Last week’s stock market performance was a wild ride. Stocks rallied after the midterm elections, sold off sharply Thursday, and partially recovered Friday as investors weighed political changes, the continuing-to-evolve AI ecosystem, and ongoing inflation and interest rate concerns. It was a lot to absorb in a few days, and my guess is that it’ll take more than a few days to settle down.
If you’re confused and think maybe you’re on the wrong site, stick with me.
By Friday, the S&P 500 (the index of stocks that is typically used to represent ‘the market’) stood approximately 5.7% below its previous record closing high, the Dow about the same, and the tech-heavy Nasdaq was down nearly 11 percent from its high. Yet all three remain positive for the year. That is to say that there are investors who have made money this year who might still feel considerably less comfortable this week.
I’m writing this on a Monday morning, and by the time you read this, the market may have bounced back or slid even further.
Why do we care about the stock market?
Aside from the fact that I hope all of us prioritize investing, no matter the amount, the stock market’s performance is an indicator that feeds into how travelers think about travel spending. For travel advisors, a client’s paycheck may be unchanged, their vacation days still ready and waiting to be used, and their anniversary approaching, but watching an investment account shrink can change how comfortable they feel saying “yes” to a trip.
When account balances drop five or ten percent—even more perhaps—in a short time, some clients may pull on the purse strings and act a little more cautiously. Even if only subconsciously.
“Let’s wait until things settle down.”
You may hear this from some clients and it is an understandable response.
So how much do stock market declines affect travel spending, and how should we manage our businesses when political and economic uncertainty rise?
The data says that falling stock prices can put real pressure on travel spending. But the relationship is far from automatic.
Economists call one part of this the “wealth effect.” When investments increase in value, households have more financial room to spend and/or are more confident in their future financial prospects. In other words, they feel wealthier. When those investments lose value, some households reduce spending, even if their paychecks have not changed.
Travel is exposed to economic fluctuations because it is discretionary. People can adjust its timing, duration, and cost. A client might postpone a major trip, choose a less expensive room, shorten a stay, or skip a second vacation.
This is more about psychology than economics
Those of you who have been reading my messages for a while know that I often write about sales psychology. There are few applicable situations where psychology outweighs economics more than when it comes to the stock market and the perception of the economy and their impact on travel spend.
The depth and duration of a downturn also matters. Research examining the Great Recession found that households expecting stock market losses to persist reduced spending more than those expecting a recovery. Job losses created another significant pressure on spending. A difficult week in the market and a prolonged downturn accompanied by unemployment are very different situations.
For advisors, the takeaway is that an affluent client can remain financially comfortable while becoming much more cautious about spending. A retiree drawing on investments may experience a market decline differently and more sharply from a working family whose main concern is a next paycheck.
Likewise, in periods where the stock is performing well, but amidst broad concerns about unemployment (job security) or inflation (spending power), the working family may be more cautious than the wealthy retiree who’s living on their investment income. Both deserve a personalized approach that reflects their individual circumstances in the current economic environment.
This is one of the many reasons that I think travel advisors should follow the economy and investments closely.
Does travel spend always mirror the market?
No. Consider 2022. The S&P 500 lost approximately 18 percent, including dividends, while U.S. travel and tourism’s inflation-adjusted direct output increased 21 percent. The key is understanding why. Travel had been recovering from the pandemic, standing as an unusual force strong enough to support growth, even during what was a terrible year for stocks.
With this lesson in mind, our task is to understand which forces are affecting the people we serve.
Political uncertainty adds another layer. Two clients can read the same headline and reach completely different conclusions about their futures. In short, what we think about a given news story can sometimes cause us to project that belief onto other people. Be careful with that, no matter what side you take. Your client list contains people with different finances, priorities, and beliefs. Learn what has actually changed for the person in front of you: why one client is suddenly re-engaged, or why another is suddenly cautious.
Here is how I would put that thinking into practice.
Ask: “Has anything changed in the amount you’re comfortable spending, or are you mainly concerned about committing right now?”
That may feel like a pushy question, but you’ve got to understand what you’re dealing with because the answer leads to different recommendations. A smaller budget calls for a different trip design, whereas uncertainty about committing requires a clear explanation of deposits, payment dates, and cancellation terms.
Understanding a client’s circumstances and respecting that decision will strengthen your relationship in the long run, even if that means pushing a booking back into the future.
2. Protect the purpose of the trip as you adjust the plan.
If cost is the concern, ask which part of the trip matters most. If the goal is spending quality time together, perhaps seven nights in one region works better than ten nights moving among three cities.
If a particular experience is the primary reason for going, preserve it and explore savings elsewhere.
3. Manage your business using what clients actually do.
History is always ready to tell us something if we ask. Analyze your inquiries, the percentage of proposals that become bookings, average booking value, cancellations, and the time clients take to decide. Compare those measures with the same season last year.
If inquiries remain healthy but decisions are slowing down, investigate the hesitation. If clients are consistently reducing budgets, adjust the options you present.
We all know that travel gives meaningful value, which means that travel has lasting relevance.
This week, reach out to five clients with open proposals or who’ve recently postponed plans. Ask what has changed, listen carefully, and agree on a useful next step. Sometimes that will be a booking. Sometimes it will be a revised budget. Others it will just be a date in the future to reconnect.
You cannot give clients certainty about the economy, their finances, the politics, or really anything else. But you sure can give them thoughtful guidance, clear choices, and confidence that there’s someone paying attention to what matters to them.