Airline stocks and sector-related exchange traded fund may find clear skies ahead as they head into a seasonally strong period.
The U.S. Global Jets ETF (NYSEArca: JETS), the lone ETF dedicated to airline stocks, has increased 3.8% year-to-date and could be poised to rally in the fourth quarter.
Airline stocks, which have suffered this year on a weakening global economic outlook, have gained momentum this week on a number of positive outlook upgrades from a number of airliners, including American Airlines, Ryanair and easyJet, the Wall Street Journal reports.
Seasonal trends may also be a factor behind the more positive outlook. Since 1990, the average stock market performance of U.S. airlines have increased close to 8% in the fourth quarter, the best three-month period of the year for the sector.
While the broader U.S. market also tend to rally toward the year-end, the winter months may be seen as the start of a yearly turnaround for the industry. Airlines typically experience a poor summer season where earlier gains in the year are more-or-less erased by the end of the third quarter. This peak period is when airlines start to turn a profit, bolstered by holiday travel demand.
Over the past few years, analysts would massively upgrade U.S. airline earnings expectations for the winter period while downgrading them in the summer, according to FactSet data. This may be partially attributed to airline analysts overreacting to bad news during the summer and then realizing that the reactions were overdone when the actual figures come in.
As it stands, airlines are currently viewed in an overly pessimistic view, but the sector is still topping expectations and may not be properly reward for their performance. Consequently, investors may view this segment of the market as a value play that is not being properly appreciated.
For more information on the airline ETF, visit our Airline category.