It's uncertain whether the current selling in the stock market will simply be a correction within a bull market or whether it will mark an actual bear market. There is evidence to support both sides. The bulls would point to strong earnings growth and economic data from a nominal perspective that is significant enough to withstand headwinds from inflation and tighter monetary policy. The bears would point to the strongest inflation since the 1980s, an overvalued market, and decelerating economic growth.
Rather than take a side in this argument, investors can choose to focus on investment themes that are disconnected from factors like economic growth, monetary policy, or inflation. The market weakness is an opportunity to buy such themes at a discount and once market conditions normalize, these themes can often see huge rallies. For example, the Great Recession and financial crisis created an opportunity to buy Apple (Nasdaq: AAPL) and other smartphone component makers at a more than 50% discount, while the coronavirus crash was an opportunity to buy EV stocks at a discount.
This time, travel stocks are offering such an opportunity. And, this trend has remained strong despite inflation and rising fuel prices as there is massive pent-up demand for people to travel especially as coronavirus case counts are now more than 90% below their peak from late January. Airlines came out and hiked their Q1 revenue guidance and said that bookings for Q2 and Q3 are at record levels. Hotels also issued similar commentary on their conference calls.
In the first couple of quarters after the pandemic began, e-commerce stocks outperformed for obvious reasons due to a massive surge in demand. Then, retail stocks led the market as shoppers were eager to get back in stores and were hungry to spend with stimulus checks in their pockets and savings at all-time highs.
Now, travel stocks are going to be a beneficiary as people are eager to travel following nearly 2 years of below-average travel volumes. It's likely that travel volumes will be elevated over the next couple of years which means strong revenue growth and pricing power for companies in the travel sector like airlines, online booking sites, and hotels.