Wall Street Lunch: Inflation Eases But Warning Signs Lurk

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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)

This is an abridged transcript of the podcast:

Our top story so far, 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 2.8%.

The core CPI rose +0.2% M/M vs. +0.3% consensus and +0.4% in January. The core annual rate cooled to 3.1%, compared with the 3.2% forecast.

At first blush that 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 US Chief Economist, Joseph Brusuelas, sees some threatening trends deeper in the data as inflation in the services sector remains sticky.

“As we have 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 service 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 still are at 80%). In the bond market, yields rose, with the 10-year (US10Y) back at 4.3%, indicating traders were more worried about a recession than short-term policy moves.

Skyler Weinand, CIO at Regan Capital, says “Even with a weaker CPI, we believe the Federal Reserve is still in wait and see mode for at least the next 6–8 months.”

“The tariff-driven stock market correction is unlikely to cause the Fed to cut interest rates sooner, and any rate cuts are likely to still 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 (IRBT) is plunging after the company posted weak Q4 results and issued a going concern warning.

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 (AAPL) and IBM (IBM) as the two most “defensive names” in IT hardware.

Regarding Apple, analyst Wamsi Mohan said the company grew earnings in the last two downturns. For IBM, the spinoff of Kyndryl (KD) has better positioned the company to deal with downturns.

Meanwhile, Casey’s General Stores (CASY) is rallying post-earnings.

CEO Darren Rebelez says: “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 2025 outlook to an increase in EBITDA of approximately 11% versus prior guidance of +10%. The company is maintaining its prior same-store sales guidance of up 3% to up 5%.

In other news of note, Spotify (SPOT) 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 $28B in revenue in 2024 – doubling the industry’s worth from just a decade ago.”

And in the Wall Street Research Corner, Wells Fargo says the sharp decline in Nvidia (NVDA) shares in recent weeks is a “buying opportunity” ahead of the company’s annual GTC event.

Analyst Aaron Rakers, says over the past five years, Nvidia shares have outperformed the SOX (SOXX) semiconductor by an average of 7 percentage points and 2.4 percentage points during the week of GTC and 2 weeks after GTC. The average return has been 6.4% and 4.5%, respectively. Shares are currently trading at roughly a 35% discount to the median earnings multiple over the past three years.

Rakers, who has an Overweight and $185 price target on the stock, is expecting five topics to be discussed at the event, including co-package optics, for which he said “there is a lot of investor focus” on where Nvidia stands.

Other key topics include the introduction of Blackwell Ultra (GB300), which is expected to have an emphasis on inferencing.

“NVDA has already pointed to the GB300 ship commencing in the 3Q25 timeframe; mgmt commentary recently highlighting confidence in the company’s ramp expectations amid questions related to the initial delayed shipments that occurred during the initial Blackwell GB200 ship challenges,” Rakers added.

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