As fear of inflation subsides and the 10-yr Treasury rate falls, investors are returning to the stock market in droves. The Dow Jones Industrial Average broke 34,000 for the first time and stocks in general are breaking new 52-week highs. I mentioned last week that we’re beginning to see green shoots. This week it got a bit greener.
Among the many signs of an economic recovery, we might look to earnings growth, employment numbers, and production statistics. However, recovery can sometimes be measured in a other ways, including corporate acquisitions, stock buybacks, and dividend increases. We saw all three this week. Microsoft announced it plans on purchasing Nuance Communications, a pioneer in conversational AI, for $20B. This is its largest acquisition since LinkedIn in 2016. Thermo Fisher Scientific announced it is acquiring PPD Inc., a contract research organization, for $17B. Bank of America announced a $25B share buyback program, something we should expect to see from other banks in the near future. And Procter & Gamble, Qualcomm, and Costco each raised their dividends 10%, 5%, and 13% respectively. Like the trees budding, and the flowers blooming, these are signs that spring is here and warmer weather is ahead.
The economic data also points to a strong recovery in the works. March retail sales jumped 10% month-over-month, easily topping estimates. Pointing to the reopening of the economy, sales gained 8.2% excluding autos and gasoline. People are taking those stimulus checks and beginning to spend. Confirming this trend, inflation was reported to have increased 0.6% for the month of March, its biggest increase since August 2012. Analysts expect inflation to peak around 2.5% for the year before subsiding next year. And lastly, Housing starts were up 20% month-over-month and up 37% on an annual basis. The housing boom appears to have more room to run.
In company news, there is one big story that ties in to the theme of economic recovery and expansion. Walmart announced it plans to convert the majority of its hourly employees to full-time in the United States. It says it expects two-thirds of its U.S. hourly workers will be full-time with consistent schedules from week to week by the end of this year. While higher wages are one method to attract potential hires, another is a consistent work week which has been an issue for many employees dealing with childcare needs. This is just one more indication the jobs market is getting tighter. In fact, only 576,000 people filed unemployment claims this past week. We started the year around 900,000 claims a week and it has been falling steadily.
In the past six months both Shell and BP have made announcements about investments in green energy. I wondered how long it would be before we heard the same from Chevron or Exxon Mobil. This week Chevron reported it made its first investment in offshore wind. While only a small investment for now, Chevron knows, “offshore wind will play a role in the future energy system, and we know we need to get the cost down. So, we’re looking at breakthrough technologies that will change the game from where we are today,” says Chevron Tech Ventures president Barbara Burger. Royal Dutch Shell also surprised investors by saying it anticipates most of its oil and gas reserves will be produced by 2050. It’s a rare admission and implies the company will stop exploring for new opportunities in gas and oil, instead turning its focus to renewable energy.
In closing I have a word of caution. This week two women in Tennessee were busted for trying to use a $1 million bill at a Dollar General store. While I know these times are trying for many, it should be noted the U.S. Department of Treasury has never actually produced a $1 million bill. Making matters a bit murkier, the two women say they were given the money and believed it to be real. Interestingly, the two were not arrested, though the bill was confiscated and put into evidence. I guess the moral of the story is go big or go home. In this case, I suppose it was both. Now you know.
Bruce J. Mason, MBA