Another piece of positive economic data and another record for the Dow Jones industry average (DJINDIZES: ^ DJI). On August 11 at 2:01 p.m. EDT, the US 30 largest companies index rose 206 points to 35,470, making it well on its way to close at another all-time high today. Today’s surge follows the early morning release of the US Labor Department’s Consumer Price Index summary, which showed a hot economy continues to drive prices higher.
This measure of higher inflation, fueled by a sustained economic recovery, piques investors’ interest in companies that can benefit from these trends. Heavy machinery manufacturer Caterpillar (NYSE: CAT), Retail pharmacy giant Walgreens Boots Alliance (NASDAQ: WBA)and home improvement giant Home depot (NYSE: HD) Equities lead the way at the current time, with gains of 3.4%, 2.5% and 2% respectively.
On the other hand, the shares of the payment giant Visa (NYSE: V) are down more than 1% today, plus many of the technology-centric components of the Dow, including Salesforce.com (NYSE: CRM), also slightly downwards, and Microsoft (NASDAQ: MSFT), with stocks roughly flat today.
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Hot economy, soaring prices make manufacturing and retail stocks rise
According to the latest data, consumer prices were 5.4% higher in July than a year earlier as inventory shortages and strong consumer demand continue to drive prices higher. There were also signs that the rate of inflation is slowing. The CPI – the consumer price index, which measures what consumers pay for goods and services – rose by a seasonally adjusted 0.5% from June to July, compared with 0.9% from May to June.
Caterpillar is recognized as one of the biggest beneficiaries of the rapidly recovering economy, and declining inflation is seen as good news for the company. Despite reports of strong gains in July, Caterpillar stock has fallen recently, in part because rising material costs should weigh on profit margins for the remainder of 2021. If the cost of materials continues to fall, Cat stock could rise significantly.
Walgreens and Home Depot are not as badly hit by inflation as Caterpillar. For Home Depot, the rising price of lumber has gotten a lot of attention, but the stronger trend of consumers spending a lot of money upgrading and modernizing their homes has driven profits soaring. Soaring property prices and the huge demand for them bode well for an ongoing trend of more people spending more money in Home Depot’s 2,200+ stores.
Walgreens is in the middle of a multi-year business improvement and has made significant strides so far. Management has focused on measures to improve operations, including using digital technologies and expanding its online presence. Walgreens is also pursuing a larger competitor strategy CVS health (NYSE: CVS) to become an integrated healthcare company. Part of that plan is to open health centers in many of its stores, an untapped source of future growth to help this dividend aristocrat fund a dividend that, at recent prices, pays 3.8%.
Visa, tech stocks bring up the rear
Fintech giant Visa, along with Salesforce, is two of just a handful of Dow Jones stocks falling today. The Dow Jones’ laggards today are largely its technology-centric components, and in all fairness there is no clear reason their stocks are doing worse. If anything, it’s likely just a product of investors who focus on stocks like Caterpillar and Walgreens and don’t necessarily turn too far away from technology.
Salesforce and Visa stocks are up around 9% so far in 2021, lagging the broader market but still up as investors recognize the strong franchises they own and the fact that a rebounding Economy should also be good for their prospects.
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