to encouraging comments by management during the company's annual investor day, the positive economic and China trends are adding to investor confidence that deliveries will hold up and the company will be able to hit its ambitious free cash flow targets.

Now what

Given how difficult the last few years have been for both airline and Boeing investors, you can't blame them for celebrating these positive trends. But there are still a lot of potential headwinds on the horizon.

For one, the Fed is still working to tame inflation. In addition, just because employment is holding up now doesn't mean it will continue to hold up in the months to come. United CEO Scott Kirby is optimistic that post-COVID hybrid work schedules should allow for travel demand to hold up even at times that have historically been slow, and the airline has a good outlook heading into 2023. But it is hard to predict a recession, and even harder to know how a potential recession will impact individual sectors.

China, too, remains a wild card due to rising geopolitical tensions with the U.S., COVID, and the country's hesitance to recertify Boeing's 737 MAX.

For now, long-term investors can take solace in knowing that all evidence suggests that Boeing and the airlines are on the rebound. But given the many unknowns, those going along for the ride should keep their seat belts fastened.