The Consumer Is Cracking. These 2 Airline Stocks Can Handle It, BofA Says.

(Joe Raedle/Getty Images)

Key Points

• The University of Michigan’s consumer sentiment index registered 55.1 in early October, falling short of economist expectations.
• U.S. restaurants saw sales growth slow almost across the board in the past 12 months, according to BofA’s review.
• Share of airlines like Delta and United could benefit from spending strength among the wealthy.

Americans are nervous about the economy, and that concern is weighing on consumer stocks. Investors, however, may be able to sidestep the problems by picking up shares of companies, such as airlines, that cater to the wealthy.

While the stock market may be close to record highs, American consumers have plenty to be anxious about, including lingering inflation, tariffs, and the ongoing government shutdown —not to mention the possibility that artificial intelligence may be coming for their jobs.

The University of Michigan’s consumer sentiment index clocked in at 55.1 for the first two weeks of October, below the expectations of economists tracked by FactSet. The reading wasn’t much better than it was in the summer of 2022 when inflation spiked, or the in early 2010s following the global financial crisis.

The gloom is weighing on many consumer stocks, especially restaurants, according to a report Sunday from BofA Securities. U.S. restaurants saw sales growth slow almost across the board in the past 12 months, according to BofA’s review of credit and debit card data, with Chipotle and Shake Shack hit especially hard. Shares of both companies have each dropped more than 20% in the past three months.

Other stocks have struggled, too. The Consumer Staples Select Sector SPDR ETF has declined 3.7% in the past quarter, the worst performance of any of SPDR’s 11 sector funds that together represent the entire S&P 500. Among the stocks in the fund with double-digit declines in the past quarter are Tylenol maker Kenvue, Colgate-Palmolive , and Target.

What’s more, the softness is likely to persist through the all-important holiday season. Consulting group Bain recently forecast holiday sales growth of around 4% for 2025, and predicts department, electronics, and sporting good stores will see declines, though the company expects growth in personal care and e-commerce. While the 4% forecast does at least call for some growth, it suggests the weakest shopping season since 2019. The 10-year average is 5.2% growth, according to Bain.

There is one bright spot: Not all consumers are oblivious to record stock prices. Well-to-do shoppers, who own the vast majority of U.S. stocks, have been benefitting from a so-called wealth effect, helping lift stocks that cater to this crowd. “Consumer bifurcation across incomes is alive and well,” wrote BoA strategist Savita Subramanian.

Airlines, including Delta Air Lines and United Airlines , may be key beneficiaries. BofA noted that Delta, which reported better-than-expected third-quarter earnings last week, said that its premium revenues grew 9% year-over-year, handily outperforming main cabin revenues.

BofA’s Delta price target of $70 implies an upside of about 17% for the shares, which have already rallied about 4.5% in the past five days. United, which reports earnings on Wednesday, stands to benefit from the same trends.

BofA’s price target for United is $120, implying about 17% upside from Tuesday’s price of $103. The stock could do still better if airline ticket prices—and the broader economy—prove strong.

Write to Ian Salisbury at ian.salisbury@barrons.com