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Incredibly, the announcement from President Trump of global tariffs at the start of April is now over six weeks behind us. A lot has happened in the stock market since then!
The volatility and whipsaw price action meant that even popular stocks like Rolls-Royce (LSE:RR) weren’t immune to investor sentiment changes. Here’s what an investment in Rolls-Royce shares before everything kicked off would now be worth.
Swings in profit and loss
I’m going to assume the £10k-worth was bought first thing on April 1, the day before all of the tariff news broke. This would have provided a purchase price of 768p. Currently, the stock’s trading at 781p. So this means the investor would be in profit, despite the wild swings during the interim period. It’s a modest 1.7% gain, equating to an unrealised profit of £170 for the investor.
On 4 April, the stock traded down to 606p, marking a sharp decline as the world tried to determine the size of the negative impact that tariffs would have on the company. It’s true that as a global company that trades with the US, Rolls-Royce would have suffered from the tariffs being imposed. The likely disruption to the supply chain was another indirect consequence that would have resulted from the import levies.
At that point, the investor would have been down 21%, less than a week after purchasing the stock. Certainly, it would have needed a long-term mindset in order to ride out the volatility.
Changing times
Since then, the outlook (and share price) has remarkably improved. The new UK/US trade deal and general tariff walkback from the President in the past couple of weeks have flipped things to a more positive light. Earlier Section 232 levies on steel (25%) and aluminium (10%) have been removed under the deal.
Moreover, the company already operates major manufacturing sites in America. This will both satisfy the US market locally and further mitigate any risk of transatlantic duties. As a result, the share price has popped, resulting in it now being higher than it was before the tariff news.
Looking forward, the optimism about a trade deal with China would help to push it even higher. Even though Rolls-Royce specifically doesn’t stand to gain that much, the overall boost to investor sentiment should see them more willing to buy higher-risk growth stocks. Rolls-Royce fits into this category, so could benefit further.
Watch for debt
One risk to a continued rally is that the business still has a high debt load. Despite recent improvements, the company still carries significant legacy debt and pension obligations. If interest rates stay higher for longer, or we get a deterioration in cash flow, it could limit financial flexibility.
Overall, the fact that a £10k investment in Rolls-Royce from the start of April ls now profitable goes a long way to show how investors should aim to look past short-term volatility for the stocks in which they’re interested.
