Shares of the major cruise-line companies fell broadly on Tuesday after an analyst at Morgan Stanley said he expect the space to get hit by weak travel demand.
Carnival, Royal Caribbean Cruises and Norwegian Cruise Line all dropped more than 4 percent and were the worst-performing stocks in the S&P 500. Carnival and Norwegian Cruise Line had their biggest one-day declines since 2016 while Royal Caribbean posted its worst day since April.
Cruise line stocks have been under pressure this year, dropping at least 5 percent.
"We remain relatively cautious on the cruise lines given the high and increasing level of industry supply growth, slowing yield momentum, and weakness in the Caribbean and China," Jamie Rollo of Morgan Stanley wrote in a note Tuesday.
"Globally, the cruise industry orderbook has risen to a record 244k [beds] (45% supply growth to 2025). …So for the industry to maintain, say, 2-3% yield growth, demand would need to grow by 7.5-9.5% annually, which for four consecutive years seems optimistic and is much more than historical levels (6% demand, 1% yield, 5% capacity)," Rollo said.
"Our channel checks show solid booking volumes but at flat prices, and agents cite concerns about the Caribbean and general Q4 demand," the analyst added.
The analyst added that a stronger dollar, coupled with rising fuel costs, led him to cut his earnings per share estimates on Carnival, Royal Caribbean and Norwegian Cruise Line by 11 percent, 3 percent and 5 percent, respectively, for fiscal 2019.
— CNBC's Pippa Stevens contributed to this report.