NEW YORK – Investors will be watching Washington over the next week for clues as to whether a huge rally in stocks of companies that would benefit from President Joe Biden’s proposed $ 1.7 trillion infrastructure plan has more room. to run.
Expectations for Washington spending on bridges, highways and tunnels bolstered so-called value stocks, especially the industrial and materials sectors, both up around 20% this year, ahead of the 12.5% increase for the S&P 500.
Among the top winners are shares in United States Steel Corp, up nearly 200% since the beginning of the year, while shares in steelmaker Nucor Corp have gained about 104%.
Those big gains can leave many industrial and materials stocks vulnerable to liquidation if a large expense bill in Washington doesn’t materialize, said John Mowrey, chief investment officer at NFJ Investment Group, which manages $ 8.2 billion in assets.
“It’s scary how much (the expense bill) is already priced in the market,” he said.
US Transportation Secretary Pete Buttigieg marked June 7 as the date that negotiations with Senate Republicans should have a “clear direction.” If not, he suggested, Senate Democrats could propose a more specific infrastructure bill.
Republican leaders have backed roughly $ 257 billion in new spending, while calling large tax increases to fund construction of roads, bridges, water pipes and other projects not an initiative.
Meanwhile, progressive Democrats warn they would block any bill they deem inappropriate.
Talks continued between Biden and Senator Shelley Capito, the top Republican negotiator.
Mowrey focuses on companies he believes are undervalued and would benefit from a technology-focused infrastructure upgrade, such as cell towers and data centers.
Shares in American Tower Corp, one of Mowrey’s holdings, rose 17% for the year.
Investors have embraced infrastructure stocks at a time when concerns about rising inflation, lingering disruptions in global supply chains from the coronavirus pandemic, and accommodative central bank policies have helped drive up prices of raw materials to multi-year highs.
Investors trying to gauge the inflation threat will keep an eye out for US consumer price data to be released on June 10.
A much stronger-than-expected CPI sparked a sell-off in the market last month, causing infrastructure stocks to tumble, as many were concerned that rising inflation could force the Federal Reserve to start undo the stimulus soon.
Still, exchange-traded funds betting on infrastructure stocks were the only type of thematic ETFs to attract positive net inflows in May, according to data from State Street Corp. Infrastructure ETFs rose 76.1% for the year to May, more than double the performance of other thematic bets such as robotics or digital security.
The utilities sector may have the most to gain in the long run with roughly $ 384 billion in federal spending from Biden’s proposed bill, Wells Fargo noted in an analyst report. However, rising Treasury yields will likely leave the sector unattractive for the next six to 18 months, the firm said.
“The full ramifications of the American Jobs Plan will take several years to develop into growth for utilities,” the firm said.
Investors skeptical that Congress passes an infrastructure bill should focus on areas such as clean energy, auto parts and manufacturing, and farm machinery, which have not made the same progress as companies linked to commodities, said Brian Sponheimer, a portfolio. administrator of the $ 2.4 billion Gabelli Dividend & Income Trust trust fund.
Automotive companies are likely to continue to benefit from above-trend demand through at least 2023, as global semiconductor shortages and a lack of inventory keep supplies low, said Sponheimer, whose position at parts supplier Genuine Parts Co is in the top ten largest holdings of his fund.
If lawmakers cannot reach a bipartisan agreement on infrastructure, “there is reason to think that there are challenges in the supply chain that drive the growth of market pockets through 2022 and 2023,” he said. (Reporting by David Randall; Editing by David Gregorio)