President Joe Biden is due to present his infrastructure spending plan on Wednesday, the opening salvo in getting legislation through Congress to fix crumbling roads and bridges.
Strategists at Bank of America led by Savita Subramanian say Wall Street already is starting to price in infrastructure spending that could reach $4 trillion. They say the ratio of the S&P 500’s
market cap to the M2 measure of money supply is an unusually high 1.7, compared with the average of 1.4 since the 2008 financial crisis.
There is also the downside as well, as the market reacts to likely corporate tax hikes and the rise in the 10-year Treasury
that lifts corporate debt expenses. “Infrastructure spending is spread out over years, but a corporate tax hike would hit immediately,” they say.
Industrials and materials will likely be the biggest beneficiaries of an infrastructure bill, along with U.S. small-caps, whose sales are highly correlated to U.S. capital spending cycles, the strategists say.
But which ones? The strategists screened S&P 500 companies, back to 1986, to find the highest sales growth sensitivity to the components of U.S. private nonresidential fixed investment.
For the highest sales sensitivity to nonresidential fixed investment in structures, it is a group led by pipeline owner Kinder Morgan
exchange operator Intercontinental Exchange
oil field equipment operator NOV
stock-exchange owner Nasdaq
and healthcare real-estate investment trust Ventas
For the highest sales sensitivity to technology equipment investment, it is pharmaceutical Incyte
microchip equipment maker Lam Research
electric utility Centerpoint Energy
cloud services company NetApp
and chip equipment maker Applied Materials
The highest sales sensitivity to industrial investment includes some of the same companies: Incyte, biotech Vertex Pharmaceuticals
home-energy technology maker Enphase Energy
and fertilizer maker CF Industries
The highest sales sensitivity to intellectual property investment were network services provider Akamai Technologies
travel services provider Booking Holdings
internet retailer Amazon.com
network equipment maker Juniper Networks
and network services firm F5 Networks
The strategists also looked at companies that would benefit from reshoring, which include paper and packaging firm WestRock
Ventas, CenterPoint Energy, high-tech lender SVB Financial
and natural-gas distributor Duke Energy
Waiting for Pittsburgh
Biden is due to deliver remarks in Pittsburgh on infrastructure spending shortly after trading ends, at 4:20 p.m. Eastern. The White House said what is called The American Jobs Plan will include $2 trillion in spending over 10 years and will be fully paid for with $2 trillion in taxes over 15 years, including by hiking the corporate tax rate to 28%, increasing the global minimum tax on U.S. multinationals and establishing what is…