Tariffs in doubt, Musk's pay plan, shutdown flight reductions and more in Morning Squawk

The Supreme Court expressed skepticism over the legality of President Trump's tariffs, potentially signaling a future rollback and prompting a positive market reaction, despite the administration's assertion of alternative authorities. Tesla shareholders are set to vote on a controversial $975 billion pay package for CEO Elon Musk, facing opposition from proxy advisors and a major sovereign wealth fund. Concurrently, a government shutdown-induced air traffic control shortage will lead to a 10% reduction in flight capacity at 40 major airports. In corporate earnings, Snap shares surged nearly 20% on strong Q3 results and an AI partnership, while Pinterest shares plummeted over 20% due to disappointing earnings and weak guidance. Warner Bros. Discovery also missed Q3 expectations and is exploring strategic alternatives, including a potential $23.50 per share acquisition offer from Paramount Skydance.

Analysis

The Supreme Court's apparent skepticism regarding the legality of President Trump's tariffs, particularly concerning the International Emergency Economic Powers Act, suggests a potential future rollback of these levies. This judicial scrutiny, highlighted by concerns from Justices Sotomayor and Gorsuch about executive overreach, led to a positive market reaction on Wednesday, despite the Treasury Secretary's assertion of alternative authorities for imposing duties.

In corporate earnings, Snap (SNAP) shares surged nearly 20% overnight after beating Q3 revenue expectations and announcing a $400 million partnership with Perplexity AI for conversational search integration. Conversely, Pinterest (PINS) experienced its second-worst day, with shares plummeting over 20% following a disappointing earnings report and weak guidance for the current quarter.

Tesla (TSLA) faces a contentious shareholder vote on CEO Elon Musk's $975 billion pay package, with proxy advisors Glass Lewis and ISS, along with Norway's sovereign wealth fund (1.14% stake), recommending rejection. Meanwhile, Warner Bros. Discovery (WBD) missed Q3 top- and bottom-line expectations, reporting an adjusted loss of 6 cents per share and $9.05 billion in revenue, as it evaluates strategic options including a $23.50 per share acquisition offer from Paramount Skydance (PARA).

The ongoing government shutdown is set to significantly impact air travel, with the Transportation Secretary announcing a 10% reduction in flight capacity at 40 major airports, affecting 3,500-4,000 daily flights, starting Friday. This proactive measure, driven by air traffic control staffing shortages, is expected to cause further cancellations and could prolong industry recovery for weeks even after the shutdown concludes.

Key Decisions for Investors

• Monitor Supreme Court tariff rulings for potential broad market and sector-specific impacts, especially on import-reliant industries and consumer goods.
• Evaluate social media holdings (SNAP, PINS) based on Q3 performance and AI integration potential versus guidance, considering the divergent market reactions.
• Assess governance risks and potential M&A catalysts for Tesla (TSLA) and Warner Bros. Discovery (WBD), particularly regarding the shareholder vote and strategic review.
• Consider potential negative impacts on airline and travel-related stocks due to the announced 10% flight capacity reduction and prolonged recovery from the government shutdown.