An infrastructure bill could boost inventory, but investors are downplaying enthusiasm

Lewis Krauskopf and David Randall

NEW YORK (Reuters) – The U.S. government’s plan to upgrade national infrastructure could further boost a stock market stock, but skepticism about a massive spending package moving along political hurdles and the speed of any benefits filtered in the economy diminishes any enthusiasm.

The wealth of companies, including construction, materials, and even technology, could increase revenue from a cost package that could potentially aim to repair roads and bridges, invest in Internet connectivity, and address climate change.

President Joe Biden will travel to Pittsburgh next week to present an infrastructure plan, which could cost as much as $ 4 trillion.

But investors say there are political hurdles to passing the law – especially if it involves raising taxes to fund it – while they expect spending on projects could in some years take years.

“If we come up with a significant package, it would further contribute to the already positive economic recovery we see and the belief that stronger fiscal support to the economy could continue in the coming years,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

But, Baird said, “there is still a long way to go through Congress that is largely divided and that will have significant questions about how to pay for it.”

Biden’s plan is expected to be split between an initial package dealing with traditional transportation projects and another dealing with domestic issues, such as universal preschool, national childcare and free community tuition.

The White House is working to improve its agenda by speeding up the adoption of the $ 1.9 trillion coronavirus relief law, which helped boost the latest stock market boost of about 74% since the March 2020 pandemic fell.

There are signs that stocks are already incorporating optimism into the infrastructure package.

A basket of infrastructure supplies consisting mostly of building materials, machinery and construction and engineering firms has returned 27% since other circles in Georgia gave Democrats full control of the Senate in early January, Goldman Sachs said in a note released Friday. The S&P 500 rose about 5% during that time.

“Shares have started to rise because there is a high probability that infrastructure spending will fall to an end,” said Eric Marshall, portfolio manager at Hodges Capital, which holds shares in Eagle Materials, stocks that earned about 23% this year.

Marshall sees more opportunities in companies that would benefit by building infrastructure for electric vehicles such as charging stations. Among the companies in his portfolio is Cree Inc., which produces silicon substrates used at charging stations.

But some are skeptical that the infrastructure package will easily navigate through Congress, where Biden’s Democratic Party has a small majority.

The key will be whether the package is linked to tax increases, such as the abolition of levies paid by companies, which could also dampen investor excitement over the cost package.

“What could be a problem for markets … is if tax rates increase significantly for corporations,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

Although spending on infrastructure has been portrayed as a problem supported by both the Republican and Democratic parties, President Donald Trump has been unable to push through the package during his term.

Even if it adopted an infrastructure bill, investors said spending would be spread over years, so the benefits for companies may not be immediate.

“Currently, there is a healthy amount of skepticism about the market in terms of how they think about infrastructure,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers. “Even if it’s done, projects ready to shovel, contract issuance … for some of that there’s a significant time lag.”

(Report by Lewis Krauskopf; editing by Megan Davies and Steve Orlofsky)

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