CPI rose less than expected, but under the hood signs of stagflation lurk. (0:14) iRobot in shutdown mode? (2:11) Spotify pays out record royalties. (4:06)Show NotesNvidia's GTC can't come fast enough Moomoo is an advanced investing trading platform that integrates real-time and comprehensive data with no commission on options trading, stocks or ETFs. New users from Seeking Alpha can exclusively enjoy an 8.1% APY* account opening bonus, up to 15 free stocks, and up to $300 in cash rewards. Terms & Conditions apply, visit moomoo.com for more details.
Chapter 1: Why did the inflation party wrap up early?
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Wednesday, March 12th, and I'm your host, Kim Kahn. Our top story so far. The party was over before it began.
A soft inflation report before the bell brought out stock buyers, but they quickly retreated and gains faded into the open as investors looked under the hood. The February CPI rose 0.2% on the month, lower than the 0.3% consensus, and the 0.5% rise in January. That brought the annual headline rate down to 2.8%. The core CPI rose 0.2% month-on-month versus 0.3% in consensus and 0.4% in January.
The core annual rate cooled to 3.1%, lower than the 3.2% forecast. At first blush, this was a big relief for investors. But as Pantheon Macro pointed out, the figures came in below consensus because of a plunge in airline fares, which won't feed into the core PCE index. That's the Fed's preferred inflation gauge. RSM U.S.
Chief Economist Joseph Brasuelas sees some threatening trends deeper in the data, as inflation in the services sector remains sticky.
Chapter 2: What are the underlying concerns about inflation and stagflation?
As we've recently noted, the combination of slower growth, we think GDP will arrive at 1.5% in the current quarter, and sticky inflation like that observed inside the services sector index creates the conditions for stagnation at best and stagflation at worst, he said. As for Fed forecasts, despite the softer numbers, the odds of a rate cut in June declined, although they're still at 80%.
In the bond market, yields rose with a 10-year back at 4.3%, indicating traders were more worried about a recession than short-term policy moves. Skylar Winan, CIO at Reagan Capital, says even with a weaker CPI, we believe the Federal Reserve is still in wait-and-see mode for at least the next six to eight months.
Chapter 3: How are current market conditions affecting interest rate forecasts?
The tariff-driven stock market correction is unlikely to cause the Fed to cut interest rates sooner, and any rate cuts are likely still to come towards the end of 2025. If this malaise persists for longer than the next few months, we will start to see the consumer and corporations pull back spending and growth will subside.
Only then, perhaps in the fourth quarter of this year, would the Fed step in with a possible rate cut to alleviate market stress. Among active stocks, consumer robot maker iRobot is plunging after the company posted weak Q4 results and issued a going concern warning.
Chapter 4: What challenges is iRobot facing in the current market?
The company issued a stark warning to investors, saying that there can be no assurance that new product launches will be successful due to potential factors, including but not limited to consumer demand, competition, macroeconomic conditions, and tariff policies.
Due to those uncertainties and the implication they may have on the company's financials, iRobot said there is substantial doubt about the company's ability to continue as a going concern for a period of at least 12 months from the date of the issuance of its consolidated 2024 financial statements. Bank of America sees Apple and IBM as the two most defensive names in IT hardware.
As for Apple, analyst Wamsi Mohan said the company grew earnings in the last two downturns. For IBM, the spinoff of Kindrel has better positioned the company to deal with downturns. And Casey's General Stores is rallying post-earnings. Their CEO said inside same-store sales were driven by the prepared food and dispensed beverage category, with hot sandwiches and bakery performing quite well.
Our fuel team did a tremendous job achieving same-store gallon growth of 1.8% while maintaining a solid fuel margin. For 2025, Casey's boosted its outlook for EBITDA to growth of 11% versus prior guidance of 10%. The company is maintaining its prior same-store sales guidance of up 3-5%.
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In other news of note, Spotify said it paid $10 billion in royalties last year, the biggest single-year payout by a company in the history of the music industry, with its yearly payouts to the industry increasing tenfold over the past decade. Nearly 1,500 artists generated over $1 million in royalties from Spotify alone in 2024.
The streaming company added that it paid out nearly $4.5 billion to publishing rights holders, who represent songwriters, over the last two years.
The company says, as more listeners around the globe subscribe to paid streaming services, the industry has seen a tenfold increase in payouts over the past decade, with streaming alone contributing over $28 billion in revenue in 2024, doubling the industry's worth from just a decade ago.
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