Plus, manufacturing activity slumped in February, and Costco could see a sales boost from the coronavirus.
Stocks traded higher to start Monday with the Dow gaining 250 points, or 1%. The S&P 500 and Nasdaq both added 0.5% after briefly climbing more than 1%.
Stocks came off their earlier highs at the open this morning after a key gauge of U.S. manufacturing was shown to retreat to near-stagnation in February. The Institute for Supply Management (ISM) slid to 50.1 in February from 50.9 in January, a steeper drop than expected by economists. “Global supply chains are impacting most, if not all, of the manufacturing industry sectors,” said Timothy Fiore, chair of the ISM’s manufacturing survey committee. “Concerns about current and ongoing reliable Asian supply dominated the comments from panelists,” with several mentioning the impact from the coronavirus with one respondent saying the virus outbreak “is wreaking havoc on the electronics industry.”
China’s manufacturing activity also slumped in February, as the coronavirus hit the world’s second largest economy. According to the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) released Monday, Chinese manufacturing slowed to 40.3 last month – the lowest reading since the survey was launched in early 2004. Any reading below 50 indicates contraction. “China’s manufacturing economy was impacted by the epidemic last month,” said Zhengsheng Zhong, chief economist at CEBM Group, a Caixin subsidiary. “The supply and demand sides both weakened, supply chains became stagnant, and there was a big backlog of previous orders.” The Caixin/Markit survey did, however, show improving business confidence with the gauge for future output expectations rising to a five year high. “The only silver lining is that firms are the most convinced in years that future output will rebound,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “That’s perhaps not surprising given how bad current conditions are. [But] with the jump in virus cases overseas, there is a growing risk of a protracted downturn in foreign demand. The likelihood of a quick V-shaped recovery in the coming months is falling fast.”
Cases of the coronavirus have surged to more than 89,100 with total deaths from the virus rising to 3,044. Cases in Iran surged 50% over the weekend to top 1,500, while there are now 4,335 infected with the virus in South Korea. The number of cases in Spain have risen to as many as 120, and the Britain reported four more cases, bringing its total to 40. The U.S. reported its first two deaths from the virus over the weekend, and New York and Rhode Island reported the first cases on the east coast of the U.S. The total number of cases of COVID-19 in the U.S. have risen to 89 as of Monday morning. The new cases have prompted emergency declarations in Washington and Florida on Sunday. Former FDA head Scott Gottlieb also said Sunday that there could be “hundreds or low thousands” of coronavirus cases in the U.S. that haven’t yet been reported with “community spread” underway in at least two, if not four, states.
Costco shares are up 9% at the time of writing as shoppers were seen lined up at the warehouse retailer’s stores across the country over the weekend stocking up on cases of water, paper products, and non-perishable foods in bulk amid the rapidly spreading coronavirus outbreak. Oppenheimer analyst Rupesh Parikh wrote in a note to clients that Costco should see a boost in sales due to the virus. “We expect material comp benefits for Costco,” Parikh wrote. “Our observations and conversations with store employees [and] management suggest a strong pickup in traffic starting Thursday through at least Saturday.”
And Twitter shares are up 8% this morning after news broke that activist investor Elliott Management founder Paul Singer is seeking to replace Jack Dorsey as CEO of the social media company, given that Dorsey’s attention is divided between Twitter and payments company, Square. Pivotal Research Group analyst Michael Levine wrote in a note Monday that he sees a “high” chance of Singer being successful in his bid to replace Dorsey, adding that he’d like to see “more strength on the operating front” by hiring a dedicated COO at Twitter. “Particularly given Jack Dorsey, as impressive as he may be with dual CEO roles, a dedicated COO feels to us like the easiest and most important hole to fix and would have been one of our first recommendations,” Levine wrote. “To the extent efforts to oust Dorsey are successful, having a strong one-two CEO/COO combination could only help to improve a company which we think likely stands to benefit the most from more operational improvements.”
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Verastem Inc (NASDAQ: VSTM): Verastem shares are up 66% over the last two days following the biotech’s announcement that it is going in a new strategic direction to accelerate the advancement of a few of its clinical development programs, focusing its efforts on the development of CH5126766 (VS-6766), its RAF/MEK inhibitor, in combination with defactinib, its focal adhesion kinase (FAK) inhibitor, for the treatment of KRAS mutant solid tumors, and its duvelisib (COPIKTRA®) for the treatment of relapsed or refractory peripheral T-cell lymphoma (PTCL). “With our newly expanded development pipeline and strengthened balance sheet, we believe this new strategic direction will be transformative for Verastem Oncology as we will have the opportunity to rapidly advance the development of the clinical programs that we believe will yield the greatest results for patients, physicians and shareholders,” said Brian Stuglik, Chief Executive Officer of Verastem Oncology. “We are honored to have leading life science investors participate in our recently announced private placement. Verastem Oncology’s mission is centered on improving the lives of cancer patients and we believe our work in collaboration with the scientific community has presented significant opportunity to make further meaningful strides in areas of critical need.”