While many investors have focused on the performance of travel and leisure companies to measure the reopening of the economy, a lot can also be learned from industrial companies that actually make things, which are used to make the things that people use. in their day to day. it lives. Dow Inc. DOW, + 1.84% reported an adjusted profit that more than doubled on Thursday, driven by a 19% rise in local prices, with gains seen across all business segments.
The company results help put into context the larger-than-expected increases observed in wholesale prices and consumer inflation in March. Art Hogan, chief market strategist at brokerage and asset manager National Holdings Corp., said the price increases are a sign of real and underlying strength in the economy as they reflect a broad surge in demand. “It’s actually happening for the right reasons,” Hogan said. And any resulting spike in inflation is likely to be temporary, Hogan said, as capacity utilization, which was hampered by pandemic-related lockdowns, will “increase” in the coming months to boost supply, helping to boost supply. stabilize prices. That’s basically what Federal Reserve Chairman Jerome Powell has been saying this year, and the reason the Fed hasn’t started to slow economic growth. Read the minutes of the Fed’s January policy setting committee. “When manufacturing shuts down, it’s hard to get it back on track,” Hogan said. “The supply reaction takes longer than the demand function.” As the Freeport-McMoRan CEO explained in the company’s post-earnings conference call with analysts about rising copper prices, according to a FactSet transcript: “You cannot open the valve quickly to add new supply of copper. mine, and when you can do it, it increases volume and demand, which translates into higher prices. ”And Dow Chief Executive James Fitterling said in a call with analysts that it wasn’t just the pandemic that which caused supply constraints. He said winter storm Uri had a “wide-ranging” but temporary impact on supply. In plastics, Fitterling said last year it felt like there was 13 months of demand and only 11 months But that should change, as without Uri’s impact, he expects “supply will be greater than demand for the foreseeable future.” In the past 12 months, Dow shares have risen 90.8% and the actions of Freeport-McMoRan have soared 367.9%, while the SPDR Materials Select Sector XLB exchange-traded fund, + 1.67% has recovered 68.9%. All have outperformed the S&P 500 SPX Index, + 1.09%, which has gained 49.4% over the past year.