With airline stocks taking off, a sector-related exchange traded fund is now trading back above its long-term trend line.
The U.S. Global Jets ETF (NYSEArca: JETS), the only available pure-play fund that focuses on the global aviation industry, is trading back above its long-term trend line at the 200-day simple moving average after rising 12.0% since its late June low.
Supporting the recent strength in the airline industry, company projections for the number of passenger seats that are offered have come down, which helped bolster sentiment, reports Amrith Ramkumar for the Wall Street Journal. Investors previously worried about passenger seats offered since airliners flying with too many unsold seats are less profitable and big expansions in capacity could lead to lower ticket prices.
Airline stocks have been weakening on concerns that a rise in passenger capacity would lead to empty seats and the rising fee competition would hurt the industry before the earnings results. The benchmark NYSE Arca Arline Index plunged 20% from its January peak through the late June lows.
Analysts now argue that the dip in capacity projections was enough to allow airline stocks to take flight, despite rising fuel costs that could threaten profitability.
“Sentiment on U.S. airline stocks has recovered somewhat,” Raymond James analysts said in a note to clients.
Furthermore, the transportation sector and the airline industry have been relatively insulated from the trade war concerns. Airline companies revealed favorable second-quarter demand despite protectionism fears that rocked the broader equities market.
While fuel costs are an ongoing concern, oil prices have started to pullback. U.S. crude has decreased 10% from its June multiyear high. Some analysts argue that higher supply from large foreign producers, like Saudi Arabia, could cap oil price gains and potentially diminish fuel costs.
For more information on the airline ETF, visit our Airline category.