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Why Did Airline Stocks Fall on December 4?

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Dec. 5 2018, Updated 9:39 a.m. ET

Airline stocks fell

Airlines were among the most battered stocks during the broader market sell-off on December 4. All of the major indices including Dow Jones, NASDAQ, and S&P 500 fell more than 3%. Delta’s (DAL) disappointing fourth-quarter outlook also added fuel to the massive fall in airline stocks.

The US Global Jets ETF (JETS), which has over 80% exposure to US airline stocks, fell 4.6% on December 4. Major air carriers had the following declines.

  • American Airlines (AAL) fell 7.5%.
  • Delta fell 5.3%.
  • United Continental (UAL) fell 4.7%.
  • Alaska Air Group (ALK) fell 3.9%.
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What triggered the sell-off?

On December 4 the Dow fell by ~800 points. The massive market sell-off had multiple triggers. First, investors were doubtful about any real deal happening between President Trump and President Jinping regarding trade disputes.

The stock market got another hit after long-term interest rates traded below the short-term rates for the first time since 2017. There were fears among investors about a possible slowdown in the bond market. The scenario where short-term rates trade over long-term rates depicts that bond investors are predicting a possible recession.

Delta’s disappointing fourth-quarter outlook

Delta expects its fourth-quarter revenues (excluding third party refinery sales) to increase ~7.5% from the fourth quarter of 2017. However, the updated revenue outlook is slightly lower than the previous guidance of 8% growth. Delta expects the unit revenue to grow ~3.5% YoY (year-over-year), which is at the lower end of its earlier guidance range of 3%–5% growth.

Delta’s bottom-line guidance was impressive. The company expects its cost control measures and a decline in fuel prices to lead to an expansion in its fourth-quarter pre-tax margin. Delta expects the EPS for the quarter to be at the high end of its previous guidance range of $1.10–$1.30.

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