By Jacob Sonenshine
Airline stocks often give investors an opportunity to take large profits by selling. Now is one such window.
The U.S. Global Jets exchange-traded fund, which holds shares of large and small air carriers, has gained 12% to just over $26 since a brief decline that ended Aug. 1.
Since then, the market has breathed a sigh of relief that President Donald Trump's tariffs haven't returned to their April levels, while recent employment and inflation figures have been low enough for investors to expect the Federal Reserve to cut interest rates in September. Together, these factors build the narrative that consumer spending can continue to grow -- a boon for airlines and other stocks that typically see an outsize benefit when the economic outlook improves.
These wider trends have helped the U.S. Global Jets ETF rise 44% since early April, when Trump launched his "Liberation Day" tariffs. The fund is also up more than twofold since its low in the first half of 2020, when the entire stock market reached a bottom amid the pandemic. Travel spending has continuously beat expectations since then.
Now is a reasonable time to take profits: Every time the fund has spiked to the roughly $26 level it's hit multiple times since early 2021, sellers have come in to knock it lower. So expectations for airline demand need to improve more than they already have for those sellers to go away at this level.
Those sellers will probably return because travel spending is notoriously "cyclical" -- it jumps amid economic expansion, then tapers off as the economy slows, which is usually when airline stocks start to falter. The current expansionary cycle started as consumer spending popped in 2021. It has since slowed, with its wind-down recently punctuated by a weakening labor market, so it's more than conceivable that airline stocks could drop soon.
For proof, just look to the past: The ETF didn't launch until 2015, but United Airlines, Delta Air Lines, Alaska Air Group, and JetBlue Airways were in a yearslong rally until 2007. That is when the economy was starting to slow down ahead of the financial crisis. Individual airline stocks were hit hard: United Airlines, for example, dropped more than 90% from its 2007 peak to its 2009 bottom.
While most people aren't likely sitting around predicting another financial crisis, the risk of a recession -- and a down-cycle for airlines -- has climbed. Sure, the Fed is likely to cut rates, and while that may help the economy, the central bank can't blindly go on a cutting binge, given that the inflation rate is still above its target.
That opens the door to sluggish economic growth and travel spending -- which would hit airlines. Aggregate sales for them U.S. Global Jets ETF have spent the last 5 years climbing back to 2019 levels, starting with a 44% spike in 2021. Now, analysts forecast just 7% growth next year, according to FactSet.
Sure, the lower sales growth expectations give airline companies room to surpass them when they report third-quarter financial results in October. But these stocks lack a meaningful catalyst to bring them substantially higher until fourth-quarter earnings reports, when companies usually issue formal year-ahead guidance.
Until then, the market is left to wonder just how much growth will slow down. Selling these stocks now is a smart move.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
September 11, 2025 13:23 ET (17:23 GMT)
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