The S&P 500 index continues to defy the COVID-19 pandemic. Following a weekend that saw almost 160,000 new cases, the index is up more than 44 points, a 1.4% gain, at 3:45 p.m. EDT on July 6. Today’s market gains are broad, with well over two-thirds of S&P 500 component stocks up on the day.
Today’s biggest S&P 500 gainer is Freeport-McMoRan Inc. (NYSE: FCX), with shares up 9.1% following a business update. Other newsworthy gainers include Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), with its stock up 2.3% after news the company was buying some assets from Dominion Energy (NYSE: D), and less-obvious news driving big gains from Goldman Sachs (NYSE: GS) and Chipotle Mexican Grill (NYSE: CMG).
Warren Buffett finally pulls the trigger. Image source: The Motley Fool.
Buffett fires the elephant gun
Months into the 2020 market crash, legendary investor Warren Buffett finally used some of Berkshire’s $130-plus billion in cash to bag an acquisition. Over the weekend, it was announced that Berkshire was buying almost 8,000 miles in natural gas pipelines from utility company Dominion energy, along with 900 billion cubic feet of natural gas storage assets, and a 25% stake in the Cove Point LNG export facility.
Berkshire is paying Dominion $4 billion and assuming $5.7 billion in debt, valuing the deal at $9.7 billion. The assets will become part of Berkshire Hathaway Energy, the wholly owned subsidiary that will now carry some 18% of all interstate natural gas transmission volume in the U.S.
Berkshire stock is up 2.2% on the deal, a modest gain considering how small this deal is against Berkshire’s massive size. On the other end of the transaction, Dominion Energy investors clearly aren’t happy, sending shares down 10.5% at this writing, even though it will substantially reduce the company’s debt profile and allow it to focus on its core regulated utility business. The key reason for the negativity: Dominion said it would cut its dividend from $3.76 per share to $2.50 per share once the deal closes. Nobody likes a pay cut.
Goldman Sachs: U.S. economy will shrink more than expected
The investment bank already had a pretty weak outlook for the U.S. economy, but as more data comes in, the company’s economists see the prospects of a deeper recession as being greater. In a recent update, chief economist Jan Hatzius pointed to the sharp increase in COVID-19 cases as a likely hindrance to the economic recovery.
As a result of the increased pressure of the resurgence in the deadly disease, Goldman Sachs lowered its outlook for the U.S. economy from a 4.2% contraction to 4.6% contraction. There’s a potential silver lining: If the country can adapt more broadly to safer practices that many other countries have successfully implemented, such as physical distancing, mask-wearing in public, and halting large group gatherings, economic output could return to sustainable growth by September.
Goldman Sachs shares are up almost 5% on the day.
Chipotle sets all-time high (again)
With shares up 6.8% Chipotle’s stock price is pushing toward $1,128. That’s up more than 142% from the 2020 low on March 18, and also an all-time high for the company. Even in the midst of a terrible period for many restaurants, Chipotle’s pivot to digital ordering and scalable business operations has made it a model of how restaurants can survive during this pandemic.
Is $1,200 per share the next stop for Chipotle? At least one analyst thinks so.
Coming up this week: Payroll and business services company Paychex (NASDAQ: PAYX) releases its fiscal fourth-quarter results before trading on Tuesday, and Walgreens Boots Alliance (NASDAQ: WBA) reports earnings Thursday morning.
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Jason Hall owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Chipotle Mexican Grill. The Motley Fool recommends Dominion Energy, Inc and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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