The stock market pushed higher today as inflation data came in lighter than expected, and interest rates started to come down. There's renewed hope that interest rates won't go so high the economy goes into a deep recession, and this news has helped travel stocks like Carnival (CCL 1.00%) today.
Carnival stock traded as much as 8.3% higher in early trading but closed the day up 5.1%.
The producer price index was released today and was only up 0.2% compared to a 0.4% analyst estimate. This is a reading of wholesale prices, so if it's coming down, it's possible consumer goods inflation won't be as bad as feared in coming months. This could mean interest rates won't need to go as high as feared to stave off inflation, which could inadvertently cause a recession.
Add all of this up and Carnival investors are cheering for two reasons. A recession would be bad for Carnival because cruises are a discretionary purchase, so the hope is that the Fed will slow interest-rate increases before causing a deep recession.
Another benefit could be lower interest rates when it comes time for Carnival to refinance debt. The company has $31.4 billion in debt outstanding, so lower rates would be welcome news.
Once again, the market is looking for any reason to be positive on Carnival stock. But the company has a massive amount of debt and has burned $1.55 billion in cash for operations in the first nine months of the fiscal year. That's not a path to sustainability and is why I'll be staying out of the stock today.