The rebound in travel spending after the pandemic has held up despite rising inflation and signs of a slowing economy, with the number of Americans traveling by air for the Fourth of July holiday expected to surpass previous record from four years ago.

The outlook for the rest of summer months is also bright. A record 256.8 million passengers will fly in the June-August quarter, up 1% from the same period in 2019, industry group Airlines for America estimated.

"Higher stock markets and returns on money market funds could be boosting the spending power of those lucky enough to have such assets," said AJ Bell Investment Director Russ Mould.

The S&P 1500 airlines has jumped 21.3% so far in June, the highest since February 2021 and far ahead of the S&P 500's 5.2% rise.

Delta Air Lines lifted its quarterly profit outlook and forecast upbeat annual earnings this week, while United Airlines CEO said in early June the United States is in a "business recession," but the consumer is "strong."

Raymond James and Bank of America raised their 2023 forecasts for U.S. carriers in their coverage this week to account for a fall in fuel costs at the end of the quarter.

However, Raymond James analyst Savanthi Syth expects air travel demand to moderate in the second half, given the high level of uncertainty and limited visibility into the fall.

Shares of United Airlines and Delta trade 5.2 and 7.0 times forward profit estimates, respectively, well below S&P 500's multiple at 19.1. Despite the discounted valuations, the strong rally has drawn interest from some bearish investors.

"All the travel related names are trading like AI stocks, and they aren't," said Matthew Tuttle, CEO of Tuttle Capital Management, adding that he would be looking for opportunities to short them.

Meanwhile, electric air taxi Joby Aviation surged 58% this week and was set for its best weekly performance after U.S. aviation regulator's nod for flight testing drew individual investors.

Joby was the third most-traded stock by retail investors in Thursday's session, according to J.P. Morgan data.