What happened

Investment banker J.P. Morgan predicted "a reasonable, albeit slow, recovery in operations" for cruise lines Carnival Corporation (NYSE:CCL) (NYSE:CUK), Norwegian Cruise Line Holdings (NASDAQ:NCLH), and Royal Caribbean (NYSE:RCL) last week, but said shares would "remain choppy and range-bound until investors receive more clarity" on such data points as, well, precisely when the CDC will permit cruise lines to resume cruising.  

And they were half right -- maybe more than half.

Today, on a no-news day for the cruise industry, shares of Carnival, Norwegian Cruise, and Royal Caribbean stock are busting out all over, each up more than 10% in early trading. By 10:45 a.m., each cruise line stock had given up some of its gains, but Carnival is still hanging onto a 7% profit for the day, Norwegian's up 7.5%, and Royal Caribbean, 5%.  

Cruise ship at sea

Image source: Getty Images.

So what

What exactly is going on here? Let me first eliminate the obvious suspects:

There have been no analyst upgrades, nor price target changes, from Wall Street's analysts on any of these three stocks today. Nor have Carnival, Norwegian, or Royal Caribbean issued any updates on their operations. The CDC has given no more clarity on when cruisers can resume cruising: We're still looking at a July 24 date for earliest resumption of operations, unless the CDC extends its no-sail order again.

What news we do have is more macro in nature. In England, clinical researchers are having some success treating COVID-19 patients with low doses of a common steroid injection known as dexamethasone to reduce inflammation that can interfere with breathing. They're finding that the steroid improves survival rates of patients on ventilators or taking supplemental oxygen, but doesn't otherwise improve outcomes for patients with less severe symptoms of COVID-19.  

Still, any treatment is better than no treatment, and this news from the UK is a positive for consumer-facing businesses such as the cruise lines.

Meanwhile, in other news, Marketwatch reports today that President Donald Trump is pushing a $1 trillion infrastructure spending plan to stimulate the economy. On the one hand, that should have no direct effect on the cruise industry whatsoever. On the other hand, though, pushing more money into the economy means some of that money will eventually trickle into the pockets of discretionary consumers who might spend it on pleasure cruises.  

Now what

Long story short, I see no particular reason to get excited about cruise stocks today. This is still a heavily indebted industry ($7.5 billion in net debt at Norwegian at last report, $13 billion at Royal Caribbean, and $13.1 billion at Carnival).

It's an industry that was once pretty profitable, but one that is losing money today. It's an industry certain to keep on losing money for as long as the CDC keeps cruise ships locked in port, and one probably destined to lose money for some time thereafter, as cruise lines struggle first to convince tourists that it's safe to board their boats, and then must find a way to survive on 50% or less occupancy rates in order to promote social distancing for a while.

In last week's report, J.P. Morgan said it doesn't see cruise lines returning to 100% occupancy rates before 2022. Can the cruise lines survive an industrywide recession that lasts that long? Investors are voting "yes" with their wallets today, but I have my doubts.