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Delta Air Lines forecasts strong profit, amid travel boom

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Delta Air Lines forecasts a stronger-than expected profit in the fourth quarter as travel demand soars

Delta Air Lines Inc has forecast a stronger-than-expected profit in the fourth quarter. The carrier expects travel demand to remain robust, despite growing risks of an economic recession.

Shares of Delta Air Lines soared more than 5% Thursday morning. The carrier forecast another stronger-than-expected profit in the fourth quarter after a summer travel surge.

The airline said it expects travel demand to stay strong despite growing risks of an economic recession and sharply higher ticket prices.

In an interview with Reuters, CEO Ed Bastian said consumers’ finances were still “quite healthy,” adding: “This demand surge is going … to continue for some time.”

Delta said its third-quarter earnings were impacted by Hurricane Ian, which led to mass flight cancellations last month, but strong travel demand generated the highest quarterly revenue in the company’s history.

Delta airplanes are seen at John F. Kennedy International Airport during the spread of the Omicron coronavirus variant in Queens, New York City, U.S., December 26, 2021. REUTERS/Jeenah Moon

Loosened health restrictions as well as a strong U.S. dollar have encouraged more Americans to travel overseas. Office re-openings are also boosting corporate travel demand.

Delta said corporate bookings, the industry’s cash cow, have increased. Its international passenger revenue has recovered to 97% of 2019 levels.

But growing risks of an economic recession amid high inflation have sparked worries about travel spending. This has hammered airline shares. It also took the focus away from what is shaping up to be the industry’s best earnings performance in three years.

The Federal Reserve is aggressively raising interest rates to tame inflation. They’re lowering demand and slowing economic growth, putting the industry’s pricing power under threat.

Thursday’s consumer price index report from the Labor Department showed that airline fares rose by nearly 43% in September, the fastest rate on record.

Higher ticket prices led to a 23% jump in Delta’s total revenue in the latest quarter.

Report by Chris Dignam.

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Money

U.S. small business confidence hits 3-1/2-year peak

US small business confidence hits 3.5-year high post-election, driven by optimism for economy and hiring plans.

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U.S. small-business confidence reached its highest point in nearly 3-1/2 years in November, according to the National Federation of Independent Business (NFIB).

The NFIB’s Small Business Optimism Index increased by 8.0 points to 101.7, marking the highest level since June 2021.

This surge followed the recent elections, which saw Donald Trump winning the presidential race and the Republican Party gaining control of Congress.

Small business owners, who typically lean Republican, showed increased confidence, a trend anticipated by economists.

Other sentiment surveys also reported improvements in consumer confidence post-election.

Economic improvement

The percentage of small business owners expecting economic improvement rose significantly, indicating a shift in outlook.

More owners believe now is a good time to expand their business, with expectations for higher sales growth increasing. Concerns about inflation slightly lessened, as fewer owners cited it as their primary issue.

Additionally, the uncertainty index for small businesses dropped, reflecting increased stability in economic expectations.

Despite ongoing labor shortages in various sectors, the number of businesses planning to hire rose to the highest level in a year.

Compensation for employees saw an uptick; 32% of owners reported increases, while a notable percentage plans further raises in the coming months.

 

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Money

Inflation report tests stock rally before Fed meeting

**Inflation report next week could impact stock rally; Fed rate cuts anticipated amid strong job growth and resilient economy.**

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An upcoming inflation report will assess the strength of the U.S. stock market rally and influence the Federal Reserve’s rate cut strategy.

The S&P 500 has recorded its third consecutive weekly gain, increasing over 27% year-to-date.

This upward momentum in equities is influenced by expectations of additional Fed interest rate cuts amid a resilient economy.

Friday’s employment report indicated stronger than expected job growth, reinforcing this positive outlook. However, this data is not expected to change the Fed’s rate plans for its upcoming December meeting.

The consumer price index data due on Wednesday may alter this optimistic sentiment if inflation exceeds expectations, posing risks for well-performing stocks.

Experts note that if inflation rates are high, it could create uncertainty for investors before the Fed meeting.

Following the recent jobs report, the probability of the Fed cutting rates has increased, with nearly a 90% chance predicted for a 25 basis point cut.

The consumer price index is expected to rise by 2.7% over the past year.

If CPI results are higher than expected, it might prompt a cautious approach on future cuts, affecting outlooks for 2025.

Additionally, inflation concerns are heightened by the potential introduction of tariffs by President-elect Donald Trump.

Despite these factors, stock prices continue to rise, although there are warning signs of overly optimistic sentiment in the market.

Some analysts maintain a positive view on stocks heading into the year-end, citing a reduction in concerns surrounding the economy and interest rates.

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Stocks on the way to achieve three consecutive years of gains

S&P 500’s strong 2024 raises hopes, but concerns linger over AI sustainability and economic headwinds affecting future gains.

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The S&P 500 has risen 28% in 2024, poised for consecutive annual gains of over 20%.

Major banks forecast more modest returns for 2025, projecting the index reaching 6500, a 6.7% rise from approximately 6090.

Barclays has a more optimistic target of 6600, with Bank of America and Deutsche Bank expecting 6666 and 7000, respectively.

President-elect Donald Trump’s policies are seen as potentially beneficial for stocks, though high interest rates and geopolitical issues pose risks.

Investors remain cautious about the sustainability of the rally.

Economic conditions

Upcoming inflation data will be crucial for assessing economic conditions before the Federal Reserve’s anticipated rate cut in December.

Increasingly, small-cap stocks are joining the rally, with the Russell 2000 index nearing record highs.

More than 220 S&P stocks have hit 52-week highs recently, which indicates broader market strength, making it less susceptible to downturns.

The early market gains were largely driven by major tech stocks, which continue to perform well amid various challenges.

Long-term growth expectations, however, appear dim, with forecasts suggesting limited gains over the next decade.

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