Travel stocks climbing higher on a wave of New Year optimism as Apple hits $3tn valuation

Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown shares her thoughts on the current state of the travel stocks market and Apple reaching its record-breaking valuation.

The FTSE 100 has set off on a sprint of New Year optimism, shaking off worries of inflation and concerns about the Chinese property market. Stocks reliant on international travel are powering ahead, with British Airways owner, International  Consolidated Airlines Group rising 7% in early trade.

With yet more indications that Omicron, though highly infectious, does not cause such serious illness, a wave of relief is pushing up companies which have been hit by worries about tighter restrictions.  Informa, the conference organiser is riding higher amid hopes its lucrative face-to- face events business might soon resume with gusto.

Virtual meet ups just haven’t been the cash cow that big conferences provide and it’s expected the wind will be put back into the sails of global events once more. Rolls Royce which is highly dependent on commercial air travel for its core business of manufacturing and maintaining jet engines has also lifted, with shares up 3.4% in early trade. Hopes that more high spending tourists will embark on shopping sprees once the latest Covid shock recedes have helped propel Burberry higher.

The ‘re-opening’ race continued on the FTSE 250 with entertainment and travel companies leading the pack and gaining significant ground. Wizz Air surged by 9% and easyJet also caught a flight higher, rising 7%. There is clearly expectation that bookings will have got a rocket boost from hopes that this latest spike of infection will flatten relatively quickly. With so many people in the short-term being forced to isolate at home, it’s likely many people will be spending the next few weeks browsing travel blogs for inspiration, given there is so much desperation for a holiday around.

Amid expectation of high demand for cabins and sun loungers, shares in cruise company Carnival lifted by more than 8% in early trade and tour company TUI also rose by more than 7%. Respite too came for Cineworld, with shares lifting 5% in early trade. Cinema going may still be well down on pre-pandemic levels but spies and superheroes have provided some effective pain relief, with the latest James Bond and Spider-Man films bringing hordes of movie fans back through the doors despite the restrictions.

Worries about an imminent collapse of the debt laden Chinese property group Evergrande have receded after shares in the company rose after trading resumed in Hong Kong. The company has confirmed that it’s now nursing another severe headache after being ordered to demolish buildings at its iconic Ocean Flower island project on the island of Hainan. However, its statement saying it will continue to communicate with creditors and resolve risks and safeguard the interest of all parties appears to have calmed nerves a little, with indications that there could be fresh offers of repayment up its sleeve and more plans to sell off chunks of the group to raise cash.

OPEC will meet later to decide on a hike on output, but the prospect of more oil washing around hasn’t dented the oil price, instead it’s lifted slightly with the benchmark Brent Crude nudging back up towards $80 a barrel. That’s because the expectation of higher global demand in 2022 is buoying the price and also there are some questions about whether cartel members actually will have the capacity to reach the quotas they have been allocated due to production issues. The edging up of the oil price has helped boost energy giants BP and Shell which were among the biggest risers on the FTSE 100 in early trade.

Apple has become the founder member of the 3 trillion dollar club in New York, before slipping out of the door at the end of the trading day on Monday.  Scooping such a coveted membership, however briefly, shows just how successful the iPhone in particular has been for the tech giant. The share price has scaled a mountain since the product’s launch 15 years ago this month, soaring by 5,800%. All eyes will be on trading later today when US markets open to see if it can hang onto the title for longer and expectations are riding high.

Given the company’s track record and super-strong balance sheet, the bets are on that Apple will keep rolling out new hits, with expectations that virtual reality tech and an electric car will purr into the product line in the years to come. Apple is not immune to the supply chain crisis afflicting the globe and production in the Autumn was hit by global computer chip shortages. But this has clearly been a small bump for the tech giant rather a series of big potholes in the road, because given the high demand for the handsets, sales are unlikely to have been lost, instead pushed into this year instead. Its fourth quarter net sales hit yet another record, rising 28.8% with a stellar performance across sectors and geographies.

Product sales were the driving force, testament to the might of Apple’s brand around the world and its legions of fans should also help it be resilient in a higher inflation environment. While other big ticket items might be left lingering in virtual shopping baskets, Apple’s products are likely to continue to sell well, given their coveted status. The services division although small in comparison to products, is growing and subscription services including Apple TV should be reliable, if the content offered continues to be considered as high quality.  But that needs ongoing high investment given the ongoing streaming wars. Apple needs to keep coming up with new sought after products and services, season after season. It’s pulling that off so far, but given its past success, the bar is set very high and longer term there’s some potential for bruising.