What a roller coaster of a ride it has been since last Wednesday. After an incredibly rough stretch over the last four days of trading, this afternoon, President Donald Trump announced a 90-day pause on higher tariff rates for most countries, implementing a base 10% reciprocal level. However, Trump left tariffs in place on China and boosted them to 124%.
The announcement led to a face-melting rally, with the Dow Jones Industrial Average blasting nearly 3,000 points higher. The S&P 500 rose nearly 10%, while the tech-heavy Nasdaq Composite jumped 12%. Airline stocks joined the party in a big way. Shares of Delta Airlines (DAL 23.41%) rose over 23%, while shares of JetBlue (JBLU 19.03%) and United Airlines (UAL 26.14%) blasted roughly 19% and 26% higher, respectively.
Strong earnings for Delta
President Trump said he would increase the tariff rate on China due to “the lack of respect that China has shown to the World’s Markets.” He also said he decided to implement the pause due to the 75 countries that had reached out to negotiate and because people were “a little bit yippy” and “afraid.” Immediately following the announcement, Goldman Sachs rescinded its call for the U.S. economy to tip into a recession this year.
Arline companies are heavily dependent on the economy because travel demand is largely based on the health of the consumer and the economy. Thus, the stocks had been hit hard, as market strategists and economists predicted the steep tariffs could lead to a slowdown and potentially upend global trade.
That said, the airline stocks had actually been holding up well today after Delta reported first-quarter earnings that came in better than expected. The company reported adjusted earnings per share of $0.46, which beat expectations, while revenue came in line. The company also said it was premature to update its guidance this year, given the uncertainty of tariffs and slowed bookings.
Delta CEO Ed Bastian told CNBC that consumer and corporate confidence had deteriorated meaningfully over the last six weeks, with demand “quite good” in January but then significantly slowed by mid-February.
There wasn’t any meaningful news specifically related to United or JetBlue. Still, the tariff pause and Goldman’s rescinding of its recession call are obviously big deals for two cyclical stocks that have been bludgeoned this year. Also, it’s quite common to see stocks within a sector trade in unison when one of their peers reports a strong quarter.
Good news, but uncertainty remains
Trump’s tariff pause is great news because it shows he’s willing to negotiate with other countries and will likely avoid the previously announced high tariff rates. In a press conference following the pause, Trump also said multiple times that he thinks there will eventually be a deal with China.
That said, the pause isn’t a fix-all for the broader economy, which had been showing signs of a slowdown prior to this recent tariff saga. Even with today’s rally, airline stocks are still down significantly on the year. I’m still not confident just yet about the trajectory of the economy this year, and the tariff negotiations aren’t over, either. A 10% base layer of tariffs could still have a big impact. While the airline stocks trade at cheap multiples, I’m more keen to look at opportunities elsewhere right now.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
