As the markets reeled, the economically sensitive transportation sector and related exchange traded funds slipped into a correction.
The iShares Transportation Average ETF (IYT), which tracks the Dow Jones Transportation Average Index, declined 7.8% on Thursday and retreated 12.5% since its three-and-a-half-year high on Monday.
Travel stocks, notably those in the airline industry and cruise ships, were among the most heavily hit as a spike in coronavirus cases fueled fears of protracted shutdown measures and a slower return to normal economic activity. According to John’s Hopkins University, the U.S. hit the 2 million-mark for confirmed cases of the coronavirus with 112,000 deaths as of late Wednesday.
The transportation sector, notably the airline sector, which has enjoyed a significant rally in recent weeks, suffered a sharp U-turn in recent sessions as observers warned that the rally on potentially good news on travel demand was not fully supported by fundamental factors.
The U.S. Global Jets ETF (JETS), the lone ETF dedicated to the airline industry, also sank 12.8% on Thursday.
Airline stocks saw a half of their value evaporate in the early days of the pandemic, as travel demand disappeared amidst sweeping lockdown orders to contain the virus and investors were worried about bankruptcies, the Motley Fool reports. While stimulus measures, including $50 billion in government assistance through the CARES Act, helped stabilize the industry, markets are now waiting to see if revenue will return before the cash runs out.
JP Morgan analyst Jamie Baker has warned that he does not believe “the current pace of equity ascent can be potentially maintained for much longer,” pointing to a lack of supporting catalysts and fear that the pent-up summer vacation demand won’t last through the fall.
For example, Delta Air Lines recently warned in a filing that it is seeking to renegotiate debt, a credit-ratings firm warned of “negative implications” on some of the airliner’s balance sheet, Barron’s reports.
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