ISM shows surge in prices and weaker manufacturing activity. (0:15) AbbVie gets into weight-loss game. (2:16) Close, but no cigar for Philip Morris? (3:24)Show NotesGoldman's cheap healthcare picksKroger CEO out for personal conductDomino's joins the stuffed crust sceneEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: Why is stagflation a concern for traders today?
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Monday, March 3rd, and I'm your host, Kim Kahn. Our top story so far, the stagflation specter is spooking traders today, wiping out the risk-on move that was booing stocks and weighing on bonds following the weekend surge in crypto.
Chapter 2: What did the February ISM manufacturing index reveal?
The February ISM manufacturing index brought with it a, quote, whiff of stagflation risk, economist Mohamed El-Aryan said. It fell more than expected to 50.3 from 50.9 in January. That's barely an expansion territory and lower than the 50.6 forecast. New orders fell to 48.6 from 55.1, and the employment component dropped to 47.6 from 50.3.
Chapter 3: How are increased production costs affecting consumers?
At the same time, the prices paid component surged to 62.4 from 54.9. That's the highest level since 2022, and raises questions about the potential for the increased production costs to be passed through to the consumers in the form of higher prices," Hilarion said.
Chapter 4: Why are supplier delivery wait times increasing?
Wells Fargo economists noted that the headline index only avoided falling into contraction territory due to wait time as supplier deliveries shot up to 54.5. This was the broadest indication of wait time since the supply chain disruption year of 2022, they said.
Longer wait times for supplier deliveries are additive because in normal times, such a development is associated with a factory sector that cannot keep up with demand. Since that is not an accurate characterization of what is contributing to wait times today, the expansionary signal from the ISM should, for this month at least, be taken with a massive grain of salt.
Chapter 5: What factors contributed to the ISM index changes from October to January?
Pantheon macroeconomist Oliver Allen says, Some of the earlier increase in the ISM manufacturing index from October to January reflected manufacturers hurrying to complete orders before tariffs are applied, a rush that now seems to be petering out.
The simultaneous market upturn in several measures of investment plans was a positive sign, but intentions seem to be flagging again now in the face of greater uncertainty around trade policy, the Doge cost-cutting drive, and European demand for military hardware. We see the manufacturing sector continuing broadly to stagnate over the next few quarters.
Chapter 6: How is AbbVie entering the obesity treatment market?
The report erased opening equity gains, and the major averages are now all in the red. The 10-year Treasury yield is back to December lows, below 4.2%. Among active stocks, AbbVie has entered into a licensed deal with Danish biotech Goobra AS to develop Goobra's experimental obesity treatment.
Under the terms of the agreement, AbbVie will lead development and commercialization activities of GUB 014295 globally. The partnership marks AbbVie's first foray into the obesity field. Kroger announced that chairman and CEO Rodney McMullen has resigned from the company following a board investigation of his personal conduct that was inconsistent with the company's policy on business ethics.
The grocery store chain said the board was made aware of certain personal conduct by McMullen on February 21st and immediately retained outside independent counsel to conduct an investigation, which was overseen by a special board committee.
While no specifics were given, it was noted that McMullen's conduct was not related to the company's financial performance, operations, or reporting, and it did not involve any Kroger associates. And Domino's Pizza officially announced that it will sell stuffed crust pizza to compete directly with Pizza Hut and Papa John's.
As of Monday, the Domino's $9.99 carryout deal included a Parmesan stuffed crust menu option. Domino's is also declaring this week National Stuffed Crust Week. In other news of note, Philip Morris International may be looking to sell its U.S. cigar business. The cigar business was picked up by Philip Morris as part of the deal to acquire Swedish Match AB in 2023.
Brands include Garcia Vega and White Owl. Sources indicate to Bloomberg that a potential sale is part of the company's strategy to focus on smoke-free products and reduce reliance on traditional tobacco-based products. Currently, Philip Morris is working with advisors to determine buyer interest. A deal price of more than $1 billion is anticipated if a deal happens.
The company said, In 2024, we announced a strategic review of our U.S. cigar business. We have no updates at this time. And in the Wall Street Research Corner, the Goldman Sachs equity team says it continues to recommend investors owning healthcare stocks.
Strategist David Koston says healthcare offers a defensive tilt and trades at historically low valuations despite outperforming the market by 7 percentage points year-to-date. Goldman Screen returned 41 stocks that have outperformed the median S&P 500 stock since February 19th when the S&P peaked.
The median stock in the list trades at a 20% PE discount to the median S&P 500 stock, 15 times versus 19 times. Among the picks are Baxter, Merck, Bristol-Myers, Eli Lilly, J&J, and Medtronic. See all 41 names in our story on Seeking Alpha. That link will be at the top of show notes. That's all for today's Wall Street Lunch. Look for links for stories in the show notes section.
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