Key Highlights

● Carnival (CCL) closed at $22.14 on Monday, down from $22.25, ahead of its third-quarter report on Tuesday.

● BofA cut its price target on Carnival, citing a surge in costs, with fuel a key concern.

● Royal Caribbean won double upgrades from Deutsche Bank and BofA, with price targets of $299 and $330 respectively.

● Consumer discretionary was among the S&P 500's worst sectors as the 10-year Treasury Yield reached its highest level since 2007.

Carnival (NYSE:CCL), the world's largest cruise operator, edged lower on Monday, September 28, closing at $22.14, down from $22.25 on Friday. The slip was modest compared with the wider market, as the S&P 500, the benchmark index of 500 large US companies, fell 59.72 points to 7,683.69.

A Small Step Back Before the Big Reveal

The main focus for Carnival investors is its upcoming third-quarter report. Carnival is scheduled to report the results on Tuesday, September 29. Ahead of a big report, many investors prefer to wait for the numbers rather than place fresh bets, which can leave a stock drifting with the broader tide.

A Cost Warning from BofA

There was also a cautious note from Wall Street. BofA (NYSE:BAC) cut its price target on Carnival, citing a surge in costs. For cruise lines, costs cover everything from fuel and food to crew wages and port fees, and any jump can quickly eat into profits.

Fuel is especially important. Cruise ships burn enormous amounts of it, and oil prices rose on Monday after President Trump rejected Iran's plan to reopen the Strait of Hormuz. US crude spiked by more than $4 early in the session before settling near $93 a barrel. Higher fuel prices can squeeze margins unless companies can pass them on to passengers.

A Split Verdict Across Cruise Stocks

Carnival's rivals had a mixed day. Royal Caribbean (NYSE:RCL) received a double upgrade: Deutsche Bank (NYSE:DB)'s Chris Woronka raised it to Buy from Hold with a $299 target, and BofA's Andrew Didora upgraded it to Buy from Neutral with a $330 target, calling it a "high quality business." Woronka argued that Royal Caribbean's steep slide since August 5, a period in which the S&P 500 was flat, has left the shares with a considerably more favourable balance of risk and reward.

Norwegian Cruise Line (NYSE:NCLH) finished at $14.31, down from $14.61, and Viking Holdings (NYSE:VIK) also slipped, with no company-specific news, moving instead with their cruise peers and oil prices.

A Tough Backdrop for Travel Stocks

Consumer discretionary, the sector that includes cruise lines, was one of the worst performers in the S&P 500 on Monday. Bond yields surged, with the 10-year Treasury yield reaching its highest level since 2007. Higher rates can weigh on travel spending by squeezing household budgets, and they also raise borrowing costs for companies carrying significant debt.

The Federal Reserve raised rates at its September meeting, and futures now price a majority chance of another hike in October.

Carnival's Numbers Will Test the Cost Warning

Carnival's third-quarter report is the key event. Investors will focus on bookings, pricing, fuel costs and any update to the full-year outlook, all of which will be read in light of BofA's warning about rising costs. The results could also set the tone for Royal Caribbean, Norwegian and Viking.

The macro backdrop matters as well. Conference Board consumer confidence arrives on Tuesday, offering a read on travellers' mood, alongside JOLTS job openings, with PCE Inflation on Wednesday, the ISM Manufacturing survey on Thursday and the September jobs report on Friday. Oil prices and any progress in US-Iran diplomacy will also be critical for fuel-hungry cruise operators.