Cruise, travel services stocks bounce to end a bad week on a brighter note

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Shares of travel services and cruise operators, which have suffered a brutal week as fears over the coronavirus outbreak intensified, are ending the week on a brighter note, which may reflect the start of the bounce off oversold conditions that some Wall Street strategists are expecting.

Shares of online travel company TripAdvisor Inc. TRIP, +4.84%  rose 4.8% after falling 20% over the past four sessions, and Priceline-parent Booking Holdings Inc. BKNG, +2.99%  gained 1.8% after falling 14% week-to-date through Thursday.

Expedia Group Inc.’s stock EXPE, -1.48%  fell 0.8%, but was down as much as 3.5% earlier, after tumbling 22% the past four days.

Among cruise operators, shares of Royal Caribbean Cruises Ltd. RCL, +4.10%  surged 3.5%, Norwegian Cruise Line Holdings Ltd. NCLH, +5.38%  jumped 5.2% and Carnival Corp. CCL, +3.14%  climbed 3.7%, after they tumbled 27%, 26% and 24%, respectively, over the past four days.

The bounce comes despite further selling in the broader stock market on COVID-19 fears, with the S&P 500 index SPX, -1.35%  shedding 1.3% after losing 11% the past four days. The yield on the 10-year Treasury note TMUBMUSD10Y, -6.99%  dropped 14.1 basis points toward a record low close of 1.158%, amid worries that reduced activity related to the coronavirus outbreak will an economic recession. See Market Snapshot and Bond Report.

It also comes despite Vertical Research Partners saying the decline in travel agency ticketing activity accelerated this week, and after Deutsche Bank downgraded Royal and Norwegian, citing “too many unknowns” to continue to recommend buying.

Mike O’Rourke, chief market strategist at financial brokerage JonesTrading, said he believes it may be time for “oversold conditions” to produce a trading bounce, as the market selloff and growing worries about a potential global recession is likely to produce a policy response from the Federal Reserve.

An oversold condition typically occurs after a relatively sharp selloff that exceeds statistical norms.

Although the Fed’s policy setting committee isn’t scheduled to meet until March 17, he said a surprise inter-meeting interest rate cut was “very plausible.”

With that in mind, O’Rourke said the sectors that have been hardest hit by COVID-19 fears, such as travel-related stocks, “are likely to garner the largest bounce” in anticipation and in the aftermath of a Fed move. However, he warned that any Fed-induced bounce will likely create a “pivotal selling opportunity,” as the Fed will be following its pattern of expending its ammunition early.

Don’t miss: Spread of coronavirus lifts odds of a Fed rate cut, as inaction would be ‘tone-deaf.’

See related: Fed’s Bullard says markets ‘overestimating’ likelihood of severe global coronavirus pandemic.

Meanwhile, airline stocks have also been hit relatively hard this week but continued to extend declines. The NYSE Arca Airline Index XAL, -2.87%  , which had tumbled 20% over the past four days, pared earlier losses of as much as 3.2%, but was still down 2.7% in midday trading.

Among the hardest hit stocks this week, American Airlines Group Inc. AAL, -3.96%  dropped 3.0%, JetBlue Airways Corp. JBLU, -1.95%  slid 1.5%, Delta Air Lines Inc. DAL, -3.49%  gave up 2.9% and United Airlines Holdings Inc. UAL, -2.20%  slumped 2.0%.

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